Tesla to kill the auto dealership?

[strat81]

Originally Posted By: hattaresguy
Car sales are antiquated, why can't you just say build a truck online and have it shipped right to a GM Store and pick it up the way I can with an Apple computer?

Why do I have to haggle, can't they just set a reasonable list price and that's it.


GM tried that with Saturn and failed. Perhaps one could argue that it was the product and not the distribution model that failed.

Carmax is currently trying it on their used car lots.

Some customers like it, many do not.

 

[wallyuwl]

Originally Posted By: strat81

GM tried that with Saturn and failed. Perhaps one could argue that it was the product and not the distribution model that failed.

Carmax is currently trying it on their used car lots.

Some customers like it, many do not.


No haggle is great if the listed price is fair. You might pay $500 more than someone that is a great haggler, but if you aren't that person, then you can still feel you got a good deal. But a lot of times no haggle pricing really just means a high price they won't negotiate on. A lot of people don't know the difference between a fair deal and one that is not.

 

[apwillard1986]

I actually have long held that the reason folks haggle is that they know there exists a disparity between MSRP and invoice but they don’t know how much the disparity is. A Chevy Cruze LS, a car comparable in markup and market to a Saturn, has an MSRP of $18345. It has a net dealer cost of $17206.20. So, the customer that walks in and pays sticker on the car (rarely happens) is only going to pay $1,138.80 more than the customer that comes in and negotiates so hard and so well as to get the dealer just to break out of the car just to be rid of them. Most customers in my experience just want a fair deal. They appreciate the real world dealer experience of being able to compare and drive multiple vehicles and they are willing to allow the dealer to make a fair profit for providing it.

 

[supton]

apwillard, that is good info. Can I ask a question? How long might a car like that sit there, and cost the dealership? If I understand the process correctly, the dealer has to pay interest on the car that they "own"; and of course they pay taxes on the parking slot that the car holds. And something goes out monthly for advertising. Pre delivery inspection, etc.

$1,138.80 sounds like a lot to dish out for the opportunity to test drive a few vehicles; but I have to wonder if $500 likely isn't a bad number for what it costs a dealer to actually provide that all that. Anything over that is likely a profit.

[Of course the example sounds like a stripper model; a $30k vehicle or higher probably does not cost more than that $500 SWAG I had.]

 

[apwillard1986]

I have thirty Cruzes on my lot 15 of which are the LS. The cars sit an average of 95 days. That is the average for just the 15 LS since that is the segment our example is most closely examining. I am the inventory control manager so I could bore you to tears with all of the intricacies across all of the lines and trims and even options but the average is generally around the 90 day mark regardless of model or trim. Time to turn is one very important aspect of my job because it is generally very important to a dealer as it is easy to sell lots of slow turning cars and go bankrupt for lack of cash to float floor-plan, trade pay-offs, and even cars that are sold and delivered but for which the finance company has yet to send a draft on.

Calculating the exact total cost of keeping a car on the lot is daunting. We pay someone to wash them every other day. We insure them. We fix minor damages and replace various items that seem to go missing off of them. We have a staff that does final inspection and installation of items that cannot be factory installed due to shipping constraints. The interest you are referring to is floor-plan. The manufacture charges the dealer interest on the value of the car. The cars are in essence leased for that value. The manufacture takes dealer net, adds hold-back and advertising and charges interest on that cost at an average of .3%. This is also the amount generally referred to as invoice. It is not net cost but cost as far as the manufacture is concerned. This is where the misconception that dealers have two invoices comes from. There is net cost and invoice cost. I say average because it varies by dealer with various exemptions and such. Advertising is calculated based upon 1 or 2% of pre-destination charge MSRP depending on how active the dealer is in manufactures advertising. Some rural dealers pay none but that is the exception to the rule. Holdback is generally 3% of pre-destination charge MSRP. The Cruze in my example costs my dealer about $63.00 a month in interest. Add to that the floor-plan insurance and other various costs and it comes to just over $200.00 a month on average for a car of this cost. Once the car is sold we cut a check to GM for the net cost and anything over that, minus the monthly cost is profit.

You are correct in that this is a base car. More expensive vehicles do have more disparate costs in relation to MSRP however they are also generally discounted more. The most expensive vehicle I could order from Chevrolet for my lot would have just over $9000.00 in difference between MSRP and Net. With an invoice markup of around $5,700.00 however, we sell a lot more cheap cars than I do $70K+ Suburbans or Corvettes. The average profit on the car in our example is right at $500.00. The average profit our dealer makes per new car sold is ~$1200.00. That is our entire new car sales for the year divided by the number sold. That is before we pay salesmen or managers. That is also before F&I profit or loss but I am limiting this example to the cost of the car in relation to purchase price. Used cars are even more complicated truthfully due to recon and such. We generally recondition to a higher level than do most of our competitors. Most cars get new tires, wipers, etc. We do lots of new windshields and such. The average profit our dealer makes on each used car sold is ~$1400.00. That is our entire used car sales for the year divided by the number sold. That is before we pay salesmen or managers. That is also before F&I profit or loss but again, I am limiting this example to the cost of the car in relation to purchase price. We are a business in business to make profit. It just is not generally as much as people think.

 

[hattaresguy]

Originally Posted By: Ndx
What about service dep. Parts dep.
We have easy access because of the showrooms everywhere ...


Tesla has them as well, they built one in my city. You can also feel and touch the cars their and test drive.

A Tesla showroom feels a lot like an Apple Store.

They also have super chargers that are free for Tesla owners to use.

Ironically its located in an old Saturn dealership...

 

[hattaresguy]

Originally Posted By: demarpaint
Originally Posted By: Garak
People will still want to sit in a vehicle, look at it, feel it, and drive it before purchasing it. Parts and service have already been mentioned.

Tesla should concentrate on getting themselves mainstream before they try to revolutionize the system. They're going to bring the electric vehicle to the masses all the while wiping the "stealership" off the planet? Right.

I agree. I love the idea of buying directly from the mfg. But I doubt Tesla is going to make buying anything but buying a Tesla direct from the mfg. happen.


I have read that Ford is watching it very closely.

 

[JHZR2]

Originally Posted By: wallyuwl
Originally Posted By: strat81

GM tried that with Saturn and failed. Perhaps one could argue that it was the product and not the distribution model that failed.

Carmax is currently trying it on their used car lots.

Some customers like it, many do not.


No haggle is great if the listed price is fair. You might pay $500 more than someone that is a great haggler, but if you aren't that person, then you can still feel you got a good deal. But a lot of times no haggle pricing really just means a high price they won't negotiate on. A lot of people don't know the difference between a fair deal and one that is not.


+1. I dont see no haggle as any sort of value or beneficial pricing. It doesnt necessarily even imply that the price is a good one (or that theyre not willing to go lower in price to make a sale). Its a pricing tactic that makes (some) people think that they are getting a good deal, regardless of if they are or arent.

It would be interesting to look back at Saturn's pricing structure for their sedan, vs the cavalier, escort and corolla at the time, and see if their "no haggle" price and the spread between invoice and that pricing, as a percentage, was any different than any other manufacturer.

 

[PandaBear]

They will likely move more into a bonus based profit sharing with the manufacturer as the prime profit maker. Still will be negotiation around, but internet sales will likely get all the negotiation done before the final quote.

And the variation will likely be something in the 100s instead of 1000s of dollars, and likely more about throwing in extended warranty or maintenance services instead of cash price.

 

[Wolf359]

A couple of other factors missed is that dealers also pay franchise fees. Not sure how high they go, but they could be several million, for manufacturers to get rid of dealers, they'd have to buy out their franchise which wouldn't sit too well with the dealers who have a very strong lobby. Some dealers also have economy of scale where they have multiple dealerships selling different brands in one location, have multiple manufacturers spread out instead would be less efficient.

 

[Garak]

Originally Posted By: JHZR2
The test drive part is a main consideration. Love the idea, perhaps it is more of the AAP parts buying model, buy online and have shipped to a b&m store or buy their wares off the shelf directly.

I strongly agree with making the purchase of a new vehicle easier. The dealer isn't going anywhere, though. When I bought this G, I had never driven one. So, I test drove it before I bought it.

Now, I know what they're like, and if I wanted a new one, I'd have no objection to filling in the option sheet online and going from there. Realistically, such a thing doesn't even have to wipe out the dealer. Dealers would still be a convenient place to pick the thing up, since vehicles aren't going to be shipped by UPS. Some prep is still involved, and the dealer would be free to offer other things for sale. Some people do want undercoating and service packages. Others don't.

Originally Posted By: dlundblad
The biggest thing that annoys me is you need say leather seats for say navigation. One does not simply order cloth seats with navigation.

Aside from your point, that brings out another point. If I'm ordering a vehicle and I have a few interior options (or electronics options), I might like to actually see them before I commit. The cloth might be fantastic, and the leather could look extremely trashy. The nav system or entertainment system might be a nightmare to operate.

 

[pottymouth]

I highly doubt that any major manufacturer has a desire to sell direct to the consumer. They may hope that Tesla puts a little fear into their dealer network, but they need the dealers just as much as the dealers need them.

 

[HTSS_TR]

I bought these cars new:

1984 Honda Accord - No test drive.

1986 Honda Accord - No test drive. Deposited some money without any info other than a picture the dealer had.

1991 Honda Accord - Did a short test drive.

1994 Lexus LS400 - No test drive, drove friend's 1991 copy.

2000 MB E430 - No test drive, not even sit in the car until paid for it. Dealer had E320 and asked if I like to test drive it, I declined.

2004 Honda S2000 - No test drive, never got inside the car until paid for it.

I think most Tesla owners bought their cars without a test drive.

 

[Garak]

Originally Posted By: HTSS_TR
I think most Tesla owners bought their cars without a test drive.

I'm sure that's quite common with such a vehicle. But, when someone is choosing between three or four models from different manufacturers, they're going to want a test drive.

If I want a brand new [insert ultra-luxury or supercar name here], (and had the money) I'd buy it. If I'm trying to choose between grocery getters or minivans, they had better be allowing a test drive.

 

[turtlevette]

Originally Posted By: apwillard1986
The average profit on the car in our example is right at $500.00.

It just is not generally as much as people think.


I really don't want to get into a debate. I just don't believe you.

We always hear dealers poor mouthing.

 

[demarpaint]

Originally Posted By: turtlevette
Originally Posted By: apwillard1986
The average profit on the car in our example is right at $500.00.

It just is not generally as much as people think.


I really don't want to get into a debate. I just don't believe you.

We always hear dealers poor mouthing.



Having worked in car sales I laugh when I hear the poor dealer, or they lose money. The averages for new car sales depending on the brand could be around $500, used cars could be five to six times that, or more. Don't forget the shop, they clean up for a good dealership. Lets just say the owner, GM, and F&I managers can do extremely well in a well run dealership.

If they lose money on a unit it is a rare occasion, very rare. No disrespect intended. A good dealership is a money making machine.

 

[troberts]

...money making machine..... Oh, yes. They can be. A term not heard outside the business, but taught at every seminar I ever attended for Service/Parts management was "Service Absorption," Every manufacturer, every dealer has a goal of achieving a certain percent of total dealership expenses covered by the gross profit from labor and parts. The closer to 100%, the better, because you don't have to sell a single car to break even and every new or used unit or finance package out the door is pure profit. 100% absorbsion IS VERY HARD TO ACHIEVE, but not impossible. The Volvo dealer in a certain large New Mexiso town in the seventies used to average 104%. AND they had a good reputation in the community with lots of repeat business.