Why don't car companies sell their cars online?

[BMWCCA1]

It is against the law in Virginia for Tesla to bypass franchised dealerships . . . and yet they do it and were recently approved to open two or three new locations in the state. The Virginia Dealer Association sued Tesla. Then, I believe Tesla sued the state and could afford better lawyers than the state could. And a state commissioner feared personal suite against him. It has been well documented in the press like this.

[RKT SHP]

I respectfully disagree. I would much rather by a car at invoice (the real invoice), than negotiate down from MSRP. Im most cases it seems as if you would get a better deal buying direct. Going through the dealership, they are forced to raise the prices, as they have to keep the lights on, pay employees, Etc.

I am very much looking forward to a friendly discussion of this with you, as I am curious of your thoughts and views.

Originally Posted by TheWatchGuy

id much rather buy from a dealer than direct from manufacturer, due to the ability to negotiate.

even if i have to waste my time haggling, I know there is a good chance i can negotiate a deal below msrp.

Look at how you buy a Tesla. The price is the price and there is no haggling. are those prices lower than what they would be if there was a dealer? maybe, but probably not.

[540iSUP]

Originally Posted by oVeRdOsE.

That's the one I was talking about!

[Bc2005]

One other reason that the dealership model works is that most franchised auto manufacturer dealers are required to have a shop with the ability to fix the cars they sell. This means they buy the test equipment and tools, and they send their mechanics to the required classes. It doesn’t mean they always do a good job, and it might cost more, but at least you have somewhere to take your car for warranty work or repairs.

My Dad worked for a Ford dealership, and one reason they never considered selling Lincoln vehicles is the cost of tools and training. Lincoln had more fancy electronics gadgets, special suspension, etc., and if you sold it you had to be be able to fix it. Ford/Lincoln just shipped all the required test equipment and tools to the dealer every year - no choice. It wasn’t worth the expense just to sell a few more cars.

[tgrundke]

Originally Posted by RKT SHP

I respectfully disagree. I would much rather by a car at invoice (the real invoice), than negotiate down from MSRP. Im most cases it seems as if you would get a better deal buying direct. Going through the dealership, they are forced to raise the prices, as they have to keep the lights on, pay employees, Etc.

Re-read what I posted on the 1st page: the assumption that you will achieve lower prices is unfortunately misplaced. While it could change, as of now automakers cannot simply "build to order, on demand" like Apple does for an iPhone or MacBook. Because of the economics inherent to running a capital intensive factory, they need the cars built, shipped, and invoiced as soon as possible. Hence one of the big reasons for the dealerships: they become responsible for "floorplanning" the vehicle (carrying the value of the car on their books, including the interest and the insurance in the event of damage/theft/loss). In addition, as you state, the dealership has to staff and support the sale of the vehicle.

If the factory is now directlyresponsible for sales, sales support, after sales support - you're adding significant cost. If the factory now has slower cash churn then prices will go up. In addition, without dealerships competing for your business, you now have a single price...and it sure ain't going to be invoice now that the factory controls the pricing.

Some will say, "Well, I'll just go buy a Mercedes if the BMW direct sales model won't compete on price". And to an extent, that is true. However, Mercedes and BMW and Audi will all essentially find a natural equilibrium where their pricing will be very similar. BMW won't be able to charge a $10,000 premium over a Mercedes of comparable class, so a 3-series and a C-class will all end up being $49,000...or very close therein.

Prior to the current supply chain debacle you could score a significant discount if the dealership in question has the ability to earn big monthly/quarterly/annual incentives from the factory. Under the direct sales model, there will be virtually no incentive for the manufacturer to discount heavily, and in fact, because their costs have increased, they won't.

The net result is that everyone will pay more - so nobody will get a "bad deal". For those of us who don't mind shopping around and want to save money, it's a bad deal. For those who don't like negotiating and are okay spending more, it's a good deal.

[TheWatchGuy]

Originally Posted by RKT SHP

I respectfully disagree. I would much rather by a car at invoice (the real invoice), than negotiate down from MSRP. Im most cases it seems as if you would get a better deal buying direct. Going through the dealership, they are forced to raise the prices, as they have to keep the lights on, pay employees, Etc.

I am very much looking forward to a friendly discussion of this with you, as I am curious of your thoughts and views.

if you think they are going to sell their cars at invoice instead of just cutting the middle man out and selling at MSRP, I have ocean front property in nebraska to sell you.

[RKT SHP]

Again, I have to disagree with both of you. What you are saying would make sense, except for the fact that there are companies out there (Tesla) that are doing exactly what you are saying can't be done. Do you feel that Tesla's business model is destined to fail, simply based off of said business model? This reminds me of a paper that I did back when I was working on my undergraduate on blockbuster video (and please don't take this as an insult, as it is not intended as such), and their business model, and their delay in adjusting to change. Just as it seems that more and more people are leaning towards less contact with other individuals, it is bound to make its way to the automobile market.

Just today, here are a few things that I noticed, that not so long ago would have been unthinkable.

Stopped by walmart to pick up a few things and noticed that they have employees that will actually shop for you and bring groceries and supplies out to your car and load them for you.

Nearly every fast food restaurant has some sort of delivery service, be it Uber eats, door dash, or something else.

seen an article just like night that was discussing how Malls all across America are closing, simply because no-one shops there and many folks have turned to on-line retailers.

All of this just to say that many folks would much rather buy direct than deal with a dealership.......even if it costs more, just to avoid the hassle. Now will most dealerships try and remain the same (like block buster video) or adjust and give the people what they want (netflix).

Lastly, I really appreciate the discussion and am enjoy reading others views and opinions on this topic

[RKT SHP]

TheWatchGuy.......Was insulting me really necessary and I don't believe that it added anything to the conversation. Come on man, I know that you are better than silly insults.

Originally Posted by TheWatchGuy

if you think they are going to sell their cars at invoice instead of just cutting the middle man out and selling at MSRP, I have ocean front property in nebraska to sell you.

[tgrundke]

RKT - I don't think anyone is disagreeing with you on the topic of *convenience*, I think the point being made is that direct auto sales will not translate to lower prices, nor will it necessarily work for the auto industry writ-large.

[Efthreeoh]

Originally Posted by RKT SHP

Again, I have to disagree with both of you. What you are saying would make sense, except for the fact that there are companies out there (Tesla) that are doing exactly what you are saying can't be done. Do you feel that Tesla's business model is destined to fail, simply based off of said business model? This reminds me of a paper that I did back when I was working on my undergraduate on blockbuster video (and please don't take this as an insult, as it is not intended as such), and their business model, and their delay in adjusting to change. Just as it seems that more and more people are leaning towards less contact with other individuals, it is bound to make its way to the automobile market.

Just today, here are a few things that I noticed, that not so long ago would have been unthinkable.

Stopped by walmart to pick up a few things and noticed that they have employees that will actually shop for you and bring groceries and supplies out to your car and load them for you.

Nearly every fast food restaurant has some sort of delivery service, be it Uber eats, door dash, or something else.

seen an article just like night that was discussing how Malls all across America are closing, simply because no-one shops there and many folks have turned to on-line retailers.

All of this just to say that many folks would much rather buy direct than deal with a dealership.......even if it costs more, just to avoid the hassle. Now will most dealerships try and remain the same (like block buster video) or adjust and give the people what they want (netflix).

Lastly, I really appreciate the discussion and am enjoy reading others views and opinions on this topic

The direct-sales model works for Tesla now because it is a small manufacturer with is what is now a boutique product compared to the large legacy manufacturers. EV are 3% of the US market, which is small and almost insignificant. Of the 3%, Tesla has 95% of that market share. The legacy manufacturers each have tens of millions of cars operating in the US public fleet, which is a huge logistics operation to support. Tesla with its current direct model would most likely crash at attempting to directly support tens of millions of vehicles under its existing operational model.

Keep in mind that legacy manufacturers have indirect support to maintain their fleets, which are market-based small companies competing for the owners of vehicles business. This also keeps the lifecycle ownership costs down because of market price competition. Tesla will need such a market-based support model once the amount of Tesla vehicles in the public fleet reaches the level of tens of millions of operating units. In short I'm saying Tesla's current direct-sales will not scale up and it will need to change.

[RKT SHP]

See thats the thing I "think" it would (admittedly, I could very well be wrong).

If direct sales were incorporated, would BMW (or any manufacturer for that matter) see vehicles at Invoice.......probably not, but I believe that it would be below MSRP. That suggested price is built to allow dealerships (and all the middle men) a fair profit, while also allowing consumers to "feel" that they are getting a good or fair deal. Surely, if they sold direct to consumers, the price would drop significantly somewhere in between MSRP and invoice. ADM's would essentially disappear over night. I am also going to address the auto industry in the next note to the gentlemen below.......or I guess, above this message.

Originally Posted by tgrundke

RKT - I don't think anyone is disagreeing with you on the topic of *convenience*, I think the point being made is that direct auto sales will not translate to lower prices, nor will it necessarily work for the auto industry writ-large.

[RKT SHP]

Efthreeoh,
First thank you for the well thought out message, you bring up some excellent points that are very much appreciated. I can't fully state my rebuttal without writing a full essay. So in turn, I will refer to one that matches my views on the subject.

The below is about a 8-10 minute read. Let me know your thoughts on it as it matches what I am trying to get at.

https://www.iebrain.com/wp-content/u...ect-Retail.pdf

Originally Posted by Efthreeoh

The direct-sales model works for Tesla now because it is a small manufacturer with is what is now a boutique product compared to the large legacy manufacturers. EV are 3% of the US market, which is small and almost insignificant. Of the 3%, Tesla has 95% of that market share. The legacy manufacturers each have tens of millions of cars operating in the US public fleet, which is a huge logistics operation to support. Tesla with its current direct model would most likely crash at attempting to directly support tens of millions of vehicles under its existing operational model.

Keep in mind that legacy manufacturers have indirect support to maintain their fleets, which are market-based small companies competing for the owners of vehicles business. This also keeps the lifecycle ownership costs down because of market price competition. Tesla will need such a market-based support model once the amount of Tesla vehicles in the public fleet reaches the level of tens of millions of operating units. In short I'm saying Tesla's current direct-sales will not scale up and it will need to change.

[TheWatchGuy]

Originally Posted by RKT SHP

TheWatchGuy.......Was insulting me really necessary and I don't believe that it added anything to the conversation. Come on man, I know that you are better than silly insults.

im not insulting, im saying youre being naïve

Originally Posted by RKT SHP

See thats the thing I "think" it would (admittedly, I could very well be wrong).

If direct sales were incorporated, would BMW (or any manufacturer for that matter) see vehicles at Invoice.......probably not, but I believe that it would be below MSRP. That suggested price is built to allow dealerships (and all the middle men) a fair profit, while also allowing consumers to "feel" that they are getting a good or fair deal. Surely, if they sold direct to consumers, the price would drop significantly somewhere in between MSRP and invoice. ADM's would essentially disappear over night. I am also going to address the auto industry in the next note to the gentlemen below.......or I guess, above this message.

manufacturers sell at invoice because they have no overhead in the selling portion of the car and its a price that they make money at and the dealer has some wiggle room to make a deal and still make money at.

if manufacturers now have to have a sales team and deal with the logistics getting cars to customers, you are just transferring the dealer's overhead to the manufacturer and you have the added negative of you cant just go to another dealer and play them off each other. If you want a BMW, you have 1 place you can go to buy a BMW, which is not something that leads to lower prices.

[Efthreeoh]

Originally Posted by RKT SHP

Efthreeoh,
First thank you for the well thought out message, you bring up some excellent points that are very much appreciated. I can't fully state my rebuttal without writing a full essay. So in turn, I will refer to one that matches my views on the subject.

The below is about a 8-10 minute read. Let me know your thoughts on it as it matches what I am trying to get at.

https://www.iebrain.com/wp-content/u...ect-Retail.pdf

Nothing in that article touched on the real cost of supporting an operational fleet that is on the order of tens of millions of vehicles on the road. That was a feel-good piece on the "consumer experience" of the boutique Tesla sales model (225 outlets across the globe at upscale locations). Also, nothing in that article touched on the competitive marketplace between dealers, which keeps in check the selling price of a vehicle. Just to repeat, Tesla has very little EV competition, and sells a putrid small amount of cars in comparison to the rest of the industry. I believe its direct sales model will not scale up to average industry sales levels and the current customer satisfaction experience will eventually invert.

[dinonz]

Well, isn't time a bitch. Google nissan@home. I guess Nissan have decided to do *exactly that* and sell cars on the internet.

Chances are it's "buy online and we'll shift your purchase to your local dealer" but... they're doing it.

[dinonz]

Originally Posted by Onesie

To be fair the thread does say "cars" though…

Touché!

[RKT SHP]

Efthreeoh,
Sorry for the slow reply. I had other engagements that took up the majority of my time, that i usually commit to forums and such. None the less, I think that we are at am impasse. There is no foreseeable way that I am going to be able to convince you, and I know that you won't be able to do the same. I think that only time, will solve this conundrum. One thing I am sure of is that one of our arguments, will have the shelf life of whole milk......lolol

Thanks for the educated and well thought out conversation.

Originally Posted by Efthreeoh

Nothing in that article touched on the real cost of supporting an operational fleet that is on the order of tens of millions of vehicles on the road. That was a feel-good piece on the "consumer experience" of the boutique Tesla sales model (225 outlets across the globe at upscale locations). Also, nothing in that article touched on the competitive marketplace between dealers, which keeps in check the selling price of a vehicle. Just to repeat, Tesla has very little EV competition, and sells a putrid small amount of cars in comparison to the rest of the industry. I believe its direct sales model will not scale up to average industry sales levels and the current customer satisfaction experience will eventually invert.

[Efthreeoh]

Originally Posted by RKT SHP

Efthreeoh,
Sorry for the slow reply. I had other engagements that took up the majority of my time, that i usually commit to forums and such. None the less, I think that we are at am impasse. There is no foreseeable way that I am going to be able to convince you, and I know that you won't be able to do the same. I think that only time, will solve this conundrum. One thing I am sure of is that one of our arguments, will have the shelf life of whole milk......lolol

Thanks for the educated and well thought out conversation.

Likewise.

[Efthreeoh]

Originally Posted by TheWatchGuy

if you think they are going to sell their cars at invoice instead of just cutting the middle man out and selling at MSRP, I have ocean front property in nebraska to sell you.

Especially since there is no concept of "invoice" from a direct sale from the manufacturer; it's just called the "price".

[F32Fleet]

Originally Posted by TheWatchGuy

im not insulting, im saying youre being naïve

manufacturers sell at invoice because they have no overhead in the selling portion of the car and its a price that they make money at and the dealer has some wiggle room to make a deal and still make money at.

if manufacturers now have to have a sales team and deal with the logistics getting cars to customers, you are just transferring the dealer's overhead to the manufacturer and you have the added negative of you cant just go to another dealer and play them off each other. If you want a BMW, you have 1 place you can go to buy a BMW, which is not something that leads to lower prices.

I'd much prefer a direct sales model because I don't want to subsidize the deal given to some guy who leases a new M3 every 2 years because he and the SA are golf buddies.

[Bongoxxx]

Originally Posted by dinonz

Well, isn't time a bitch. Google nissan@home. I guess Nissan have decided to do *exactly that* and sell cars on the internet.

Chances are it's "buy online and we'll shift your purchase to your local dealer" but... they're doing it.

I know of at least 2 manufacturers that are considering online sales…

Essentially - customer goes online, builds their vehicle and selects a delivery option.

Those options are still being considered by the manufacturers but could include: direct delivery to the customer, central pickup location or pickup at your choice of dealer.

Dealer would be “thrown” some incentive ($300-500) by The manufacturers to do the customer delivery (whether it be at their location or delivering to the customer’s home.)

Dealers may be provided with a list of customers in their area that ordered direct/online to give the dealer the opportunity attract the customer to their dealer for a service relationship - where dealers make the vast majority of their $.

[Efthreeoh]

Originally Posted by Bongoxxx

I know of at least 2 manufacturers that are considering online sales…

Essentially - customer goes online, builds their vehicle and selects a delivery option.

Those options are still being considered by the manufacturers but could include: direct delivery to the customer, central pickup location or pickup at your choice of dealer.

Dealer would be “thrown” some incentive ($300-500) by The manufacturers to do the customer delivery (whether it be at their location or delivering to the customer’s home.)

Dealers may be provided with a list of customers in their area that ordered direct/online to give the dealer the opportunity attract the customer to their dealer for a service relationship - where dealers make the vast majority of their $.

I think the majority of the market still likes to test drive the car they are considering prior to making a buying decision. For the legacy manufacturers, that's only done at a dealership. An internet sales model direct from the manufacturer does not provide for price negotiation, so the idea of test driving the model of choice then going online to buy it direct from the manufacturer (at a better price) will not be an option. The legacy manufacturers are not going to compete with their franchise dealerships.

Go on the Bronco Forum B6G.com and read some of the threads on this very topic, about how screwed up the dealership allocation system interacts with Buyer's placing a direct time-stamped pre-order (reservation) with FoMoCo. The Pandemic created commodity shortages resulted in production delays that have played havoc with the time-stamped reservation system. The majority of Bronco order-holders are piss beyond human recognition.

For highly-desired model introductions such as the Bronco, direct ordering from the manufacturer with distribution through the franchise dealership system just doesn't work. The legacy manufacturers will not be able to rid themselves of franchise dealerships because the business economics will not allow for it. For example, Ford has over 3,100 franchise dealerships. It would essentially have to buyout each dealer to achieve a direct-sales and local customer support model (like Tesla has now). The increase in revenue from theoretically selling vehicles directly at "MSRP" (vs. to a dealership at "invoice") would not return the investment of buying all 3,100 dealerships. The dealership is a very efficient business model where each dealer has an optimal amount of salaried employees to operate the service side of the customer support business. Buying out the dealerships might reduce that employee workforce a bit (guessing 10%), but Ford would have to maintain and manage a minimal staff of locality employees who are the company's customer interface. With a manufacturer as large as Ford, that is a whole lot of employees (management and direct-line staff) that just would not go away; they are all franchise dealership staff under the current business model.