As I am currently finding out, buying a vehicle is very stressful. Briefly, I have been looking for the Prius C one model which have a MSRP of about $19,000. When I go and look at the the prices on the lots, the cars are much higher than this, usually by thousands of dollars. This seems like a ripoff to me. When I looked at the invoice price for the Prius C one, it was $18,000 or so. Basically, I am being charged an premium by the dealership, thus driving up the cost of the vehicle. Why can’t we purchase the cars directly from the manufacturer at the invoice price? Why do we have to buy cars from a middle-man? Who came up with this idea and how did it ever get it codified into law?
Probably the same reason you can’t buy Frosted Flakes direct from Kellogg’s. Car manufacturers know how to make cars, not sell them to individuals, (and most people want to test drive a car and see an assortment before making a purchase).
Apparently several states have franchise laws that prohibit a car manufacturer from also operating dealerships. According to this article, Massachusetts and New York are two states like this.
Here is an another article with more details. I can’t say I understand why this is such a big deal but I’m guessing it has something to do with anti-trust laws.
It is in some states, where Tesla cannot sell direct. (That site looks insane, but that particular article, found by Google, appears to be a good and fair summary of the situation.)
The manufacturer/dealer bond goes back decades. When car companies grew big enough to become national they needed dealers in every locality because it was ridiculously infeasible for individuals to buy from a central dealer. The dealers often became hugely important businesses in their towns, and that always means that protections are put into both their contracts with the manufacturers and often into state laws. They’re job creators in the most basic sense - and those jobs include local representatives. And to be fair, until very recently, buying a non-dealership car would have been an enormous burden on the consumer. That’s why it’s been so hard for the Big Three to cut brand names. They have contracts with thousands of dealers.
Things may be changing. But even a few years ago, most people would be screaming if they had to buy from a distant factory.
I can see your point. I did go into the dealership and test drive the vehicle. This is important. However, I don’t necessarily think that car manufacturers need to know how to “sell them” because cars sell themselves. I also believe there are astute buyers who are smart enough to put a few thousands dollars down and order a car, options and all, right from the manufacturers’ website.
In days gone by didn’t people have a sort of loyalty to the local dealer too? The bought cars more often because cars didn’t last as long, took them into the shop to get them fixed more often?
I guess you could in theory have a setup like Apple stores where the manufacturer also own the dealerships. But there’s still be a markup because running a dealership is not free so I’m not sure it would be cheaper than an independent dealership. Don’t Apple products cost the same whether you buy them at Apple or somewhere else?
Didn’t Saturn try to promote ordering cars sight unseen direct from them (even though they were still delivered through a dealership)? Apparently things didn’t work out for Saturn.
Why do you think you would save money though? First, even if you could buy directly from the manufacturer, you are not going to get an invoice price because you are not buying thousands of cars. The logistics of delivering thousands of cars to people’s houses is much more expensive than delivering to dealerships who essentially guarantee a certain level of demand.
Second, in theory, multiple independent dealers competing on service and price should LOWER costs, even below what a single direct seller would likely sell for because those dealers have other avenues to make money (eg. financing, servicing, etc.). Toyota, selling a popular car like the Prius, would essentially charge what the market would bear. Why would Toyota sell you a car directly for $19k when then market has demonstrated people will pay $19+x? The closest analogy would be what Apple does. The few times you see sales on Apple products, it’s usually because some huge chain like Target or Walmart uses their product as a loss leader. Because there is strong demand for their products, Apple products almost never go on sale at their stores on on their website. The only thing driving down prices for their products are independent stores deciding to “compete”. Without that competition, there is no reason to think an Ipad or a Toyota Prius would likely go on sale for less than what people are currently willing to pay.
Third, there is still (IMO) some value added by dealerships in terms of stimulating sales. Direct sales models likely would not be able to create the same volume of sales not only because they are more impersonal, but also because the distance makes price discrimination harder. Assuming that is correct, Toyota would likely charge more to make up for lost volume and greater risk in terms of inventory and demand variability.
Not exactly. Tesla operates small storefronts where you can look at one or two show cars, talk to the salespeople, schedule a test drive, put your name on the order queue, etc. There’s no giant lot of cars. There’s no on-site repair center. And there’s certainly not the usual negotiating rigmarole when you go to order one.
In some states, you can’t even order in the store. But you can do everything else, and then go home and order the car on their web site.
No, because:
A big dealer has huge overhead that they have to cover somehow.
Buyers can only make an informed decision when they have good pricing information (i.e., they can easily determine that A is cheaper than B for the same thing). Dealers make every effort possible to confuse customers and make accurate pricing impossible.
I think some others have hinted at it, but both the MSRP and the invoice prices are more or less arbitrary numbers that neither reflect what most buyers pay for a a car nor what the dealership actually pays for one. Except for some very in-demand models, most people actually pay a lot closer to the invoice price than the MSRP and paying less than invoice is not at all uncommon these days.
That said, even with the fudging of the invoice prices, car dealers really don’t make much money on new car sales. Dealer profit on the car itself is usually only a couple hundred bucks or so. Their real bread and butter is making money off service, used cars, trade ins, accessories, financing, etc. All the spots where you’re getting “ripped off” by the dealership are avoidable-- just pay with cash, don’t trade in, decline the True Coat and such and don’t bring the car in for service there and you’ll be giving them almost no money.
I think with most of the employee purchase programs, you still have to go through a dealer. It also used to be you could order a car from a dealership and then go pick it up at the factory and save a few bucks, and of course there were the tourist delivery programs European car makers had (and a couple still do), but the actual exchange of money still had to go through a dealership.
This is correct, mainly because it’s a financial transaction that the stealership is set up to perform that the corporate/manufacturing plant is set up to perform. You give them a code provided by the car manufacturers employee HR and take it to the dealership to process the paperwork, obtain financing and arrange delivery. You also the opportunity to get “fantastic” deals on things like clear-coat and floor mats. :rolleyes:
