12 ms·

From everything I've read about the industry for the last 15 years, this is all completely correct and serves to demonstrate why it's such a hard industry. Ext

by venning 11y ago

From everything I've read about the industry for the last 15 years, this is all completely correct and serves to demonstrate why it's such a hard industry. Extremely high costs, low profit margins, fiendish competition, considerable regulation, and absolutely no guarantee that the new product you just invested billions in won't flop after you've done all the work.

grandalf 11y ago
True, but there are some low hanging fruit that have not been attempted yet... in the following areas: Finance: - why can't I rent a car for a month and if I like it sign up for a year or two or three? If I want to own it, why can't I just convert to a purchase? These options are not fluid and interchangeable which necessitates much more of a "sale" rather than a more flexible, value oriented approach. A manufacturer should always be willing to convert a purchased vehicle into a lease or rental again. Inventory/Planning: - trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple. Nobody wants the salesperson to exert pressure to make me buy some "touring package" that I don't care about just because that is what is on the lot. Pricing/Selling: Buying a car takes hours while you wait for the salesperson to try to sucker you into paying full MSRP and he/she pretends to be negotiating on your behalf with the manager, who writes with a marker on the sheet of paper the best price. This horrible practice is highly unpleasant for all involved. The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying. I'd like to walk into a dealership pre-approved for a loan and pick from among 3 or 4 exterior colors and be done with it in 10-20 minutes. Better yet I'd like to just order it online and have it delivered in a few weeks, or better yet (per the above suggestion) just rent it for a month on an impulse. All this is probably a distraction though, since self-driving car tech will allow us to get by with a fraction of the number of cars on the road and likely few of us will choose to own a car in the traditional sense.
- venning 11y ago
  > why can't I rent a car for a month and if I like it sign up for a year or two or three? You can, but if you don't buy it they now have a radically-devalued product they still need to sell. Some dealers experiment with this. Many of my customers had problems with buying a car with 100 miles on it "new". I can't remember the exact regulation, but at a certain mileage a car is no longer legally new. > trim levels are out of control and make inventory planning much worse. Absolutely. Honda attempts to address this (in the US market) by having very few trim levels and (when I was selling) no options. > Buying a car takes hours while you wait for the salesperson to try to sucker you... Yes. It's a terrible practice. One that is getting slightly better with internet shoppers who get the price negotiated before they step into the dealership. Most of my old-school managers felt that, within a few decades, negotiating over prices would end.
  - grandalf 11y ago
    > within a few decades, negotiating over prices would end It's interesting because often the trade-in value is mostly what is being negotiated, but the customer doesn't realize this. Or perhaps financing rate games are being played which the customer is unaware of. I think many of the limitations come down to the way the car business is financed. Ford Motor Credit, for example, uses lease rates as an incentive to get more vehicles manufactured. So while the market rate for a customer might be 3.5%, there is 1% financing available for a limited time. Similarly, Ford Motor Credit may prefer to incentivize leases vs purchases (or vice versa) because both look different on the company's books. There is arbitrage going on because the financing rate on a lease is partially due to the credit risk of the customer, and partially due to the residual price risk of the make/model/trim. So the company may be happy to offer 0% financing on a sold vehicle, but only 2.9% on a lease, because the company keeps the residual price exposure. This makes lease/purchase financings difficult to transform, because the accounting is only done relative to "new" vs "end of lease", so doing it on a vehicle someone rented for a month which has 2560 miles on is much more challenging, and the result of this is that the market value of the 1 day old "used" vehicle is often significantly below invoice, since when it is sold as used none of the new car incentives apply, lowering the value of the vehicle significantly, and disproportionately to miles driven, wear and tear, etc. So I think it's ultimately that there is insufficient sophistication on the finance/accounting side to allow OEMs or dealers to have any incentive to keep 1 month old vehicles with 2560 miles on their books. With a small adjustment to price and warranty, the customer should be completely indifferent to this vehicle vs a new one. I think this is a legacy of the car business as an assembly line where everything coming out of the "finished" end needs to be sold ASAP before it goes stale. Consumers likely want a much more services oriented approach b/c cars are typically more of a long term asset. I think these are legacies of the core reason why the car companies went with the franchising model in the first place: It takes tons of capital to bring cars to market and sell/distribute them nationally, and there is a fair bit of risk too.

by venning 11y ago

grandalf 11y ago

True, but there are some low hanging fruit that have not been attempted yet... in the following areas: Finance: - why can't I rent a car for a month and if I like it sign up for a year or two or three? If I want to own it, why can't I just convert to a purchase? These options are not fluid and interchangeable which necessitates much more of a "sale" rather than a more flexible, value oriented approach. A manufacturer should always be willing to convert a purchased vehicle into a lease or rental again. Inventory/Planning: - trim levels are out of control and make inventory planning much worse. If the base model sells for $18K but is available in a $36K trim level, is it really the same car? Why not just keep it simple. Nobody wants the salesperson to exert pressure to make me buy some "touring package" that I don't care about just because that is what is on the lot. Pricing/Selling: Buying a car takes hours while you wait for the salesperson to try to sucker you into paying full MSRP and he/she pretends to be negotiating on your behalf with the manager, who writes with a marker on the sheet of paper the best price. This horrible practice is highly unpleasant for all involved. The dealer lobby prefers negotiated pricing over fixed price because it suckers poorly informed consumers (many of whom are elderly) into overpaying. I'd like to walk into a dealership pre-approved for a loan and pick from among 3 or 4 exterior colors and be done with it in 10-20 minutes. Better yet I'd like to just order it online and have it delivered in a few weeks, or better yet (per the above suggestion) just rent it for a month on an impulse. All this is probably a distraction though, since self-driving car tech will allow us to get by with a fraction of the number of cars on the road and likely few of us will choose to own a car in the traditional sense.

venning 11y ago
> why can't I rent a car for a month and if I like it sign up for a year or two or three? You can, but if you don't buy it they now have a radically-devalued product they still need to sell. Some dealers experiment with this. Many of my customers had problems with buying a car with 100 miles on it "new". I can't remember the exact regulation, but at a certain mileage a car is no longer legally new. > trim levels are out of control and make inventory planning much worse. Absolutely. Honda attempts to address this (in the US market) by having very few trim levels and (when I was selling) no options. > Buying a car takes hours while you wait for the salesperson to try to sucker you... Yes. It's a terrible practice. One that is getting slightly better with internet shoppers who get the price negotiated before they step into the dealership. Most of my old-school managers felt that, within a few decades, negotiating over prices would end.
- grandalf 11y ago
  > within a few decades, negotiating over prices would end It's interesting because often the trade-in value is mostly what is being negotiated, but the customer doesn't realize this. Or perhaps financing rate games are being played which the customer is unaware of. I think many of the limitations come down to the way the car business is financed. Ford Motor Credit, for example, uses lease rates as an incentive to get more vehicles manufactured. So while the market rate for a customer might be 3.5%, there is 1% financing available for a limited time. Similarly, Ford Motor Credit may prefer to incentivize leases vs purchases (or vice versa) because both look different on the company's books. There is arbitrage going on because the financing rate on a lease is partially due to the credit risk of the customer, and partially due to the residual price risk of the make/model/trim. So the company may be happy to offer 0% financing on a sold vehicle, but only 2.9% on a lease, because the company keeps the residual price exposure. This makes lease/purchase financings difficult to transform, because the accounting is only done relative to "new" vs "end of lease", so doing it on a vehicle someone rented for a month which has 2560 miles on is much more challenging, and the result of this is that the market value of the 1 day old "used" vehicle is often significantly below invoice, since when it is sold as used none of the new car incentives apply, lowering the value of the vehicle significantly, and disproportionately to miles driven, wear and tear, etc. So I think it's ultimately that there is insufficient sophistication on the finance/accounting side to allow OEMs or dealers to have any incentive to keep 1 month old vehicles with 2560 miles on their books. With a small adjustment to price and warranty, the customer should be completely indifferent to this vehicle vs a new one. I think this is a legacy of the car business as an assembly line where everything coming out of the "finished" end needs to be sold ASAP before it goes stale. Consumers likely want a much more services oriented approach b/c cars are typically more of a long term asset. I think these are legacies of the core reason why the car companies went with the franchising model in the first place: It takes tons of capital to bring cars to market and sell/distribute them nationally, and there is a fair bit of risk too.