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What economic value, or what problem, is a car salesman solving? Price discrimination as a service? And if they were really necessary why does Tesla not need th
by chrischen 7y ago
What economic value, or what problem, is a car salesman solving? Price discrimination as a service? And if they were really necessary why does Tesla not need them?
- LordFast 7y agoNone, but I believe they hold political power both in terms of dealership associations and also in terms of bargaining rights from manufacturers. It's an outdated system that should have been dead a decade ago, but not yet.
- pdonis 7y ago> It's an outdated system that should have been dead a decade ago Longer than that, I would say. I have not bought a single car where the dealer added any value to the process at all. And I've been buying cars for three decades now.
- gwicks56 7y agoI am usually more up to speed on the features and options of the vehicle than the person selling it to me. I think they exist to rip people like my Mum off, who think because the nice man advises she really does need the AWD version for inner city life, she should pay the extra $3k, as it's "safer".
- newyankee 7y agoWhen i bought my last SUV i actually changed my preference from one popular Japanese brand to another because although the salesman at large Japanese dealer (Toyota) was cool, i had to give a small feedback session with his boss about what influenced my choice. The funny part of the story is that the original salesman was a UK origin American and the boss was Asian origin American (point being they were not from a small city or anything). I was so pissed off by the Boss' line of questioning that i actually changed my decision. I realized in my US stay of many years that a lot of economy is rent-seeking like everywhere. Dealers primarily exist as ICE cars needed maintenance and legacy reasons. However it is a pity that they cannot be disrupted. I have not had experience with platforms like Carvana but i avoid used cars from people because i have had bad experiences before.
- pm321 7y ago"However it is a pity that they cannot be disrupted. I have not had experience with platforms like Carvana.." Where I see the street is littered with unused bikes for sharing (sometimes a trip hazard if you are not looking where you go while on the iPhone SE talkin) and unused cars parked for sharing. They multiply. The disruptors must be using a utility function with payoff after the sovereign wealth fund managers backing the thing cashout at the top, retire and die. And then there is no return on investment after WeWork's hard partying and snort.
- chiph 7y agoI helped Mom buy a new car last year. She was ready to buy a newer version of the CUV she had already owned for 7 years, but when we got to asking "What's the best price we can get on it?" they switched vehicles to a lower trim level so we were no longer talking about the same car. They had a solid sale. And screwed it up because they started playing games. She ended up with a competitor. That dealer had a mandatory "package" they applied to every car on their lot (window tint, door edge protector, etc.) which was grossly overpriced. Something I haven't seen the numbers on but I suspect is true, is that they make more profit on the financing rebate than they do on the sale of the vehicle. The pressure to finance with them is so high that some dealers will refuse to accept cash offers. Or they will add on $2500 as an "external finance fee" when a buyer already has financing arranged.
- pdonis 7y ago> The pressure to finance with them is so high that some dealers will refuse to accept cash offers. Or they will add on $2500 as an "external finance fee" when a buyer already has financing arranged. I have actually never had a dealer pull this on me (and if one did, I would simply walk out the door), even though I always have financing already set up with my credit union before I ever start talking to a dealer about a car, so from their standpoint I'm paying cash. However, every dealer but one has tried to either sell me their financing instead, or sell me a lease deal instead of a purchase. (The one that didn't knew there was no point because I was a GM employee buying a GM car at that time so every single aspect of the transaction was already predetermined.) I've never taken them up on it, but the fact that they try so hard supports your hypothesis that they aren't making any real profit on the sale itself, but only on the financing. (When I was working for GM, which was some time ago, I had access to enough numbers to make it clear that GM itself was not making any real profit on the sales of any vehicles except full size trucks and SUVs; all of their profit was from GMAC, the financing arm. I used to say that GM was really a financing company that happened to make vehicles on the side. I suspect the other US automakers are similar. I don't think most non-US automakers are; their incentives are different and they are mostly run by technical people, not financial people.)
- chiph 7y ago
- helij 7y agoI lease a new car every 3 years. The dealer sorts everything for me from finance to delivery. I don't have to do anything apart from just phoning in telling them what I want. Next week I come in, sign the papers and drive off - everything in 20 minutes.
- dillonmckay 7y agoAlso, the owner of the dealership is probably friendly with the local banks.
- chii 7y agowhich is why i find buying a car on credit is such a poor practise. Unfortunately required for people who need a car for transport for work. A car depreciates. One should never buy a depreciating asset on a loan. A car should be treated like a consumable - buy it with existing cash. The only thing that one should buy on a loan is an appreciating, or income generating asset.
- qchris 7y agoI don't disagree with you, but I do want to explicitly call out how uncommon it is for most people to be able to afford a car in cash. A decent used car, say 3-4 years old with 40-50,000 miles on it with a certified inspection/warranty (which, again, most people are wildly unqualified to actually inspect a used vehicle themselves) can easily cost over $15k, and we're not talking indulgent luxury vehicles, but sedans or crossovers from Toyota, Subaru, etc. Based on the median U.S. income, it could take literally years expecting no additional discretionary income to come up with that kind of cash, or even longer if individuals are trying to keep cash reserves to situations like one we're currently experiencing. In practice. owning a car as an asset it generally considered a positive versus alternatives like leasing, which results in the accumulation of no vehicle equity over time. There's not really a great solution here. Cars are capital assets--they're complicated to build yet already somewhat commoditized in their pricing. They can also last for much longer than most other consumables assuming reasonable use. With regular maintenance, I don't think it's unreasonable to assume well over 10 years of use from most modern vehicles, with most automotive loans having a shorter period. I'm not sure I can think of another commonly-used product that closely matches those conditions...
- pfranz 7y agoI realize a surprising number of people are paid close to minimum wage (I believe the number is close to 30% in the US) a brand new Honda Fit is $16k. Federal minimum wage is close to that annually and some state's minimum wage can double that. If you can save up a recommended emergency fund, that's most of the way there. I do think most people buy way more car than they need, which drives up all sorts of costs. If you can get out of the car loan cycle it's incredibly freeing. If you have a solid driving record and an emergency fund you can drop collision on your insurance (it's required if you have a loan) and save a few hundred each month to put towards your next car.
- koolba 7y agoLocal taxation. By handing out localized regulated monopolies, States and cities get to claim a chunk of the profits from each sale rather than handing it all off to an out of State manufacturer.
- ineedasername 7y agoI know states get sales tax, but they'd get that regardless. What other taxes or fees do states and cities get from car sales?
- chillingeffect 7y agoi think they mean if there were no local monopoly the market would be more efficient with less profit and less tax
- koolba 7y agoIncome tax on commissions, property tax on the real estate for the lots and showrooms, business licenses for operating within the municipality. Really anywhere they can.
- pbourke 7y agoTab and registration fees on the turnover of vehicles.
- fyfy18 7y agoIf there were less car dealerships, there would need to be more independent mechanics to cover servicing and repairs - so at the end of the day I don't think much would change in terms of state and city income.
- ineedasername 7y agoThese things all apply to every other business, but you don't see the same type of issues with every business. I don't see anything that state & local governments get from the current model above & beyond others.
- xtreme 7y ago1. Price discrimination (some people care a lot about the purchase price, some aren't that concerned) 2. Upselling higher end models and trims (add-ons are where the money is) 3. Signing up people for high-interest long term loans they shouldn't take on (negotiating monthly payment instead of purchase price)
- WoahNoun 7y agoRecession protection for the actual manufacturers. Dealers have financing costs in keeping inventory for test drives and show floor demos. Dealers generally have short-term financing per car that can destroy them in interest and fees when car sales stop even if they never owned the actual car. Basically, the car manufacturer doesn't want to own the car and the dealer doesn't want to own the car; so the bank owns the car on short-term loans that incentivize the dealer to sell as soon as possible.
- redis_mlc 7y ago> Dealers have financing costs in keeping inventory The industry term for that is "floorplan loan."
- yaktubi 7y agoPeople don’t need new cars we need horse and buggies; they have low carbon emissions and high safety ratings.
- nickff 7y agoHorses actually have incredibly high emissions, and they produce a great deal of waste. Take a look at what major cities were like before the car became common.
- slavapestov 7y agoIt depends on the scale I guess, but if you just have a handful of horses on a farm you use the horse shit as fertilizer for growing hay.
- torgian 7y agoYeah. At least shit is reuseable.
- redtexture 7y agoAnd in a city hundreds of tons of manure to pick up off of the streets.
- rootusrootus 7y agoThe guy who sold me my brand new Tesla was definitely a salesman.
- rootusrootus 7y agoYou guys are a tough crowd. The salesman at the Tesla dealership did literally the same for me as the guy at the Subaru dealer. And the Tesla guy got a commission for the sale, too (just like normal, a very small one, new cars don't have a lot of margin).
- lmm 7y agoThey prevent vertically integrated carmakers acquiring monopolies.