10 ms·

Disclosure: I work for GM. Anything expressed here is solely my own opinion and experience. I think each statement is true. Context: for ages, OEMs (the facto

• BenoitEssiambre 4y ago
  >Dealerships hate carrying extra inventory because it costs money to finance the vehicles until they sell them. Note that with interest rates having been really low, even negative in real term, an inventory was almost a good investment with relatively good returns (if you could get your hands on it). Now with rising interest rates and falling inflation, the cost of financing might become a burden again.
  • cokelee 4y ago
    Further, if a manufacturer were to stop paying for a portion of the floorplan interest when the vehicle is sold, then the effective interest rate may go up even more dramatically for lots with inventory over N days old. Since Ford’s plan to prioritize direct sales has made news recently, it seems plausible they will seek some means to limit existing dealer inventory. GM went through a dealer culling after the government bailout to strengthen the remaining stores. The Covid shock, it appears, may permanently cull inventory levels across the board and (optimistically) have the same end.
  • voidmain0001 4y ago
    The bank rate to the dealership to carry its floorplan is much higher than the posted rates. Yes, being able to carry inventory during the pandemic is advantageous but otherwise dealerships work hard to not having a vehicle older than 180 days as they become undesirable to consumers.
  • itsoktocry 4y ago
    >an inventory was almost a good investment with relatively good returns This is a great point. Any dealer who had surplus inventory heading into summer 2020 did really well on their margins I bet. Of course, not something you want to base your business around...
    • JumpCrisscross 4y ago
      > not something you want to base your business around If you think of dealerships as dealers, i.e. market makers, it's precisely their business.
• kube-system 4y ago
  > Context: for ages, OEMs (the factory) have had a belief that Americans will not wait to buy a car. There's also a bit of a prisoner's dilemma: if any automaker wanted to trim inventories, the customer could go to a competing automaker's lot and buy today. Since customers will not wait to buy a car, a dealership must have some quantity of vehicles that are acceptable to buy today. I think this is mostly true, for a decent chunk of buyers. And I think this is part of the reason why we've seen used car prices skyrocket. People who have the cash to buy a new car but can't find what they want on the new lot are buying whatever they can.
  • bluGill 4y ago
    Every day there are several major crashes where a car is totaled: cannot be fixed and so the person needs a new one now. There are also a lot of people who wait until their old car breaks completely before deciding to get a new one (the car may or may not be repairable, many people give up on a perfectly good car). Both of these cases are high profit margin I need a car now I'll take what I can get. Someone who is willing to order a car and wait is more likely to look for a better deal if they can get it.
    • kube-system 4y ago
      "Several" is an understatement. I couldn't find any stats on salvage titles, but Copart alone says they move more than 100k vehicles per month.
• colechristensen 4y ago
  I was seriously looking to buy and stopped when I was quoted a 9 month delivery time. Also, what is the point of a dealership if you have to wait a very long time and have no negotiation leverage? They might find they regret their temporary boost of profits when it destroys them. Ford is selling EVs direct to consumer now, the writing may be on the wall for dealerships.
  • a2tech 4y ago
    My friends who work at Ford all report a general feeling of being over the dealership. They’re just as sick of the dealer shenanigans as we consumers are and it sounds like they’re working hard on cutting them out. This didn’t have to be—but the dealers insisted on being scummy and not changing with the times and now they’re left friendless.
    • aidenn0 4y ago
      TBF there is a very slow moving pendulum. The manufacturers screwed the dealerships many decades ago, so the government passed laws to protect dealerships (see also: in some states you can't buy a Tesla at a Tesla showroom). The dealers in turn used those regulations as leverage against the manufacturers. General speaking: in times of high-margins, manufacturers want to kill the dealerships to capture a larger slice of those margins. In times of low-margins (even negative net margins) the manufacturers want to force the dealerships to eat as much of the cost as possible.
      • KerrAvon 4y ago
        Manufacturers having the capability to do this is a relatively recent development, though, historically speaking. Originally even the largest manufacturers couldn’t afford to build out the necessary sales and service infrastructure across the US without the independent dealers.
    • MobileVet 4y ago
      Ford recently announced that all new electric vehicles will be ordered direct and at MSRP. https://www.roadandtrack.com/news/a40175990/ford-online-sales-no-negotiation/ https://www.roadandtrack.com/news/a40175990/ford-online-sale...
• grog454 4y ago
  > In future American OEMs may move to a more European model where vehicles are built to specific customer order. That's it, I'm moving to Europe.
  • CamperBob2 4y ago
    You don't have to do that. Many if not most automakers, both foreign and domestic, already accept custom orders through their dealers. You're not going to like the wait time, though.
    • agensaequivocum 4y ago
      I placed an order for a Sienna a couple of months ago. However, it's more of getting put in line for something similar that is allocated to the dealer. The more specific, the longer the wait is.
      • bfdm 4y ago
        But this doesn't make any sense, that's exactly the problem. If you wanted a particular configuration they should direct the plant to assemble that configuration just as soon as they've finished assembling any special configuration requests placed before yours.
        • adhesive_wombat 4y ago
          Possibly they do configurations in phases, so the more unusual your request, the longer it will be before they're building a suitable batch. Maybe they only do adaptive cruise models on Wednesday and wood trim on the third week of the month. Now to get both you have to wait a month and because the ship leaves in 2 weeks, now you have to wait for the next one. Semiconductors are the same. Manufacturer lead times are, even in good times, long for many things because they don't hold stock to cover big orders. If you come along and order a million AD4242WTFBBQ-OMGXXX, one of dozens of variants of a chip, they don't have that boxed and ready. You'll have to wait until the fab is doing that variant again. The problem now is that all the distributor stock that used to keep everyone going while the big orders were scheduled is gone, and the fabs are so slammed that the time to the next free slot is measured in years, not weeks. And that's if the fab is still making that jellybean part at all and hasn't switched to a higher-margin part.
• gedy 4y ago
  Example of one, but once I heard about the 9+ month wait times for cars I wasn't even excited about, I just decided to keep my current car and fix the paint, detail the interior, etc. I can wait to buy a car, but not on a paid wait list.
• aidenn0 4y ago
  > In future American OEMs may move to a more European model where vehicles are built to specific customer order. This takes on the order of two months at the moment for many legacy reasons, but there is no need for it to actually take this long. You've been able to do this in the US forever; you just might have needed to pay closer to (or even at) sticker (now I'm sure it's higher than sticker).
  • nrclark 4y ago
    I tried to do it with Toyota and got absolutely nowhere. I talked to dealer after dealer, and they all told me that they couldn't customize a vehicle order. I also couldn't do it on Toyota.com - after I configured a vehicle, all it did was refer me to a dealer who told me that they can't customize anything.
    • themaninthedark 4y ago
      That is odd because Japanese dealerships carry very little inventory and make to order. You go to the dealer and test drive, sit down and go over packages and finance then a couple weeks later your car shows up and they either deliver it to your house or you go and pickup.
  • KerrAvon 4y ago
    Only on some makes and some models. Try doing this with a Japanese car or your average Volkswagen and you’d get nowhere. This apparently used to be more of a thing when American cars ruled the industry — custom orders could be quite profitable — until the Japanese makes came along with severely limited optional equipment as a quality and cost saving measure.
    • aidenn0 4y ago
      The comment I was replying to said "American OEMs" and you could do this fairly recently with both Ford and GM
    • bluGill 4y ago
      The dealers lost a lot of sales to sleep on it. They discovered if you put someone into a car that was close (wrong color, not quite the same options) they would happily drive it home and not return it. If you ordered the exact car someone wanted they will often call you the next day saying they changed their mind, cancel the order.
• walrus01 4y ago
  > Context: for ages, OEMs (the factory) have had a belief that Americans will not wait to buy a car. On the contrary, we recently added a 3rd car, and it ended up being a $4000 used Toyota Camry. My first choice would have been a Corolla or civic but none were available at a reasonable price, condition and mileage. Due to the well known rise in used car prices. It's in good enough condition and meets all the requirements for something that's comfortable, has cruise control and working AC, wasn't in bad shape, and can be repaired and maintained economically. Now I'm optimizing for dollars per km driven and although I could easily afford to take out a car loan for a new Model 3, or similar, I have absolutely no intention of doing so. At the purchase price of this car and its highway mpg, and driving around 14,000 km per year, even at the current fuel prices (or if fuel goes to $6.85 USD a gallon) there is no way that its $/km is going to be anywhere near as high as the TCO of buying a new Prius or Ioniq nevermind a fully electric car. I have simply opted out entirely from the concept of buying a dealership new car or late-model car and will continue to spend money on things that are reasonably adequate, and my financial outlay and overall level of stress are considerably lessened. No more worrying about if it collects a rock chip in its front plastic bumper, or a ding in a parking lot, no more paying comprehensive insurance, no more dealership haggling and waiting lists, no more inventory problems.
  • d110af5ccf 4y ago
    > no more paying comprehensive insurance Assuming you can afford to replace it on your own if you need to, this one really adds up.
    • CameronNemo 4y ago
      When I removed comprehensive coverage, the lady from the insurance company audibly said "wow" before telling me my new yearly rate. It dropped quite a bit. Over 50% decrease IIRC.
      • batiudrami 4y ago
        In Australia I changed from comprehensive to third party property damage, fire and theft and my rate changed from $950 to $240/y. For a $5000 vehicle! (NB: first and third party medical insurance are covered by rego and Medicare).
• sammalloy 4y ago
  > In future American OEMs may move to a more European model where vehicles are built to specific customer order This would be a great thing. NPR ran a show last week about the benefits of switching to this model for the consumer in terms of products of all kinds, and it turns out that given this choice, the customer makes better, more ethical and informed decisions about the product and feels better about the relationship they have with the producer and manufacturer. It tends to create a better and more loyal customer over time as well.
  • Scoundreller 4y ago
    > better, more ethical and informed decisions I think any move that goes in this direction will be deemed a non-starter by incumbent industry even if it could lead to the good stuff you mentioned later on.
    • bluGill 4y ago
      Only for decisions people can make though. If the option I really need is only available bundled with a bunch of other high priced options my decision is more informed, but it didn't change. OTOH, it isn't possible for a dealer to keep all possible combinations of options on the lot. Even the largest dealers don't have that much lot space for one model (much less all models). This is why there are so many bundles: you chose package A,B,C and then color. However if people are ordering they may give the nod to a manufacture that allows them to unbundle choices, and this competition may force them to make lots of different options and thus lose the profit margin on lots of options that maybe people didn't want but it came with an option they demanded.
• Aloha 4y ago
  I wish dealers made it easier to order cars, before the supply shortage, I couldn't get a dealer to place an order for exactly what I wanted, which was invariably never what was stocked. I'd rather return to a build to order model, with greater variety of configuration options. What I wanted was in a color not commonly stocked, with an unusual interior color, and the upgraded engine, with all the packages - but without a sunroof. That's a nearly impossible combo to find, my car is like 1 of 22. I think you need some cars on the lot for people who can't wait 3-6 weeks for a vehicle, but I think you'd see more customers move to ordering, if it was an option.
  • argonaut 4y ago
    I don't know if this applied to your situation, but some automakers don't accept custom orders from dealers. Toyota comes to mind, for example.
  • bluGill 4y ago
    > I think you'd see more customers move to ordering, if it was an option. Dealers AND auto makers don't like that because some people will place an order and then the next day cancel it. If the dealer instead puts them in a car that is "close enough" most people will keep the car even though it isn't perfect. They do lose customers like you who are very specific about what they want, but they gain more. (or so they think)
    • Aloha 4y ago
      I'm pretty flexible on some stuff - like exterior color, but I live in Texas, and yet all the stocked cars (of the type I want) come with a black interior. Same with the sunroof problem, if I want a high end trim, it comes with everything, so at that time it meant buying what is effectively comparatively a stripper if I dont want a sunroof. The pandemic made it so they'd actually take my business, we negotiated the purchase contract at the time of order, and I got it without all of the stuff I didnt want.. like nitrogen air, tint, and the 'paint protection' BS. I did have two minor quality issues - the rear AC vent trim bit was not fully seated, I fixed that myself, the other one is the gas door sticks on, why? no idea - the dealer has tried a couple things, I've found cycling the opener 2-3 times opens it just fine.
• derefr 4y ago
  > Dealerships hate carrying extra inventory because it costs money to finance the vehicles until they sell them. Why aren't dealerships just consignment stores for cars? That seems like it'd work out better for everyone involved. (And they could still follow "manufacturers can't sell direct" regulations, by having the dealership buy the car from the manufacturer just-in-time to resell it, once they've already got a signed contract from a buyer. And the manufacturer(s) they sell for could even extend them a line of credit to cover the float required to do that, so that they can operate on the same thin business model as regular consignment.)
  • deleted 4y ago
    [deleted]
  • guyzero 4y ago
    > Why aren't dealerships just consignment stores for cars? Presumably because people prefer getting less money now to getting more money later. Also most dealerships essentially "flip" cars (like those people on HGTV flip houses) - they clean them up, do basic service, add a warranty of some sort and that gives them extra margin versus just taking a small fee for handling sale paperwork. Honestly I'd hate to sell a car via consignment because there's zero incentive for the dealer to do anything with it. They might sit on it for months.
    • derefr 4y ago
      > Also most dealerships essentially "flip" cars (like those people on HGTV flip houses) - they clean them up, do basic service, add a warranty of some sort and that gives them extra margin versus just taking a small fee for handling sale paperwork. To be clear, I meant new car dealerships — the ones that are branded to a particular manufacturer brand (e.g. "Ford dealership", etc.) Why aren't those dealerships just consignment stores? It would stabilize a very cashflow-constrained franchise business, into something that's essentially just "making money to be a showroom" — which is exactly what those really are. > Honestly I'd hate to sell a car via consignment because there's zero incentive for the dealer to do anything with it. They might sit on it for months. Seems fine to me. Any consignment store is really just doing lead-gen: helping to arrange a contract between the buyer and the manufacturer (where they just happen to take temporary possession of the car in-between.) Sort of like a car real-estate agent. The important thing to realize about consignment models, is that your customers aren't the people coming in to buy things. Your customers are the manufacturers, who essentially rent space in your lot to show off their products. If you don't work to sell their products, the manufacturers stop renting that space from you, and you don't make money. Certainly, consignment stores aren't as motivated to move particular products. Especially particular high-margin halo products. But they are motivated to do volume — i.e. to hit their manufacturer/renters' revenue targets. (Also, keep in mind that a consignment store can't really "sit on" consignment goods; those aren't their goods to sit on. If the manufacturer wants to rotate them out for other stock, they just go to the store, take those goods out, and put something (or nothing) else in its place.)
• fifticon 4y ago
  Welcome to Soviet-era production attitude :-/
• ineedasername 4y ago
  OEM's and dealerships make a very large amount of their profit on parts (OEM's) and repairs (dealerships). And both make money on financing. This is especially true for dealerships. Sure during a shortage dealerships are happy to sell limited inventory at much higher margins but in the long term that's going to eat into their bottom line. Financing alone often surpasses profits on the car itself. Then also fewer people will bring their cars in for scheduled maintenance and get their cars fixed during the warranty period. After that a lot of people get their cars fixed at less expensive 3rd party repair shops. A family member worked in the industry for years and conveyed this to me, but it's also what the sales manager told me when I bought a new car recently: No one was happy. Salespeople made fewer bonuses hitting quotas and the dealership's long term profit forecasts were way down, even if current profit margins made short term profitability the same or slightly higher than usual.
  • _fat_santa 4y ago
    There's also the fact that many dealerships are doing deals fully online. So your local Ford dealer isn't competing with the other one in town, they are competing with the other one in town and all the ones that facilitate online deals. This has become the thing to do if you want to avoid dealer markups. Just call around until you find a dealer that will honer MSRP and will ship to you, then do the deal with them.
• itsoktocry 4y ago
  >Now customers are used to waiting and nothing really catastrophic happened to the dealer or the OEM. In fact profits went up substantially. "Nothing catastrophic happened to the dealer" only in a world where dealership employees don't count. My VW dealer had to lay people off, not enough volume. >Dealerships hate carrying extra inventory because it costs money to finance the vehicles until they sell them. Well, yeah, this is literally every single retail business anywhere. Who wants to carry inventory? The point is to turn it over ASAP. That doesn't mean the optimal level of inventory is zero.
  • kasey_junk 4y ago
    > That doesn't mean the optimal level of inventory is zero. It does if the customer will wait for you to produce the good for the same price (or better!) as the inventoried one.
• deleted 4y ago
  [deleted]
• gwbas1c 4y ago
  > OEMs (the factory) have had a belief that Americans will not wait to buy a car It's really contextual. If your current car was in an accident, you will need a new one ASAP. On the other hand, if your current car is working okay, why not wait until you get exactly what you want? What's driven me to pick from inventory is immediate need. In the past, I came across good deals in inventory that a dealer was looking to move; and I really needed to replace my car. (Car died, putting too many miles on a lease, car wouldn't pass smog.) Now, I've replaced cars because I was afraid they'll break down on me at some point in the indefinite future, so I just order a Tesla about a year or two before I think I'll need it. Perhaps used cars will fill the need for people who just really need/want a car now?
• dougmwne 4y ago
  That all sounds nice in theory when all manufacturers had constrained inventories and consumers were being told about this once in a generation car shortage. But back in normal times, if one manufacturer always has cars on the lot in your choice of colors at 3k below MSRP and your previously preferred brand has no cars on the lot in black only with a 2 month lead time for 5k over MSRP, guess what, your brand preferences are going to change!