diablo1

I have been wondering this for a while, and was hoping someone here (maybe someone from the industry) could shed some light on this.

In today's economy, almost everything has a set price. Sometimes it changes based on where you are in the country, etc., but for almost everything, including big-ticket items like plasma TVs, plane tickets, appliances, the way shopping works is this: you go to the store, look at the price tag, decide if you want to pay that amount for that product, and either buy it or don't buy it. Sometimes if a store wants to move a product faster for whatever reason, things will go on sale and then you get a fixed $ amount or % off MSRP.

So my question is, why doesn't the car industry work this way? Why doesn't the car canufacturer just set a price for the car? I know a few companies do this (Saturn - any others?), but why do almost all car companies rely on the business model where prices are determined by negotiations with the dealership? Why even have dealerships to sell cars? Why not just have showrooms all over the country where you have a few samples of each model so people can look at them, try them out etc, but then when you want to buy, you pay MSRP and pay the car company directly? Then if a certain model wasn't moving fast enough, the company could have a "sale" where you save 10%, and the cars would sell much faster.

Sorry if there is an obvious answer or this is a dumb question. My overall question is why car companies allow prices to be determined at the dealership level rather than by corporate HQ. Secondary question is why have dealerships at all - what value do they add? Thanks for any insight!

mmarshall

It's not just cars...the price of many large items varies from store to store. For instance, go buy a new refrigerator at Sears and you may not pay the same as you would at another store. Buy a new sofa at, say, Marlo's, and you might not pay the same as for that same piece at the Roomstore. And salespeople who sell big-ticket appliances and furniture usually work on commission just like auto salespeople do.

The difference, though, is that with a new car you usually bargain for the price...if supply-and-demand allows it or if the dealership is willing to bargain. In a department store the prices are usually fixed...even if it is a "sale" price.

Scion alone among manufacturers selling in the American market adheres to the rigid list-price / no bargain policy. Even Saturn, which used to, is starting to give the dealerships some leeway for discounts or markups ( I'm afraid we're going to see some gouging on the new Saturn Sky like we do on the Pontiac Solstice ).

I think one reason why we don't see more rigid pricing at the dealerships is because Federal law, unlike most consumer items, requires a sticker on every car window. That means that the manufacturer cannot set prices according to local supply-and-demand....individual dealerships, in effect, do this with their markups and discount sale prices.

TurboSC

It's all about profit man. You can look at it 2 ways, if you want to make more profit per unit, or sell more units to make more profit. For example, I work at a "Best Price" Dodge/Chrysler dealership. We give every customer our best price right up front, hanging in the window of the vehicle. There is no negotiating for anyone! We usually work off of INVOICE not MSRP. Which gives our customers a great price without having to go back and forth and someone feeling taken advantage of.

In turn, our volume of car sales is much more than our competition. They may make more profit per unit, but we sell more.

edit: I don't work on commission, which for a customer is huge! That means I really don't care what they are buying, I just want to get them into what will fit them the best.

diablo1

Does the federal law require all stickers to be the same in all regions though? Why couldn't the company just send vehicles with different price stickers to different regions, to compensate for regional variation in demand?

I see your point though about dealers being the mechanism the car companies use to adjust prices to regional markets. That makes sense. Corporate can still affect the dealerships' pricing decisions to some extent by offering rebates, cheap financing/leasing, etc.

PhilipMSPT

iTrader: (5)

Prices of cars change even though it doesn't have miles on it. It's simply depreciation -- the longer a car sits, the faster its technology becomes a little more "obsolete." Also, It's supply and demand -- if the car is sitting there because no one wants it, then the price is negotiable.

In retail stores, items go on sale if newer technology becomes available, or if supply exceeds demands. The prices between invoice and MSRP reflect these ideas.

mmarshall

For the most part MSRP and wholesale prices are uniform natiowide...though sometimes the freight charges varies by region ( Ford used to use the same freight charge nationwide...don't know if they still do ) and California and Northeast vehicles sometimes will vary a little in MSRP from the general 49-state cars because their engines are built to different specs in HP, torque, and emissions. California, for example, to my knowledge, does not allow the VW diesels AT ALL.

AsianGirl007

iTrader: (1)

I heard that even Saturn isn't truly MSRP. You pay sticker for the car but they throw in extra options for free so it kind of balances out. At least that's what my salesperson friend told me who worked there for awhile. I think Mercedes tried to jump on the MSRP thing for awhile too but I don't know how that worked.

CK6Speed

iTrader: (1)

I believe they do allow for a slight variation. I know in my state we often get a different list price because of certain standard equipement is often deleted for our state. Our list price is usually a few hundred less than the rest of the lower 48.

toy4two

I don't know if I can do that, let me go check with my manager....

Go rent FARGO and see how that salesman sticks it to people with undercoatings etc, I'll never buy from a stealership, some people just don't have the dicipline to wait 3 years for the latest cars.

Look at the Solstice, who the XXXX would pay close to $3000 markup for a Pontiac

diablo1

Ya, it will be interesting to see what happens now that it looks like Saturn will have its first desirable product since... ever?

XeroK00L

In a free market, it's all about supply and demand, period. MSRPs are what manufacturers hope their cars will retail for, but in the end of day the market will decide the true value of the cars itself.

mmarshall

No, Liz.....they generally mean what they say. I've bought two new Saturns. (one was a lemon and I returned it under the 30-day full-refund policy ). MSRP means exactly that ( or at least did when I was in the market ). MSRP, tax, and tags. ( and a dealer processing fee in states that allow it ). That was why I bought them in Maryland instead of Virginia...Maryland did not allow processing fees, and because was a VA resident I paid the lower VA tax on new cars ( even at a MD dealership ).....3% instead of Maryland's 5%.

Now....once in awhile, if there was a Limited Edition vehicle in stock, that Saturn dealership ( they call them retailers, not dealerships ) would put some factory-approved accessories on it and charge a little more...that was unusual but not rare. and, as you say, sometimes they went the other way and threw in one or two things free. And the factory itself threw in nice little perks too....like sending free tickets in the mail to the nearest major auto show.

Now....you can....and DO.....sometimes bargain on some things at Saturn dealerships, like the trade-in value on your old car and sometimes on finance rates.

AsianGirl007

iTrader: (1)

I'm pretty sure he told me that they "give" extra stuff for free. Not factory install options but anything else that's not bolted on the car like accessories. He did tell me about the trade in thing though. Pretty much anyway they can negotiate without touching the actual MSRP they did.
And I was quite shocked at how small the profit is on Scions. I looked at the coupe when it first came out and I think it was about 700-800 margin? I guess they would have to sell at MSRP then. Salespeople would make only $100 commission per car. No one can live on that. Crazy.

UDel

I don't think this is a dumb question and it is one I have thought about after hearing all the BS people go through when buying and dealing with private car dealerships. I have always wondered why car manufacturers do not directly buy their dealerships or where they want to sell their cars and run them their own way instead of a business pretty much selling their expensive product and running it their own way. Then the manufacturer can set its own price which would be less expensive then what you pay at a dealership who are trying to make as much as they can and often resort to markups and being dishonest that turn people off and end up screwing the buyers. The manufacturer would have much more of a say in how the place is run and customer satisfaction instead of trusting the owner of the dealership. People would not have to go through the negative experience in haggling a price or a salesman trying to get rich by marking up all the cars or only selling them at MSRP.

Alot of people just do not want to go through car dealerships when buying a car and would much rather buy directly from the manufacturer and save a bunch of money. Instead of someone getting a commision or them making their money depending on how much they sell the car for which leads to markups, price gouging, only selling at MSRP sellers would just pay a set price from the manufacturer and how much the employee makes really depends on how many years they worked there, customer satisfaction, etc. not how much they sold the car for.

I think the main answer comes down to money and car manufacturers do not want to pay for the property, construction costs to build dealerships, and they do not want pay all the employees to sell and maintain their cars so the just let other people pay for it and have general guidelines for the dealerships to hopefully follow which probrably saves them money even though it can hurt their image if the place is being run by greedy dishonest people. Since most people seem not to have a huge problem with how cars are sold then that is unfortunately the way cars will keep being sold.

jaydunn

Automobile manufacturers do not sell directly to the public for a very simple reason, most states have laws that either expressly forbid it or make it a de facto prohibition through other rules. Obviously these laws are against the best interest of consumers but, as we know, our political parties are both loyal to the folks who write the biggest checks(that's not you).
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