Sulu

It is inefficient to give buyers a lot of choice because it is very costly to give buyers choices. That is why automakers have cut back on the options available.

It costs a lot to publish the order catalogs with all the different choices, and all the mix-and-match possibilities.

It costs a lot to give buyers the real choice in the showroom. The vehicles have to be warehoused. If the dealer has a large showroom, it costs a lot to heat, cool and keep the showroom clean. If the dealer also has a back lot, the cars there have to be secured from vandalism and theft, and have to be kept clean.

With just-in-time, lean manufacturing and sales, warehousing of product is minimized. Warehousing costs a lot of money because the product is sitting there and not making money.

coolsaber

So correct me if I`m wrong, what you are saying is that there is a system already in place, setup by privately owned dealerships that I can purchase a special order car just like Tesla, and not pay sticker unlike Tesla who will make you pay sticker for any config vehicle.... interesting

patgilm

The difference here is that in a couple of your examples the profit margins are sky high as it doesn't cost much to generate revenue just like software companies except there is a decent amount of R&D expenses to keep up with technology. Tesla has much higher margins than other manufacturers and they still operate in a loss position and they don't even have the legacy pension/health care expenses like other manufacturers. They also have leases that guarantee trade in value so hopefully for them the demand stays as high as it is now. If demand slows it could be tough for them but I don't see that happening anytime soon.

MattyG

But isn't that the point? The tech companies can come and go, but you can bet that a few of them become winners and cash in. Tesla is simply trying to enter the retail chain and they're simply happen to do it with a vehicle that doesn't run on gasoline or diesel. If they win, they might win big. If they don't, they will go away on the automotive front. Wall Street keeps investing in Tesla. They sure don't seem to want to turn on the hose and invest in the big auto makers.

You could argue that Tesla has accepted big time government help too. But it wasn't Tesla that crashed in 2007, it was GM and Chrysler - too big to fail. Microsoft, Apple, Facebook, Twitter, Instagram etc, etc. Will they fail and ask for bailouts? Not likely. Somehow we make special provisions for history and now we demand special provisions for a dealer/retail/supply network.

Toys4RJill

Are you being real here? Toyota sells 2.5 million cars a year in the US, that 8000+ cars a DAY How would they possibly be efficient these cars to the customers if the cars were already not stocked on the lots?

gengar

You're wording your question in an incredibly confusing way. Dealership sales are dealership sales - you can negotiate anything. It doesn't matter if it is a car on the lot or a car ordered to spec.

I can't imagine anyone actually paying sticker for a car unless demand exceeds supply. And demand exceeding supply is rare for cars, since sticker is an artificially inflated price that builds in the cost of middlemen and negotiating room. I've even had a Lexus dealership offer me a discount, up front and completely unsolicited, for a car I was considering special ordering - which just goes to show that even salesmen/dealers know that no one actually pays sticker.

coolsaber

Cars production costs would be not be cheaper since the vehicle costs have not changed. Removing middlemen would just mean the company now has to pick up the warehouse costs, showroom costs, service bays all the features once tied down to private subcontractor. In addition Just in time mfging works for certain companies, Toyota Corp being one of them, and for the most part it works in the fashion as they know what to build for a selected region/allocation spot and build those and only order those parts right in time for mfg. Supply line issue or natural external factor results in factories shutdown. So its basically taking the current burden of dealerships and putting them onto the mfg who intern would not magically lower prices. At the end of the day either you have burden cost that either the dealership pays/3rd party or the mfg factor into their operational costs.

coolsaber

So why would Lexus now burdened with controlling a dealership and said services decide to not ask for sticker straight up and claim the the once now inflated sticker is the actual fair market value. They now can just simply say, we are the mfg, and also control distribution channels so we set price at sticker, take it or leave it.

I think the idea here is that we all can agree on buying a car is grimy. Sleezy salesmen, bait and switch, size 1 font terms and conditions that no one reads, and of course wonderful fees like blinker fluid recycle fee.
The easiest way to avoid such a system is straightforward

Hold every dealership to the same exact fee structure. If its a legitimate $10 fee for DMV, make that standard across all dealerships.
Make adding accessories optional, opt in sort of
Make cost structure of a lease and finance clear.
Finally make salesman salaried then commission based. Guaranteed earnings is one less hassle for a salesman

Direct Sales is not the cure for dealership experiences, its primarily a way of a boutique automaker to appeal with their future customer base to make it seem like they are buying experience "revolutionary" and upscale like higher end outfits like bentley or mclaren

Och

iTrader: (3)

Everyone loves to hate dealerships, but I never had a bad experience with new car dealers. You can also say that dealers are middlemen that work on commission, so they often go out of their way to provide great service. For instance, back in 2014 I urgently needed to get a new car for my daughter when she got in wreck during thanksgiving weekend - I emailed my salesman at like 1am, and he responded to me within 30 minutes, and made sure that the car would be ready for us by the end of weekend so she could go back to college.

And also dealers don't only sell cars, they also provide service, extended warranties, parts, loaners, etc. And its true not just for car, but for many other products as well. For example I buy apple products at Best Buy or Microcenter because they offer extended warranties/protection plans that cover more than Apple's Applecare.

gengar

You answered it yourself - because Lexus can't control actual market value. If Lexus says "take it or leave it", consumers will "leave it" if the price is too high. That's the simple reality. You act like all the people who bought an IS for $40k will still buy it if Lexus prices it at $100k, but we all know that's not what's going to happen.

That's why your argument that dealers are the ones that reduce price is so wrong. The reality is that dealers pay the manufacturer far less than sticker for the cars those dealers sell. The only thing dealers can compete on is how little they add on to that price before selling to the end consumer. Once again, that's not meaningful competition.

4TehNguyen

iTrader: (1)

if dealerships are the most efficient way why are there state laws forbidding direct sales. That is the red flag right there that there is a better model. Dealers are only able to treat you like crap now because there is no competition. What other industry is like this? Oh wait other industries don't have laws forbidding direct sales.

yea its so efficient to have 100s of cars rotting on the lot, in every color and option combination possible, that take weeks or even months to sell. Guess what youre paying for all of that overhead. Where as I can skip all that BS and order what I want from the dealer like im buying something online. Dealers can still be there to provide service and warranty work, and facilitate a delivery. But its inefficient to store all these cars and have them sit there for a long time where it can be minimalized to a showroom....like other industries. All a region needs is one large central location to store the cars instead of every single damn dealer maintaining their own inventory

Gulf States Toyota is the huge distributor of toyotas and lexus down here in the south, why cant i buy from them if not directly from toyota themselves. All these middlemen keep escalating the costs. These laws are straight up protectionism for dealership franchises to protect them from manufacturers selling direct, guess who pays for this in the end, customers.

Cars on the lot is time efficient for a customer wanting a car now, but is it efficient for the entire system?

mmarshall

As has been pointed out in this thread many times, dealerships compete with each other, both of the same brand (Chevy vs. Chevy, for example), and competing brands (Chevy vs. Ford). Cars can also bought today directly over the Internet, without physically visiting the dealership at all, though I would never recommend buying something without a test-drive...or at least a test-drive somewhere else so you are familiar with the vehicle.

When's the last time you bought a major appliance (refrigerator, washer/drier, etc...), furnace / heat-pump / air-conditoner, or even a home itself, directly from the manufacturer? Why do you think that Steve (SW15LS) even has a job? (he's a real estate agent).

4TehNguyen

iTrader: (1)

if this dealership model is the most efficient, then why not get rid of this law prohibiting direct sales since it is clearly uneeded. What are they afraid of?

mental exercise. Why do you think new cars depreciate so much and how can dealers play huge number games with the price of the same car? I think a lot of this new car depreciation comes from the hidden costs the dealer has on top of new cars. Costs of which are non recoverable when selling used. It is incredibly hard to tell what a dealer is truly paying for the car through all these incentives, hold backs, and numbers BS. I wish the law allowed us to bypass this MSRP number game.

Yes i dont buy an appliance from samsung directly but does samsung play this MSRP numbers game on their products?

Toys4RJill

Thanks for the response, most if not almost all customers want the car now.

Toys4RJill

Have you done any research? Movie studios I believe are not allowed to own their own movie cinemas.

Because the manufacturer with a direct sales model will put the dealer out of business.