Dealers Too Busy For OnLine Shoppers

mikefm58

and that 500-1000 is enough

Oh really? In our free market capitalistic society that we live in? With all of the information available via the internet, I can't feel sorry for someone who pays too much. I think any business, including a car dealership, has every right to make as much money as is legally possible.

isellhondas

I love it when people try to decide what is a "fair" profit for a dealer to make. Some people feel like we are a charity the might deserve a bread crumb once in awhile.

These people have no idea of the tremendous overhead that has to be paid each and every month or the huge amount of taxes a dealer pays.

I wonder what sort of return these same people would expect themselves on, say a 30,000 investment?

bigt

I think that it is because the dealers have always been viewed as the 'bad guy' or worst yet a 'crook'. They (not all) will pray on anyone that does not know how to research.

tidester

I love it when people try to decide what is a "fair" profit for a dealer to make.

Some would argue that it becomes an issue when the salesperson is working very hard at squeezing every possibe nickel of profit out of the customer. In any case, the appropriate forum for this discussion is How Much Profit Should A Car Dealer Make?

tidester, host

oldfarmer50

This reminds me of buying a car several years ago. On my first visit I asked for the final price up front and was told $17500. I thought about it overnight (didn't shop the price) and called back the next morning to accept. Guess what, the price was now $18400. I asked why and was told that the lower figure was "yesterday's" price. After a lot of back and forth I foolishly bought the car (wish there was an Edmunds forum back then) for the higher price. At the closing the salesman leans over and says "We're losing money on this deal!"

isellhondas

Tidester,

If you hired me to run a business you owned, my goal would be to make as much money for your company as possible.

I would also know that in order to move the product, I would have to be competitive and provide great service.

Would you want it any other way?

tidester

Would you want it any other way?

I wasn't taking a position although it seems that if profit is an overriding concern of one party in the negotiation (as you indicate) then it should be no surprise that it may also be a concern of the other party.

The main point, however, is that we have a more suitable forum for that discussion: How Much Profit Should A Car Dealer Make?

tidester, host

abraindrainer

Current interest rate is roughly 5% so you get $1500/year... adjust for risk, figure out the number of times you can turnover that $30k car... 6-10 times if you manage your inventory right. That works out to $150-250 (if the risk is the same) per a car? The risk is probably a bit higher so $200-500 per a car is probably about right after all expenses (related to new sales and not the other profit centers) and all the incentives!

cdnpinhead

This is exactly why I'd rather get the dealers out of the equation. I'm not interested in paying for the overhead. Here in the Phoenix area, bigger & more elaborate dealerships are being created by the day, & I continue to wonder why I am being required to pay for them.

I want to order my car on the internet, much like a Dell computer. I'll go online to "build my car," then wait for it to arrive at a facility (that also provides test drives & delivery instructions for people who prefer not to read the owners manual). In a "lean" world, it'd take 10-20 days to get my car (the American builders have an advantage here), but it could take as long as a month or two. Either way, I'd get my car delivered with much less middle-man overhead.

Oh, but wait, there are a number of "issues." First and foremost, by far, are the state laws that prohibit this sort of thing. Lobbying works, for those of you in Rio Linda. It is (presently) impossible for manufacturers to sell directly to consumers. Oh boy.

Then there are the items that others on Edmunds have pointed out to me in the past when I presented this scenario: 1) Upside-down financing is required for a substantial fraction of those who buy cars, 2) Even if they're not upside-down, many people need "creative" financing to meet their monthly nut, 3) People actually walk onto lots with no clue whatsoever what they really want to drive off in & need to be "helped," 4) They have a car to trade in. I left this till last, but it's probably most important. Wonderful -- set up stores for these people, but include me out. I know what I'm doing. Leave me alone.

In my brave new world, people sell their current ride on Craigs list or EBay or to the guy down the street & buy the new one direct. It'll happen, but not yet. Watching the transition will be more fun than laughing, especially if you can afford the next car you want & know what it is.

tidester

for those of you in Rio Linda

Let's not be in too much of a rush to judge the fine folks in Rio Linda.

tidester, host

isellhondas

By the same token, I suppose you could drive to the dairy and milk the cow yourself for your morning glass of milk.

I don't see your dream coming anytime soon.

grandtotal

I'll bet they never sell travel or drugs or books over the internet either.

lrguy44

Manufacturing in this scenario would be a cost and inventory nightmare. How can you run a complicated parts supply and diverse parts manufacturing and assemble on a build to order basis. This is not a simple assembly like a computer

jlawrence01

Manufacturing in this scenario would be a cost and inventory nightmare. How can you run a complicated parts supply and diverse parts manufacturing and assemble on a build to order basis.

In the long run, it would probably be cheaper to produce what the customer WANTS than it is to maintain 100+ days supply of inventory like many currently do.

lrguy44

The big problem we have is getting enough cars, period. But mass production versus customized production would have the same effect as custom homes vs. mass produced homes - look at the price difference.

grandtotal

Have you ever heard of "Just in time" assembly? I think that the manufacturers could achieve this far more easily than you imagine. As jlawrence01 pointed out, it could be cheaper than maintaining a large supply of completed vehicles. For it to work in N Amreica though, it would require a change in consumer attitude. Too many consumers want instant gratification and would not be prepared to wait. In my case I usually order what I want and wait, I'm happy to do that to get exactly what I want.

jlawrence01

My question is why do you NEED 470 configurations of the same vehicle. Like the recent (Friday 2/9/07) Wall Street Journal article noted that the automakers should be able to determine what people WANT from the mountains of data collected as to what as sold (and how quickly).

For example, I would bet that it is cheaper to put electeric doors and windows in all vehicles than maintaining all the manual assemblies and the related parts inventories.

I believe that one of the primary advantages of Toyota and Honda is that they make a lot fewer configurations which gives them the opportunity to get all of those right more easily. Would you believe that there are only THREE configurations of the Lexus RX350 (excluding colors) available in teh Chicago market.

abraindrainer

want to order my car on the internet, much like a Dell computer. I'll go online to "build my car,"

Actually, Europeans have been doing something similar for a long time. Local dealerships have only a handful of demos and almost all of the vehicles are ordered and arrive a few weeks after the order is placed. Frankly, this is also possible in the US because you can place an order for many configurations not ordered by dealers. Many dealer try to charge premium for ordering compared to taking something off their lots. In fact, I have bought my last two vehicles out of the supply chain which is pretty close to the model that you described... and that sometimes allows the dealer to "share" some of their holdback with the buyer because the vehicle does not sit on their lot more than a couple of days or hours.

If consumers can learn to resist instant gratification, this is doable today with only the franchise laws were not there to protect dealers from the manufacturers...

cdnpinhead

. . . only the franchise laws were not there to protect dealers from the manufacturers...

My point exactly. It'll be a cold day. . . when dealers allow manufacturers to deal directly with consumers. And, as I pointed out, it'd be a fraction of the consumers at that. Most do have a trade, or credit trouble, or no clue what they want. Why should those of us not in those categories have to subsidize the ones who are?

I don't think the present model will last forever, though it appears several here think it will and/or should.

We'll see.

I realize it's possible to special-order in the U.S., but only through a dealer, with the associated overhead. BMW European Delivery cuts a fair chunk out of that, which is part of why a 3 is at the top of my current shopping list.

lrguy44

But a manufacturer may get 50,000 orders for a model one month and 10,000 the next and 75,000 the month after. How do you employ a wok force, pay the overhead on an assembly plant, etc. without costs going up?

grandtotal

You cannot. What you can do is plan for expected peaks and troughs in demand and satisfy those to some extent with overtime/extra shifts etc. If that is not enough then lead time will lengthen and shorten according to time of year.

abraindrainer

Lrguy44: most of the variations are not that wild and are at least a bit predictable. If you have flexible manufacturing where you can build different models on the same line that allows for shifting of capacities. Furthermore, it would be easier and even cheaper to make only the stuff that sells and not making thousands of vehicles in the first 9 months of the year than having to shut down a plant for the next 3.. just in order for the extra "inventory" to be absorbed at a huge discount. Does this sound familiar?

Look up push vs pull production if you want to learn more...

Of course, this production model that is already in use in Europe :surprise: would also mean that consumers would be able to order features they want without the ones that are more profitable: try getting side air bag/curtains on vehicle without high end options like leather, sunroof, NAV, etc.

lrguy44

In our case, our vehicles have very few options and we usually cannot get enough cars. Plus lead times on ordered cars is 3-4 months. And real world, most buyers make an emotional, instant gratification decision. It is the domestics that overproduced (due to unions and over capacity manufacturing plants), not imports. Also, look at the options available on domestics, it is mind boggling.

abraindrainer

lead times on ordered cars is 3-4 months.

In truth, it should not take 3-4 months to assemble a vehicles even if they have to be shipped from overseas.

And real world, most buyers make an emotional, instant gratification decision.

You mean US? The next time someone tries to order a vehicle, you should see the treatment they get. Dealers ask for more profit (even though those transactions have lower cost & risk) and drive the buyers hard into their current stock.

It is the domestics that overproduced (due to unions and over capacity manufacturing plants), not imports.

I think I indirectly suggested the same? However, some imports are also overproduced! Unions are not the only problem, it is also because it is the wrong product with the wrong content. That is not a union decision!

Bundling profitable crap with useful options such as stability control and other safety features is way out of hand for most of the manufacturers. That is another way to overprice your product, DUH! Consumers are now much more informed and are shifting away from the games that USED to work more effectively.

jlawrence01

But a manufacturer may get 50,000 orders for a model one month and 10,000 the next and 75,000 the month after. How do you employ a wok force, pay the overhead on an assembly plant, etc. without costs going up?

You do much as WalMart does. You reduce the number of SKUs to what your sales database tells you you have sold in the past. You eliminate the options that MOST people do NOT buy.

Reducing the configurations reduces the amount of parts inventories that your plants (and dealers) have to carry. Reducing configurations generally also improves quality.

The local Lexus dealerships in Chicago sell a boatload of Rx330s - and have three configurations.

lrguy44

And that is not a problem we have - most of our cars have 3-5 options. What I wa really saying is the domestics overproduced demand by a long shot. But you cannot custom build in a world (or even domestic) market and lower costs. If it could be done, and the total market would wait for a car, and if it could be done in an expeditious manner, it would have been done by now. Also, it is like home building - mass builders will not move walls to suit you and a custom home will cost more. Fact of life.

jlawrence01

The problem with overproducing demand in general is that a good portion of the vehicles are NOT what the customer wants to buy.

I rent cars a lot. When I see what is currently in the fleets of some the rental companies, I have to ask one thing? Did the buyers ever consider that these cars will eventually hit the used car market? I mean, who is going to buy a $20k+ car without electronic windows or a $30k without leather? Bad misjudgement/

lrguy44

and the rental rockets (as we affectionately call them) always seem to have weird equipment packages that you could not buy (even if you wanted) from a dealer. That is why you see GM Ford and Chrysler program vehicles so cheap. That plus supply

grandtotal

...and if it could be done in an expeditious manner, it would have been done by now.

Just because you (or car manufacturer's management) cannot envision it does not mean that it cannot or will not be done. That is the sort of comment that is often heard before radical change occurs, it's called progress.

lrguy44

Do you have a solution?

kyfdx

BMW builds every single car to order now.. Whether the dealer specs it out for their lot, or has an individual buyer.. Dealers have an allocation, but they get to choose exactly the options that they want.

And.. you can get it in 60 days, all the way from Europe..

I think any domestic company could do the same thing, but I doubt the dealerships want to deal with it..

I think LR might be a special case.. I doubt any company would want to copy their distribution model...

lrguy44

Most of our cars are ordered the same way - even domestic dealers get allocation and order cars, but the domestics overproduce. Every dealer has an allocation. The difference are that BMW and LR build very few cars above allocation. In our case these cars are at Port and can be allocated by a regional manager.

kyfdx

I agree... my only point is that the logistics really aren't that difficult..

Of course, domestic customers have been trained to act differently, and dealership sales probably wouldn't want to change the way they operate, either..

But, could you do it? Easily, I think..

grandtotal

... mass builders will not move walls to suit you...

Off topic, but when we bought our current house from a mass builder we realised that a few internal changes (mainly walls) to the house would improve it (in our eyes) and make it unique. At that point only the basement had been poured. I sat down with the builder to discuss what I wanted, he sent me to talk to the architect who agreed that we could have what we wanted and drew it up for the builder. What I didn't expect (and it did annoy me a little) is that every house of our model that the builder built from then on had our changes in it.

bigt

You obviously had some great ideals that the builder thought would help sell his homes. Too bad car manufacturers don't react that quickly to the consumers reactions.

abraindrainer

The problem is that to many cars in the US are push versus pull production. In other words, they make it and then try to sell it versus making it consumer spec. These are all structural problems that are part of the North American auto market. The market structure is just flawed but we will likely see some changes in the near future. I have got my fingers crossed!

jb_turner

If auto manufacts pulled the autos will cost more... hence the push.

abraindrainer

TURNER, why would you say that? Are there some facts and reasoning behind that statement?

Many things like color difference does not cost any more to produce. Overproduction has often caused price erosion in the form of incentives needed to move inventory. Why guess what to produce and finance the inventory?

I did not say they should encourage more option variations! Do you know that pulling works quite well in Western Europe?

cdnpinhead

it certainly looks like my post back on 11 Feb & the ensuing responses shut this board down. That certainly wasn't my intent, but it does show what happens when lean principles & logic are introduced into the car sales business, at least in North America.

The intervening posts were interesting, however. Some understand what I say, some don't want to belive it . . . and time will tell how it all turns out.

im_brentwood

Nothing new under the sun really... "The dealers should be eliminated and we should buy manufacturer direct".

Wishful thinking, but totally unrealistic in practice. Let's take BMW's dealer network.... they have, last I recall, 360 dealers in America. Let's be VERY conservative and say that the average value of a BMW franchise in this country is $5,000,000 for the franchise rights (And that's low... WAY low) alone. Plus an average of $500,000 in fixed assets per franchise, $600,000 average used car inventory (Both extremely low). Let's just call it $6 million.

We're not even counting the real estate. That's $2,000,000,000 right there. I'd say that it's quite possible that, when you include real estate, that BMW's dealer network is worth more than BMW of North America.

Then you have new car inventory.. not all dealers floorplan their cars. Most do, but not all of them, some actually stroke checks for their inventory.

Realistically, I could see my figures triple or quadruple and still be dramatically far below the $2 Billion estimate. Hell, I can think of 10 BMW stores alone that are probably worth nearly a billion combined.

Hell, the US dealer body probably owns about $30,000,000 in diagnostic equipment alone! (Assuming an average of 5 GT1s per store at $17,500 per.. without even including the SSS/Progman setups.. or the $50k+ per dealer the facility upgrades for the upcoming G3 setup will cost..etcetcetc..)

So, now that BMW has taken on THIS investment, what do you think they are going to want to see? A return on it and a fat one. They aren't going to start selling their cars any cheaper. It'll be just like Wal-Mart, the price? Oh, it's right there on the window sir!

No manufacturer is going to invest billions and billions of dollars so you can buy their product for less.

A gross margin of 3-4% on gross sales probably won't make their shareholders real happy...

One manufacturer at one point controlled their retail sales.. Daewoo. And ya know what a Daewoo sold for when they did that? MSRP.

Nice idea, but not even remotely practical.

mako1a

cd, ad, haven't seen you guys on the frontlines. Banished? adbrain makes more sense than any of the "for profit" contributors. Keep up the good info.

cdnpinhead

Just 'cause it's done in the U.S. doesn't make it right. In the UK things are pretty much as I describe. The store is there only to take orders & is very basic. They do repairs and test-drives, but don't floor millions of dollars worth of inventory in palaces. Works for me.

If you sincerely believe that we'll still be buying cars through dealerships set up the way they are today in 20 years, I'd love to take that bet. I'm not denying that dealerships have a purpose, but it's not to deliver a car to someone with good credit and no trade who knows exactly which car (including the option codes) he wants.

The upside-down folks, who don't know what they want, with a trade, will be at the mercy of the dealers from now on, as they have been so far.

Include me out.

im_brentwood

Good thing you brought the UK up!

Is that how they do it in the UK? Are you positive?

I dunno, last time I was over there Motorpoint alone must have had 30+ new Focuses at each of their locations... www.motorpoint.co.uk might change your thoughts a bit!

50 Brand new Impreza WRXs in stock, ready to go and at a huge savings!

Dealers in the UK are smaller than here and many cars were traditionally ordered, this is, of course, changing. Also, historically.. new cars over there were just not discounted.

So, the UK has gone from a place where you ALWAYS had to order your car and wait for it, to a place where you can buy one from inventory and get it at a discount.

Interesting, eh?

Bill <--Lived in the UK, was involved in the car biz in the UK.

blufz1

Dude,we do it our way over here!