The National Automobile Dealers Association is feeling threatened, thanks mostly to the work Tesla has done to set up company-owned stores to sell their cars. That's bad news for independent car dealers, who are now feeling like a cornered animal. Like cornered animals, they're attacking with the tools nature gave them: animation.
Well, to be fair, with animations and web pages, and PDFs. They have some valid points, sure, but they're also taking some pretty big liberties to get their point across. Let's take a nice, detailed look at their little cartoon here and break down exactly what's going on.
So, I guess that means you should probably actually watch the damn thing:
Fine watching, everybody. So let's go through some of the key points brought up here. Let's start with the first main premise:
Here's the setup. There's a person there, who's the stand-in for us, the viewer. I don't think it's an accident it's a woman, who, statistically and anecdotally are the gender that tends to feel less comfortable with car-buying. Still, woman or not, she's our avatar here, and, really, she's just like us: fit, sexy, fantastic posture, and lives in a beige void/wasteland.
Let's look at that thesis question there:
But will DISMANTLING the car-buying experience HELP CONSUMERS OR HURT THEM?
The key word here is "DISMANTLING." That's a pretty destructive-sounding word. The idea that the car-buying experience will be dismantled seems to imply that if it is, then to get a new car you'll have to engage in armed combat in the Thunderdome. Sure, if you just want a Mitsubishi Mirage, you'll probably just have to hit a tween in the face with a length of motorcycle chain. But if you want a Benz or a BMW, get ready to fight off a pack of goons armed with leaf springs sharpened into cruel spears.
Really, there's nothing about the car-buying experience that will be "dismantled" if manufacturers come in with their own stores. There will still be a well-organized and carefully-run car-buying experience. In fact, central control will likely mean even more homogenization and order than there is now. So let's call bullshit on this initial question.
Next we get to the idea of competition. And here the dealers do have a valid point. Since the same car brand can be sold by multiple, independent outlets, it is absolutely possible that you can cross-shop the same model of car from dealer to dealer to find the best price, service, and whatever other perks or options that you want.
Having manufacturers run their own stores would mean that there'd be one price for a given make and model of car, and that's it. So, if you like haggling and pitting dealerships against one another, you'd be out of luck.
Which brings us to the next point. Most people don't like doing that. At all. In fact, a recent study showed that most Americans would rather give up the sublime joy of the physical act of love or do their taxes instead of having to haggle with a car dealer. People hate buying cars from car dealers.
So, sure, maybe that woman wouldn't be able to cross-shop and haggle to get the best price on her baby-blue almost-Mini, but the research seems to show she doesn't want to do that, anyway.
And, if we're really honest, it's not like most dealership car-buying experiences are great even without the haggling part. There's (often — not always, of course) desperate, sales-hungry salespeople pressuring you, and then hounding you on email for weeks afterwards. There's all the drama and theater of the negotiations and the complex and deliberately obfuscating terminology and paperwork and the way the money numbers get presented to people. It's not like we're threatening to tear down the Hagia Sophia here.
Next, this is just a cheap shot:
Nobody is going to build big smoky factories all over the place. Just because the automakers want to have their own stores doesn't mean they'll try and save on real estate costs and cast engine blocks in the break room. So far, Tesla's car-stores have been pretty lovely-looking things, and there's no reason to assume any carmaker would be different.
In fact, if we're really honest, it's not like most car dealerships are such architectural wonders as it is, and with the added support and financial resources of the automaker, it's entirely likely that the design quality of the car-buying outlets will be even better.
So this image is scare-mongering bullshit.
This one is interesting. NADA is saying that a "distant" corporate office, "indifferent to local markets" would set the prices. I can see that this could be an issue, and local market forces should play a factor in pricing, but, really, are things that different now?
The parent company still sets a basic suggested retail price (MSRP) and it's not like local dealers are ever interested in selling a car wildly below that price. Car prices don't vary that wildly from market to market, and, if anything, dealers will severely mark up high-demand, low-volume cars whenever they can get away with it. Stricter central price control could help stop that sort of gouging.
So, I think this is a valid point, but it's one more in favor of automaker-controlled stores than independent dealers.
NADA does have a valid point here in that there would still be "middle men." As in that there would still be a need to have staff and expenses to run a network of stores, just as it takes money to run an independent dealer. So it's not like they'd be able to lower prices because of any middleman elimination. Besides, if they did, middlemen would end up on the endangered species list and we couldn't hunt them anymore.
Still, there may be some savings to be had. Independent dealers have independent owners who want, of course, to make a lot of money from their dealerships. Automaker-owned stores won't have this fat cat at the top that they need to keep in shiny suits and mistress-jaccuzis. And there could be economies of scale that come from standardization and centralized management of stores.
So, NADA's correct that the middleman won't go away. But it's possible that an automaker-run team of middlemen could do the job more efficiently.
NADA goes on to suggest that things could actually be less safe if independent dealers aren't in the picture. This sounds pretty fear-mongery, but they do have some interesting points here. Specifically, they mention that dealers are incentivized to do warranty repairs, which helps make them be more aggressive to see that those actually happen.
The animation goes on to suggest that if automakers didn't have the network of dealers, they'd be less inclined to spend the money to fix their faulty cars. But here's the problem: automakers are already spending all that money to fix their warranty issues, because who do you think is giving the dealers the monetary incentives to fix the problems? The automakers, though the animation says "factories," possibly to distance the source of the money from what they've been calling "automakers" up to that point.
Also, this ignores the increasingly severe legal ramifications of ignoring warranty issues.
So, it's not like automakers will be spending more money if they do it themselves. In fact, because dealers bill automakers their standard repair rates to get the incentives, those standard repair rates are set high to get more money, and that means having any repair done at a dealership is often much more expensive than it needs to be.
The more valid point they make is that if a car company goes out of business, often the dealer the car was bought from will continue to support that car. That's good, but independent repair shops could do that as well.
Overall, this is point is very misleading. I'm going to call bullshit on it, too.
I think this is NADA's best argument, and it's even not quite as strong as they show in the animation. The basic premise is that dealerships bring good, non-outsourcable jobs to local communities, and car sales bring much-needed tax revenue. That's all absolutely true.
Still, there's no reason why an automaker-owned car store would be any different. As the same animation mentioned back when they were talking about middlemen, those same jobs would be needed no matter who owns the place you buy cars. So, I think it's pretty much a wash for the jobs argument, as well as the car sales tax, since those cars are still sold in the local area.
The one big point is that the dealership companies themselves (and their wealthy, caviar-swilling owners) do pay a lot in taxes that, at least in part, goes directly to the local area for schools, city services, county-wide pizza parties, whatever. That is an important point, and if the automakers own everything, that tax revenue may not get back into the local economy.
Still, automaker-owned businesses would likely need to set up a local holding company to run things, so maybe some of that tax revenue would stay in the area. Still, local ownership and operation of businesses is generally a good thing for a community.
I'll give NADA this one.
The final argument is that dealerships take care of all the huge amounts of ass-pain paperwork involved in buying a car. Okay, sure, that's true, but does NADA really expect anyone to believe an automaker-run car-a-teria isn't going to do this as well?
Do they think you'll get tossed some keys and 40 lbs of registration and loan documents and told to have at it? No. Fuck no. This isn't going to change at all. If any for-profit organization is going to sell cars, you can be sure as hell they're going to have provisions for making those car sales actually final and legal. If not, what's to stop you from never making payments?
Don't treat us like idiots, NADA.
So, overall take away here? I think they have one solid point, and that's there is a real benefit to a local community to have businesses locally owned and operated. Aside from that, this is all just fear-mongering at best, and borderline misinformation at worst.
Maybe there's a way that both these options can co-exist, and we can let the market do the dirty work of deciding.
UPDATE: I received a friendly response from a Public Affairs VP at NADA. Here's what he said:
You get it right until the end [referencing the independent-owner argument — Ed]. You're essentially suggesting that manufacturers could just squeeze out the dealer's profits and thus lower the costs.
Here's the problem with that argument. If factories invested in all of the capital currently owned by dealers — land, buildings, signage, etc — they would expect a return on those investments too, just as local dealers do. Local dealers have invested more than $200 billion in capital expenditures in their dealerships. If factories invested that much money into retail, you'd expect them to want some ROI wouldn't you? If they try for 3% ROI on a new car retail network, they'd be getting .8% more than dealers did in 2013! (The net pre-tax profit at new car dealerships was 2.2% in 2014.)
Here's the thing: the dealer model actually has the effect of minimizing those costs because of the local competition by dealers. If a GM store in Arlington VA is competing against a GM store in Alexandria, they're going to both be incentivized to make those costs as low as possible. If GM owned both stores, they'd still have the costs but the cutthroat competitive incentives to lower them wouldn't exist.
That's why the factories, when you ask them, like the dealer model — it's actually very efficient for getting the cars out to market. Even Tesla has said publicly they'd use a dealer network once their volume goes up.