All those advantages could be provided by the car company owning all the dealerships that sell their cars, except it would be cheaper for both the car company and customer.
Why do you assume it would be any cheaper for the customer? I think it could actually increase prices by reducing the number of sellers in the market. You would have a single retailer for each brand.
This is simply not true. There are thousands of independent car dealerships in the US. There might be a local monopoly in a town, but you can always just drive a few miles over to the next dealership.
If the manufacturer could raise prices without losing sales to other brands, they would do that already. Eliminating the dealerships removes a middle man and the corresponding overhead.
The manufacturer might like to claim the entire savings, but there are two reasons that typically wouldn't happen.
First, then the manufacturer's margins are higher, which changes the calculation of how much margin to sacrifice to increase sales volume. If before the manufacturer was making $2000/car and the dealer was making $2000/car then the manufacturer lowering the price by $1500/car to double their sales isn't profitable; double $500 isn't more than $2000. If the manufacturer is now making $4000/car by cutting out the dealership, lowering the price by $1500/car to double their sales is worth it; double $2500 is more than $4000.
And then second, because the competing manufacturers would have the same incentives under the same circumstances. If they lower their prices by $1500 to double their sales, that's coming at your expense if you don't do the same.
Thanks for the thoughtful response, but I don't agree with the reasons you stated. If we don't see a race to the bottom today, why would we see it in the future?
According to this [1], new car dealerships have a profit margin of 1-2% while auto manufacturers have a profit margin of ~10%. Anecdotally, some dealerships have no profit on vehicles, and rely on services contracts to drive profit.
I interpret this to mean that there is significantly more competition between dealerships than auto-manufacturers. If a consumer wants a specific brand, they can choose between dealers and often will travel long distances to get the best price. When a dealer buys a brand, there is a single supplier with global monopoly.
I think the disproportionate share of profit already going to manufacturers also undermines your argument on the trade-off between sales volume and splitting of profit.
I'm not sure it would be cheaper. The car company needs to pay all the people in the dealership plus back office staff to manage all those dealers. It might or might not be cheaper. It is for sure a distraction from their real job (design and assembly of cars and engines)
You could easily move to a no-haggle model at that point. You also cut out a middleman business that wants profit on top of your profit. Yes, you have to pay those end sales people, but you don't pay the profit of that dealership owner.
Coming from a country which haggles all the time (India), and seeing the in general no-haggle culture of US, I was always surprised car purchase is one of the areas where haggling is culturally acceptable.
The difference is that the dollar value of time in America is higher. So while an Indian may haggle over a bag of lemons because the rupee value of the lemons vs. time is what it is, the American won't.
You'll often see this when selling used stuff in America. Poor people will haggle to the end of time because every dollar matters to them - something that manifests in selling something at a higher price being more risk-free than selling something at a lower price. For the same reason, if anything goes wrong with the used product they will be upset with you. Because every dollar counts to them.
I throw away cheap stuff instead of Craigslisting it because of the danger of it only being worth buying to poor people.
By the way, Americans prefer calling it 'negotiating'. You 'negotiate' a lower price, you don't haggle things down to a lower price.
Haggling is acceptable in Canada/USA with most large purchases. Cars, houses, hand-made furniture, bulk purchases, building leases, etc. Haggling is generally not accepted only when it doesn't scale well, which also has the advantage of greater transparency and fairness in those cases.
In line with the above, private sellers are generally amenable to haggling because it doesn't matter that it doesn't scale. So when buying a used anything on Kijiji, haggling is expected, particularly if it says "OBO" (or best offer), but not if it says "firm".
If the price is set semi-arbitrarily at the time of purchase, like some U-pick auto junkyards, the person setting the price is right there anyway, so haggling may be acceptable.
I haven't researched any of this; this is just my intuition from experience.
This matches my experience; I think some Kijiji sellers do get haggling fatigue after a while, where they've dealt with one too many tire-kicker types who show up offering 50% (or less) of the listed price. Or play other games, like agreeing on a price and then showing up short of cash and making a scene about having to drive back out and find the nearest bank machine. I had this happen once and stood my ground over it; suddenly the missing $20 miraculously appeared with no ATM trip necessary.
Anyway, being able to advertise a price as firm does provide a convenient escape hatch in that scenario.
I despise firms like carmax, where they promote their "No Haggling" as a feature, whereas I see it as a bug.
They're baking in a fixed profit on used inventory and the customer has no option to impact their profitability and reduce acquisition cost. Now that I think about it, I am going to buy long terms puts on their stock,as this event should completely destroy their business.
There's also the protection added to the MFG by layering.
Consider every dealership horror story you've ever heard. Both from customers -and- floor employees.
In both cases, having all dealerships across the country owned by the MFG means there's larger pools of workers to unionize, and a greater risk for a class action.
They probably are, because they manage themselves. Most dealers are not making money on sales : everybody comes in after checking Edmunds, kbb, and the like so they know what the dealer actually paid and don't want to pay more than that. The real money in selling cars is you can sell service and parts (you get first crack at all the first year service) . None of these scale to being run from headquarters, the mechanics need to be in each city. Dealers also do local advertising, something that is more expensive to run from headquarters just because local people have an intuitive feeling for what works locally and don't need to buy as much research.
