Tesla started this trend years ago, they don't want 3rd party dealerships in the mix, more money for them, or, less cost for consumers, you figure out which it is.

Tesla won this battle in IL, so Rivian sued and won. Dealer franchise laws are pretty tight in most states, apparently there is a loop hole in IL law and the legislature hasn't closed it.

So for now Rivian can sell direct to consumer, and based on the customer base they look to make money over the next half decade manufacturing companies may look to change the dealer model from point of sale to delivery and service centers.

Interesting tidbit, last year dealers made $4.4 million in profit on average. Double the previous highest years, selling less cars than the previous high profit year....



Link

I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

It's a state by state situation, but yes the auto dealers association is strong, lots of money, and every state has a prohibition.

Musk fought it for years wanting to go internet sales vis consumer direct and lost.

States like FL and TX have super tough laws, prohibiting it.

Can see why when you consider the millions it takes to invest in prime property, building, payroll, taxes etc.

Post-sale service is where this business model will sink or swim. These manufacturers will need to either set up their own repair network or contract with local independent repair shops for warranty service. The former is expensive, especially to ensure sufficient geographic coverage. Nobody wants to deal with a repair location that is hours away. The other option is contracting with independents. I think they will find that is a much trickier relationship to manage than with a captive dealer network where there is a more symbiotic relationship.

Lots of similar manufacturers dream about cutting out the dealers to keep that margin for themselves, but they will find out it going to cost them at least as much to service their customers themselves.

Most manufacturers have divorced themselves from as much direct end user contact as possible. They outsourced their direct call centers long ago. Any factory decisions are meted out via dealer intermediaries. Even with technical assistance to dealers working on sold units, they keep distance with the end user and ask and answer questions strictly through dealer personnel. Sources for my info are Ford and Toyota, but everybody does this the same.

I never saw anything run counter to this except the very recent electric manufacturers as in the story above.

quote:

Originally posted by HRK:

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

It's a state by state situation, but yes the auto dealers association is strong, lots of money, and every state has a prohibition.

Wasn't Saturn dealerships owned by Saturn?

The downside for manufacturers in selling directly is they have to carry the inventory on their books along with the storage space. Carrying the inventory lowers their inventory turns, slows down sale recognition, and is a one time hit as they stop selling to dealers and take over sales.

I don't see how this lowers prices for consumers as the costs are still in the system and they need to make a profit off that capital investment.

The manufacturers wouldn't carry inventory. The idea is that the customer orders the car direct from the manufacturer, who only builds to order. They may have showrooms in certain places with demo units, but they don't sell those. And now with everything on the internet, they may not even need the showroom.

quote:

Originally posted by Rey HRH:

quote:

Originally posted by HRK:

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

It's a state by state situation, but yes the auto dealers association is strong, lots of money, and every state has a prohibition.

Wasn't Saturn dealerships owned by Saturn?

The downside for manufacturers in selling directly is they have to carry the inventory on their books along with the storage space. Carrying the inventory lowers their inventory turns, slows down sale recognition, and is a one time hit as they stop selling to dealers and take over sales.

I don't see how this lowers prices for consumers as the costs are still in the system and they need to make a profit off that capital investment.

quote:

Originally posted by bigwagon:
Post-sale service is where this business model will sink or swim. These manufacturers will need to either set up their own repair network or contract with local independent repair shops for warranty service. The former is expensive, especially to ensure sufficient geographic coverage. Nobody wants to deal with a repair location that is hours away. The other option is contracting with independents. I think they will find that is a much trickier relationship to manage than with a captive dealer network where there is a more symbiotic relationship.

Lots of similar manufacturers dream about cutting out the dealers to keep that margin for themselves, but they will find out it going to cost them at least as much to service their customers themselves.

Tesla contracts with GM to fix their vehicles. It's going to be interesting if the dealer network gets so small that there aren't enough places to get your car fixed.

There's a reason dealerships are called "stealerships". There are too many true stories of people being totally screwed over by service departments.

But these vehicles are getting so complex that owners just can't repair much. Yes we can change oil and spark plugs, but when something breaks it requires specialized (expensive) electronic tools to diagnose and fix. Joe's independent repair shop cannot service a wide variety of brands these days. You can't trust the dealership, and the independent shop isn't capable of doing it all.

This is actually an opportunity for auto manufacturers to return to factory owned outlets, where they sell and service their vehicles. They would have an incentive to achieve a good reputation for honesty in the service department.

IOW, competition is good.

Personally I’d rather see direct sales and service by auto companies.

And put an end to dealer groups aka corporate ownership of dealerships.

Like others have pointed out the ability for individuals to “get the factory” involved has become more difficult since the automaker’s bankruptcies. The dealer groups have no incentive to go to bat for the customer especially if they own a majority of dealerships in a given market area.They figure you’ll buy from them regardless.

Make the manufacturers actually compete for customers in the real world by selling and servicing and satisfying their customers.

quote:

Originally posted by Rey HRH:

Wasn't Saturn dealerships owned by Saturn?

No.

quote:

Originally posted by BBMW:
The manufacturers wouldn't carry inventory. The idea is that the customer orders the car direct from the manufacturer, who only builds to order. They may have showrooms in certain places with demo units, but they don't sell those. And now with everything on the internet, they may not even need the showroom.

quote:

Originally posted by Rey HRH:

The downside for manufacturers in selling directly is they have to carry the inventory on their books along with the storage space. Carrying the inventory lowers their inventory turns, slows down sale recognition, and is a one time hit as they stop selling to dealers and take over sales.

I don't see how this lowers prices for consumers as the costs are still in the system and they need to make a profit off that capital investment.

Actually, they still do. Especially with a build-to-order, the inventory shoots up even more in order to limit the lead time to be ready for whatever configuration the customer orders. Just on one example to show the complexity, let's assume they figure for any time period, 60% of the orders will be for V-6 and 40% for V-8 engines. They have to add a fudge factor of 5% so for any time period, they're carrying 5% more of what they need. Multiply this for the other components. That's on top of standard safety stock they would have under other manufacturing models.

Under a build to plan, car manufacturers work with the dealers as to how many of what models are needed when. They can expect the dealers to know the local market and what demand will be. They build to that plan. They can prebuild assemblies up to the point of final configuration to keep manufacturing level loaded but that just adds even more inventory. I can't see them not starting the manufacturing process before receiving an actual order as you can't have people and equipment sitting around doing nothing.

Managing inventory and production has been part of my career and even taught other professionals so I'm very familiar with the different manufacturing models and their impact on inventory, lead times, and production.

Unions wouldn't have it

They build all kinds of vehicles not needed because.....unions

quote:

Originally posted by Rey HRH:

quote:

Originally posted by HRK:

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

It's a state by state situation, but yes the auto dealers association is strong, lots of money, and every state has a prohibition.

Wasn't Saturn dealerships owned by Saturn?

The downside for manufacturers in selling directly is they have to carry the inventory on their books along with the storage space. Carrying the inventory lowers their inventory turns, slows down sale recognition, and is a one time hit as they stop selling to dealers and take over sales.

I don't see how this lowers prices for consumers as the costs are still in the system and they need to make a profit off that capital investment.

Saturn was a subsidiary of GM and the vehicles sold through Saturn dealerships / franchises. (My mom was part owner of one.)

The uniqueness of Saturn was the no-haggle policy. It worked but there was many old school type buyers who insisted on the haggle process.

Not sure if the business model was the killer or the economy and rising cost of the vehicle to the end-user.

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

The car dealers had great lobbyists.

Seems like communism to me. Why should car dealers get a protected line of business?

quote:

Originally posted by LS1 GTO:

Saturn was a subsidiary of GM and the vehicles sold through Saturn dealerships / franchises. (My mom was part owner of one.)

The uniqueness of Saturn was the no-haggle policy. It worked but there was many old school type buyers who insisted on the haggle process.

Not sure if the business model was the killer or the economy and rising cost of the vehicle to the end-user.

My dad worked for Saturn for years, from the start.
Originally, Saturn was developed as a test bed, of sorts, to implement new concepts into the larger GM product-line. It eventually devolved into another cookie-cutter lineup of differently badged GM products.
Saturn was born with a set expiration date, unlike some like Pontiac & Oldsmobile.

RE the OP. I believe TX prohibits direct sale, and if you buy something like a Tesla, you actually have your transaction processed in another state, Louisiana for those of us in E TX, I believe.

quote:

Originally posted by jhe888:

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

The car dealers had great lobbyists.

Seems like communism to me. Why should car dealers get a protected line of business?

Its not just car dealers but Franchises, car dealers are considered part of that class, so McDonalds, Wendy's, Joe Smith Cadillac, anyone that takes personal money, builds a business off of a corporate name (Franchisee) has protections so that once they have built up the business in the area the company can't just come in, cancel the agreement and take it from them, with compensation or not.

I used to have a independent repair shop. They are going by the way of the dodo too. It takes a substantial investment too keep up with the technology in auto's today. So to be able to keep up you have to be large enough to do the volume to pay for the vehicle/automaker specific equipment. I think the independents are the best way to keep dealers honest, healthy competition and all that.
As far as warranty repairs go, the dealer just does seem to care like they did 20 years ago, and you are not going to get a independent repair shop to do warranty repairs as cheap as the dealers. The dealers in my area stopped answering there phones, couldn't make a appointment for a warranty repair. My friend bought a different make from a different dealer because of this and traded in his vehicle that needed warranty repair.

quote:

Originally posted by HRK:

quote:

Originally posted by jhe888:

quote:

Originally posted by 12131:
I didn't even realize there was a law that prevents manufacturers to sell directly to consumers.

The car dealers had great lobbyists.

Seems like communism to me. Why should car dealers get a protected line of business?

Its not just car dealers but Franchises, car dealers are considered part of that class, so McDonalds, Wendy's, Joe Smith Cadillac, anyone that takes personal money, builds a business off of a corporate name (Franchisee) has protections so that once they have built up the business in the area the company can't just come in, cancel the agreement and take it from them, with compensation or not.

That is what your franchise agreement is for.

And, in any case, I don't think McDonalds (corporate) is prohibited by law from running a McDonalds restaurant, while Ford cannot run a For dealership.

quote:

Originally posted by jhe888:

I don't think McDonalds (corporate) is prohibited by law from running a McDonalds restaurant

I used to work for a company that was located in Oak Brook, IL. There was a McDonald's restaurant a short walk from our building, that was owned and operated by the McDonald's corporation.

In addition to the standard McDonald's stuff, there would frequently be "test" items on the menu at that location.