
Kill the laws that keep car dealers in business - prostoalex
http://www.vox.com/2014/10/26/6977315/buy-car-hassle-free
======
Rumford
There are some interesting comments in here about how tough the struggle is
for car dealerships, but I don't think that necessarily justifies their
existence or mitigates the point of this article.

If what the dealerships do is valuable enough to the customer, they would
exist even without the ban on direct sales. But I think we can all intuit that
if the ban were lifted, buying a car would be a very different (and better)
experience.

~~~
venning
We often moan about the taxi industry, the hotel industry, or the dealer
associations but, in doing so, we miss something very important. The players
in that industry often existed for years or decades in a state of government-
backed protection _without realizing it_. Taxi drivers didn't necessarily
lobby for market restrictions; they took advantage of the oligopoly, sure, but
not necessarily consciously.

If you live in a state of believing that the market is actually fair and
others have an equal shot at participating in it, then someone else entering
the market in defiance of the existing protections _appears_ to be unfair.

It's hard to believe that you didn't enter into a job market and win a wage
fairly. That, instead, you were unfairly advantaged by artificial pressures in
that market much bigger and more entrenched than you.

Essentially, the incumbents have been lied to for years and, now that new
logistical realities are changing the status quo, it is very hard for them to
understand _why_ this is happening. They think someone must be cheating.

\---

To expand on joosters' analogy of taking a fence down elsewhere in this thread
[1], it's not necessarily bad if we take the fence down, we just need to
realize that doing so may have serious consequences in the near-term. Having
such a strong, deep-rooted artificial pressure in a market so abruptly removed
may result in a painful readjustment of the market that hurts a lot of people.

(My other comments weren't meant as a defense of dealers, only intended to
elucidate their operations.)

[1]
[https://news.ycombinator.com/item?id=10463745](https://news.ycombinator.com/item?id=10463745)

~~~
AnimalMuppet
Some fences need to remain. Take barbers/hairdressers, for instance. It turns
out that a barbershop can be a great place for spreading head lice. You want
your barber/hairdresser to be trained to prevent that. That's part of what
their licensing is about.

So, are there any aspects of being a car dealer that are worthwhile fences?
Offhand, I can't think of any, but that doesn't mean there are none.

~~~
venning
I agree. As an avid "car guy" and a student of regulation, I cannot think of
any reason for car dealers, as a whole, to be protected in the long-term. I
am, however, perplexed with how we should address the possibility of
established manufacturers attempting to cannibalize the sales of their most
profitable franchises by building neighboring dealerships with their
considerable capital.

I believe the California model actually offers a lot of hope: manufacturers
can compete, but they must observe a 10 mile radius from existing franchises.

~~~
AnimalMuppet
Pick a model - say, Chevrolet. Is there anywhere within the LA basin that
isn't already within 10 miles of a Chevy dealership? Does this rule leave the
manufacturer any place to be in a place like LA?

~~~
venning
This is why I am perplexed.

------
venning
I paused my software development career to sell cars for a year. I sold cars
at two different Honda dealerships, both owned by Fortune 500 companies in,
what I believe is, the densest single market for Hondas in the US (Metro DC).
There's a couple things missing from the situation as described by the author.

First, dealerships don't really make that much of a profit on new car sales.
At least not Honda dealers. Used cars averaged around $1000 profit, but new
cars were around $200. Yes, they really do lose money on some sales. That's
not to say that there weren't expenses that were being covered in the price
that are exclusive to the dealership, such as the salesperson's commission,
but the total profit going to the dealership per new car was low. One of the
older, wiser managers, who had come from Toyota told me, "A properly-run
dealership pays for everything on Parts & Service. Car sales is just the
profit." There are a lot of lean years in car sales. I can attest that no one
in management was panicking when gas prices hit $4/gallon and we couldn't give
a car away (car managers don't hold back their emotions). Sales stopped, but
people kept getting expensive oil changes.

Second, at least within Honda's North American division, you cannot just _buy_
inventory. A dealership inventory is controlled in such a way that area
dealerships are forced to compete heavily with each other. In order to sell a
car, you have to have a car on your lot. In order to have a car on your lot,
you have to order it from Honda. The number of cars you can order from Honda
is restricted to a percentage of _the number of cars you sold last year_ ,
something around 106-110%. You can't just take a big loan and buy yourself
volume. To a dealer, inventory is life and must be protected. As a
salesperson, I would lose so many deals to other Honda dealers who would lie
through their teeth over the phone to sell. Dealers will cut their own throats
to steal a sale from another dealer because each one is a net +2 in the
inventory war. In theory, this is great for customers on cost, but terrible
for customers on experience.

The owner of the first dealer I worked for had just sold the dealership to a
Fortune 500 company. He spent years and years basically giving cars away until
he had the largest inventory on the entire East Coast (a big deal for Honda)
and then had something very valuable, something that couldn't be bought.
Somewhat like how Amazon, in theory, operates.

~~~
alkonaut
> In order to sell a car, you have to have a car on your lot.

I don't understand the above: you mean people buy new (unused) cars from
dealers, "off the shelf"? Aren't most new cars custom? Are US customers more
impatient, so that in order to close a sale you need to have the various
options pre-built, so that people don't have to wait four months for their new
car to be built?

I have rarely seen a new car sitting at a dealer here (Europe), most dealers
have one, maybe two, of the latest model, to be used by testing for potential
customers.

~~~
marssaxman
Buying a car but having to wait four months to actually get it sounds like the
kind of horror story people used to tell when I was a kid about the terrible
economic conditions in the Soviet Union. No, in the US people pretty much just
go shopping, pick out a car, buy it, and drive it home. I know one guy who
ordered a car custom and had to wait for it, but he is _really_ into cars and
is the sort of person who cultivates a specific and unusual aesthetic in
everything he owns, so nobody was surprised that he would go to unusual
lengths to get a particular vehicle.

~~~
alkonaut
I think four months (give or take one or two) is pretty much standard
manufacturing times for new cars from most manufacturers. The difference in
customizing new cars is absolutely astonishing. Let's take a look at a VW
Jetta, sold both in the EU and the US. The "regular" one seems to be the Jetta
SE so lets look at that.

In the US configurator
([https://www.vw.com/builder/](https://www.vw.com/builder/)) for a new Jetta
SE you choose between 1, engine, 1 transmission, 1 type of wheels, 7 colors, 1
interior color, and have 0 optional extras I'm not sure why the damn
configurator takes me through page after page with no choices. That gives you
SEVEN different models of Jetta SE. A dealer has to have SEVEN Jetta SE in his
lot to be able to sell a customer ANY car he could have built on the site.
Under those circumstances, I too would find it pretty shocking to _wait_
several months because I wanted the red Jetta and the dealer had only one blue
and two silver.

But now look a the UK page: [http://www.volkswagen.co.uk/new/jetta-
gp/configure](http://www.volkswagen.co.uk/new/jetta-gp/configure)

We have

7 engines to choose from (cheating, non-cheating etc)

5 wheel options

10 exterior colors

9 interior colors/trims

50 optional extras

So even if we can probably guess that a lot of the extras will be packaged in
nearly every car, and some of the options like wheels could be switched by the
dealer himself, a dealer couldn't reasonably have less than at least a few
thousand Jetta SE's if he wanted to be certain to have the car I want. He
isn't going to. So what I do is a configure my car from the several hundred
thousand different configurations of Jetta SE I want, then I go to a delaer,
haggle a few percent off the price, sign a piece of paper, and wait a couple
of months for it to be built. Or I buy a used one in his lot, which is
cheaper, but isn't exactly what I want.

As for horror stories: I just learned about "delivery fees" in the US.

~~~
hrez
BMW build is ~2-3 weeks in Germany. ~1.5months to drive it off US dealer.
AFAIK BMW options are very similar across countries.

------
ergothus
I used to work with a company that worked with dealerships, and I learned some
pretty surprising (to me) details.

For example: In most cases, the dealership buys the cars on the lot from the
manufacturer via vastly short term loans. When the above article mentions the
cost of sitting inventory, I assume that is what is being discussed. This
isn't like inventory in a store, where the main concern is that it is losing
value with age and occupying floorspace, this is actively costing INTEREST, in
addition to deprecating with age and requiring lot space.

I'll also second the other comments that talk about Parts & Service as the
primary income. User/Certified Pre-owned come in a distant second, and new
cars (aside from certain brands) are at best a thin margin, sometimes a loss-
leader.

While my management was very gung-ho about our customers, I saw nothing to
convince me that the average dealership offers any value-add to the consumer,
and where there is value-add it's destroyed by the laws that discourage
competition and encourage industry practices that aren't good for the
consumer.

~~~
dragontamer
IMO, parts & service is significant value-added for consumers. For DIY, having
a place to pick up a specific hose or brake rotors is always nice. There are
online shops of course, but if you're shopping for OEM parts it seems like
online prices aren't too much better.

For those who don't have mechanic skills, knowing that the dealership is
trained to _only_ work on your model of car is extra assurance that they'll do
it correctly. (EDIT: Not a guarantee of course, but any extra assurance is
helpful)

~~~
jbigelow76
* knowing that the dealership is trained to _only_ work on your model of car is extra assurance that they'll do it correctly.*

Semi-tangential:
[https://www.youtube.com/watch?v=Ii8rC6CPCvM](https://www.youtube.com/watch?v=Ii8rC6CPCvM)

------
joosters
"Don’t ever take a fence down until you know the reason why it was put up"

You can't write a balanced article on car dealerships without researching why
these laws were enacted in the first place. So many people here just assume
"oh, it's because of greed" \- but perhaps you should spend a short time first
of all investigating why these laws were created and the problems they were
trying to solve.

Likewise, you can't write a convincing article about removing these laws if
you don't speak of the reasons why the laws were created. You need to show why
these reasons are no longer good.

~~~
Spooky23
That's very logical. But the en vogue approach today is to disrupt everyone
out of business because technology entrepreneurs and capitalists are "good
guys".

The argument for this stuff is mostly "OMG Tesla is awesome!". But folks
forget/ignore that having to deal with A fortune 50 company as a consumer
isn't fun either (recall: AT&T in the old days). Your local car dealer may
have annoying commercials, but the folks who allowed a defective $0.50
ignition switch to kill people didn't work for a Chevy dealer... They were GM
engineers.

~~~
stepanhruda
You just knocked a strawman down

~~~
arbitrage
Good thing this isn't a formal debate, or else he might lose points.

------
suneilp
"the price of the cars that are sold needs to be high enough to cover the
costs of building and storing the unsold ones."

We shouldn't be having this problem anymore. It's a massive detriment to the
economies of scale model. Most people don't need to buy a car overnight, which
ironically is because they are so expensive.

Keeping a small amount of cars for test driving and personal inspection is all
that is needed. Then all that needs to be done is to batch up requests for
production and shipping. Charge more 2 day shipping. Maybe Amazon can get into
selling cars and same day deliveries for free with Amazon Prime.

~~~
jpfr
In Europe, only used cars are sold directly off the parking lot or showroom of
the dealer.

Normally, you choose the options (color, engine options, leather seats, ..)
and the car is built for you. You can pick it up some weeks/months later.

Manufacturers of high-priced cars may invite you to pick up the car at the
plant when it comes off the line. They have a special "experience" designed
around that.

~~~
nomercy400
To be honest, should it really take months to produce and ship that one car
through europe? Surely assembly lines are faster than that.

~~~
jpfr
Assembly lines require a huge investment and cannot scale beyond their maximum
capacity. So when a car turns out to be popular, the OEM (the brand that does
final assembly) or one of the many suppliers might run into a huge backlog.

That is most pronounced when orders spike after the introduction of a new
model.

~~~
SideburnsOfDoom
This has nothing to do with the colour and seats though. When "your" car
finally rolls of the line to should take ... what? 1 working day to spray it
the colour that you want and let the paint dry, an hour to bolt in your choice
of seats and Cd/Mp3 player.

~~~
hexadec0079
That is not how car production works. Paint is literally the second thing that
occurs after a chassis and body panels are applied. But otherwise, the working
time on a car from start to finish, including paint, is somewhere in the 10-20
hour range. Theoretically, your timeline could work but paint takes time to
cure, then needs polish and interior features take a while, although CAN-BUS
has certainly made the electronics easier.

------
devit
Maybe the dealerships and in general physical shops should evolve into paid-
for showrooms?

That is, you pay, say, $50, and you get to try a bunch of cars or in general
products that they have on loan from various manufacturers and get some
guidance from the staff if needed.

Then once you figure out what you want, you buy it online and get it shipped
to you.

Then there is no need to "protect" those shops, since the customer is paying
precisely for the only value they add, which is the ability to try out things
and ask for advice, and in fact the value of the advice would increase since
there would be no conflict of interest.

~~~
BinaryIdiot
If you're selling me something very big and expensive I better get a chance to
look at it up close and try it out. If you're going to charge me for that
experience then I will go somewhere else.

What should happen is the car manufacturers buy out the best dealerships and
simply sell the cars direct. It'll allow them to optimize their distribution
and inventory channels and give them a bigger margin overall. It's going to
put many dealerships out of business but it's an old business model that no
longer works in the world; you can't expect to keep it afloat when there is no
good business reason for doing so.

~~~
qq66
The car manufacturers actually lobbied for laws that prevent them from cutting
out dealerships, to remove barriers to entrepreneurs investing in building
brand-exclusive dealerships. The dealerships wouldn't have been built without
these laws protecting them, that's why the manufacturers lobbied for them.

The legal system in place was a precondition for the development existing
American car dealership network, and I doubt that the dealerships are going to
go down without a breach of contract fight.

~~~
dexterdog
Sounds like the same kind of nonsense that came with taxis.

------
adventured
A long time ago I saw an ad on the back of a magazine, paying tribute to
Dell's direct model. It was a Johnnie Walker ad, with a bar napkin. On the
napkin was written Dell's business plan; it had "make computer, sell computer"
basically crossed out, replaced with "sell computer, make computer."

Make the car -> sell the car

Sell the car -> make the car

This switch should have happened a long time ago. The near total elimination
of the vast inventory system. It would make most automakers dramatically more
profitable.

Dealerships should be replaced by small automaker-owned sales venues, stocked
with one of each model for test driving purposes. Customers order their car,
with some limited customizations. They come back in a week and pick up their
car, and save 20% off current prices. The automaker never builds a car that
hasn't already been sold.

~~~
btgeekboy
That elimination of the inventory system works great for cars produced
locally. What of those produced overseas, or even on the opposite side of the
US? Consumers can handle waiting a week for a car they ordered, but you can't
just throw a car into the UPS cargo hold and deliver it to the buyer's
doorstep a day or two later.

~~~
adventured
Just as an example, if you're Toyota, and you know how well your top five
models sell in the US, you'd either build two factories strategically located
near the west and east coasts, or you'd build one giant plant in eg Texas and
ship the cars west or east, splitting the time it would take to ship it across
the entire country side to side.

Most of Toyota's profit comes from just a few best selling models (that tend
to be their best selling models year after year). That's where you'd start on
this type of automation, and you'd invent new manufacturing technology
accordingly as necessary.

The criticism I see most often on the concept, is that it'd be challenging
because our manufacturing processes are pathetically ancient. I agree: it's
time to move manufacturing into the future. It's not a question of if it can
be done, it's: who is going to do it first.

------
mtanski
I'll post the same thing I posted in the Bob Lutz on the Tesla thread with
some amendments.
[https://news.ycombinator.com/item?id=10457754](https://news.ycombinator.com/item?id=10457754)

According to Bob Lutz having car dealerships is a pro. LOL, I am yet to talk
to anybody who actually enjoyed the car dealership experience weather it's
buying or servicing the car. The whole car dealer enterprise is a rent seeking
business. In many states you cannot have the manufacture sell the cars
directly. That's changing slowly -- thanks to Tesla -- the dealer lobby is a
big contributor in many local and state wide elections. The pricing for the
automobile / features is not clear to begin with. It's to the point that
there's many competing business that try to give you true car pricing. And,
every step of the way the dealership tries to extract another fee / charge for
you via various tactics like destination fees, myriad of financing fees,
unneeded insurance (tire insurance, ones that overlap with the manufactures
warranty).

Personally, I would love if the dealership model died. The alternative being
ordering a car online and having it show up at home at a scheduled time. I
imagine the same experience can be replicated the other way when the car needs
servicing, schedule it online and have it picked up / drop it off and a point
of aggregation of the car maker where they handle volume.

And before you tell me about the test drive and getting a feel for the car.
Meh. Your fooling yourself if you think that a 15 minute test ride will tell
you much about the cars performance, comfort or even layout. You will only
learn that the seats are uncomfortable on a 3 hour trip once you take that 3
hour trip. If a test drive is really important to you, you should really rent
the car for a couple days.

One could also make the argument that dealerships should go away based on
their general discriminatory tendencies. Here's a recentish paper quantifying
it:
[http://islandia.law.yale.edu/ayres/Ayres%20Siegelman%20Race%...](http://islandia.law.yale.edu/ayres/Ayres%20Siegelman%20Race%20and%20Gender%20Discrimination%20In%20Bargaining%20%20for%20a%20New%20Car.pdf)
. The quantify how much more dealerships by different gender / race. The
recent book named Phishing for Phools dedicates some time to this topic as
well.

~~~
AstroJetson
mtanski "you should really rent the car for a couple days." Exactly!

This what we do when we are car shopping. Normal cycle is to start looking
when the existing car hits the 8% mark in unscheduled maintenance (or 150K
miles) (your percentage may vary). Once we close in on the model we like we
find a rental and drive it for a week. If it passes we find a dealer, get the
model and what we want on it and then shop that info around between multiple
dealers in the area.

We never use the existing car to trade in since most are 10 years old and have
lots of mileage on them. When we pick up the new car we will offer it to the
dealer as a trade and decide at that point if we want to sell it to them. Last
cycle the dealer said he would give us another $200 off the deal if he didn't
need to take the trade.

------
strommen
The only real consumer benefit that this article describes for factory-direct
sales is cost savings from no longer carrying inventory. But that's a
completely separate issue: there's no reason an indy dealer can't have a low
inventory and custom-order new cars for all their customers.

Dealers carry a large inventory because it _works_. People (for the most part)
want to pick out their specific car and drive it off the lot. They form an
emotional connection with the car before they own it, and the dealer needs
that emotional connection to close the deal. Going factory-direct with a wait
time of several days would snap buyers back into logical reality, and car
companies _do not want that_.

~~~
nickff
If car companies "do not want" to sell direct, why did the dealers in so many
states lobby for laws which guarantee that the manufacturers cannot sell
directly to consumers?

~~~
strommen
The laws are typically guaranteeing that manufacturers cannot sell directly
_in places where they also have dealers_.

Because a regional car dealer with $X0 million of revenue cannot compete with
a multinational car manufacturer with $X0 _billion_ of revenue. Any time a
manufacturer didn't want a particular dealer around anymore, they could simply
drop their prices and drive them out of business. That's not a healthy dynamic
for a business relationship.

One could argue - and I agree - that the best way to handle this is via the
free market, and let manufacturers who do this sort of thing gradually lose
their distribution network due to lack of trust. But the short-term collateral
damage is high-profile bankruptcies, unemployment, and high auto prices.

------
kristianrjs
I love this article. I've only spent a year working in the automotive industry
between detail/lot attending, not even any sales. I've noticed some real big
problems with the way dealers do business. It needs a serious overhaul. I've
been working very part time on some of my ideas to reshape the industry. It
definitely needs some shaking up.

------
Tloewald
The situation with car dealerships is a quagmire. I'd suggest a broader,
simpler, and probably more politically viable solution would be a law
requiring _truth in advertised prices_ :

If you advertise something as $X then that is the _maximum_ total amount you
pay (tax-inclusive, all fees, etc.) Almost every other developed country does
this (except for hotel stays and some large ticket items, like houses and --
ironically -- cars, but we can do better, right?)

Now, I can imagine a sudden wave of protest -- but wait, what about state-wide
or nation-wide advertising campaigns -- this happy meal for only $2.99? Sales
tax varies from county to county, and then there are crazy exemptions, tax
holidays, etc.

EXACTLY. If you believe in markets then you should, at minimum, believe in
price transparency. (Free markets assume perfect information -- how perfect
can your information be if you can't even figure out the true price?) If this
puts pressure on states and counties to simplify their tax rates (under
pressure from businesses) then GOOD.

If the prices that get advertised have to be _real prices_ you get a huge
improvement in market behavior -- from real estate to healthcare to cars to
food -- immediately. And it will effectively demolish most of the issues with
car dealers since they'll need to quote _actual_ prices.

------
petemc_
Old but good related article on life as a car salesman:

[http://www.edmunds.com/car-buying/confessions-of-a-car-
sales...](http://www.edmunds.com/car-buying/confessions-of-a-car-
salesman.html)

------
6stringmerc
From time to time, I think the concept of car dealers has a lot in common with
the RIAA model of the music industry.

The RIAA has a vested interest in keeping "direct to consumer" models
sidelined, or, once enough critical mass is achieved, to bring that
artist/group into the fold. In reality, the RIAA system spends a lot of money
on behalf of artists/groups, in a similar notion that car dealerships are at
the forefront for manufacturers and brand stability. Sometimes dealerships go
bust, sometimes labels go bust...sometimes dealerships do so well they become
multi-million dollar enterprises (Don Huffines in Texas...now State Senator
Don Huffines), and same goes for record labels (Big Machine).

Both the dealership association and the RIAA push very hard in lobbying for
their own ends. As can be seen in the music industry, fans nor artists haven't
exactly jumped ship away from the RIAA system. There may be some similarities
in the dealership scenario, but time will tell.

------
donkeyd
In the Netherlands, you go to the dealer and order a car. The car gets built
to order, unless it's in inventory at a nearby dealer. The way it works in the
US sounds needlessly complicated to me.

~~~
pjspycha
Here in the US, we just bought a car and because they didn't have the model on
lot anywhere, we just ordered through Toyota the exact model we wanted with
all the features we wanted in preferred colors/finish. The dealership still
got a cut but they helped us select the car are made the process very easy.

~~~
donkeyd
That's good to hear, I was under the impression that this wasn't possible.

------
amha
If anyone hasn't heard it, there's a fantastic This American Life that follows
around a bunch of employees in a car dealership for a month. It's fascinating
and sad: [http://www.thisamericanlife.org/radio-
archives/episode/513/1...](http://www.thisamericanlife.org/radio-
archives/episode/513/129-cars)

Abstract: "We spend a month at a Jeep dealership on Long Island as they try to
make their monthly sales goal: 129 cars. If they make it, they'll get a huge
bonus from the manufacturer, possibly as high as $85,000 — enough to put them
in the black for the month. If they don't make it, it'll be the second month
in a row. So they pull out all the stops."

------
xacaxulu
This is the reason I like TrueCar. It's not a total solution, but it
definitely starts down the road of leveling the playing field.

~~~
sgustard
I used www.roadster.com to buy a new car online for my father in law. It gives
you a great price up front, and its experts do all the work of negotiating,
handle your trade-in, and deliver the car to you, so you don't have to step
into a dealership at all. Roadster's available in California so far. Check out
their reviews [http://yelp.com/biz/roadster-san-
francisco](http://yelp.com/biz/roadster-san-francisco)

------
OliverJones
Steve Rattner's book about the auto industry bankruptcies and restructuring in
2009 ([http://www.worldcat.org/title/overhaul-an-insiders-
account-o...](http://www.worldcat.org/title/overhaul-an-insiders-account-of-
the-obama-administrations-emergency-rescue-of-the-auto-
industry/oclc/515468255)) makes one thing clear: a major win for the US
manufacturers from their bankruptcies was getting out from under the onerous
terms of some long-term contracts with dealers. Also, the last holdouts to
getting the deal done were certain politically connected dealers.

------
Shivetya
How do you plan to buy out all the existing investment these dealerships have?
You certainly cannot legislate away their property without compensation. What
about the jobs? That is no small number. With those go all the local taxes,
benefits, and such as well.

Dealer direct, sounds good. Until you find out that car you really want has a
demonstration center that is too far away, in a place you don't want to go.
Until you find out repairs are done at an authorized shop that handles so many
brands they cannot get it right. Until you have serious problems with your car
and that manufacturer is so far away they can ignore you for a good amount of
time... and so on.

While not everyone has a good experience at a dealer I have never had a bad
one and considering the number of vehicles I have gone through, well. Dealers
aren't there just to sell cars. They they maintain them, they work to keep you
happy so you come back. This means they act as go between consumer and
manufacturer and can often push the manufacturer to fix things they might just
overlook.

Tesla is fine as it is now simply because they don't sell enough cars to
matter, let alone to the majority of people their cars are not affordable and
the customers who do buy have the time to go anywhere they need to to buy a
car or even have someone go get it. When, and it is a very big when, Tesla has
any real volume let us watch how they handle problems

~~~
dankohn1
The author isn't arguing to ban traditional dealerships; he's trying to remove
state laws that mandate the bundling of sales, service, delivery, etc.
together. If the traditional model makes sense in some places, it will
continue. But given that no other consumer good is sold that way, it is likely
that both producers and consumers will prefer an unbundled experience.

~~~
blumkvist
The state has other constituents besides the individual citizens. These laws
have very sound reasoning and prevent very real and very big problems. Blindly
running around, finding things to "disrupt" is not admirable. In fact, it's
the opposite.

~~~
dankohn1
In fact it does not. Governments exist solely to provide for people.
Everything else you've heard about -- companies, organizations, interest
groups, etc. -- are fictions that exist to help or hurt the interests of
individual people.

What you have in car dealerships is a classic example of regulatory capture
[0], where most people don't buy a car that often, so they're not particularly
focused on dealer laws. But dealers have all the incentive in the world to
lobby for restrictive rules. And, since dealers are by their nature
distributed, and often have the proceeds to be "good community citizens"
(e.g., sponsor a little league team), their views have even more weight.

[0]
[https://en.wikipedia.org/wiki/Regulatory_capture](https://en.wikipedia.org/wiki/Regulatory_capture)

~~~
blumkvist
Nevertheless, they do exist and are constituents whether you like it or not.

------
myth_buster
Is the savings from direct sales the reason for companies like BMW offering
sponsored visit to German factory for a buyer in the states?

------
ryanlol
If your business model is so terrible that you need protectionist laws to
survive, maybe you just deserve to go bankrupt.

------
Digit-Al
I am English, not American, so I may be misunderstanding this - but I believe
sales tax might prove an incentive for some states to oppose any changes to
their existing laws on this.

As I understand it, local sales taxes are paid to the state where the sale is
made. I assume every state has lots of car dealerships, but only a few states
have car manufacturers. This would mean that if everyone started buying their
cars online direct from the manufacturers then the taxes would go from being
distributed around the country to being concentrated to a few states. Surely
those states without manufacturers would lose a lot of sales tax if this
happened, so would have a strong incentive to oppose such a change.

~~~
mikeyouse
In the US, you're _supposed_ to claim the sales taxes for all of your out-of-
state online purposes every year. There's a supplement to your tax forms where
you can itemize all of the online purchases you made and how much sales tax
you owe. Since this form is voluntary and results in higher taxes, you can
guess how many people actually go through this step.

However, like TrisMcC says, most states assess Sales Tax when you register the
car in the state. So if you bought a car for $50k in Oregon (no Sales Tax),
but then registered it in California (7.5%+ Sales Tax), your registration fees
would be the standard fee + $3,750. If you bought your car more than 1 year
ago (in California at least), you don't owe any sales tax and if you bought it
in a state with lower tax, you just owe the difference.

For big online companies, we've started mandating that they collect sales tax
on behalf of the customers, so for instance, Amazon now automatically collects
sales tax based on where your billing address is. If direct sales were
allowed, there'd surely be legislation to ensure that the manufacturers
collect the tax for their customers.

------
jasonkester
This seems like an opportunity for an Uber/AirBnB move.

Find a jurisdiction anywhere in the USA where direct manufacturer sales are
legal. Negotiate with the manufacturers to handle direct-to-consumer sales for
them. Write your "app" so that customers can build their car online and have
the order go straight to the factory. Charge the customer a "delivery fee" to
get their heavily discounted car to them, from which you make your profits.

Seems like a lot of work, and a lot of fighting with a lot of bureaucracy, but
that's what all these "disrupt the industry" startups like to spend their
billions doing. I'm surprised that nobody is doing it today.

~~~
jpatokal
> Negotiate with the manufacturers to handle direct-to-consumer sales for
> them.

As in, found a startup and then negotiate with Ford, GM, Toyota, Volkswagen
etc about a deal that's _guaranteed_ to piss off the existing dealer networks
that make ~100% of their revenue and will view this as an existential threat?
Good luck with that!

Above all, this seems to assume car companies are stupid. Ford, GM & co would
sell their grandmothers to get an extra 6% margin on their cars, the reason
they're not selling directly already (in the US) because they figure it's not
worth the risk -- and if they _do_ decide to try, they're certainly not going
to give the opportunity to a random startup trying to form a new monopsony
that would leave them even worse off than before.

~~~
jasonkester
Thus the billions of dollars of VC and fighting mentioned above.

In the context of what you've written, though, can you explain why Tesla
chooses to sell directly to consumers?

They have the ability to sell through dealers, just like the established
automakers. And it would cost them a lot less money and hassle to do so.

Why then would they choose to sell direct if not that it actually made good
business sense to do so.

~~~
jpatokal
Because Tesla is starting from scratch and doesn't have an established
dealership network to worry about disrupting. The PR angle and having full
control over the experience also helps (see also: Apple Store).

And like Apple -- on second thought, much more so than Apple -- they're a
niche producer and can cover a good chunk of their potential customers with
only a few stores. For example, here in Australia, they've got two (2) stores
for a market of 20+ million, consisting of one each in Sydney and Melbourne,
while (eg.) Toyota has 36 dealerships in Melbourne alone.

------
bgribble
Yep, buying a car sucks. But this is one of the largest supply-chain
operations in the world. The dealer franchise system and its legal framework
have evolved over 100 years and are balanced pretty delicately. It can't just
be refactored by waving a regulatory wand at it and hoping for the best. Cars
will still have to be warehoused, delivered, serviced, and resold. Somebody
has to buy your old junky trade-in. Somebody has to run the showroom, if you
want to actually like see the car before you buy it. So we're going to do a
regulatory taking of the franchise, worth millions of dollars per dealership,
and then have the manufacturer open a showroom and warehousing lot and service
center in every town and city that has a dealership? Or just open a direct
sales channel to compete with dealers, but make the existing dealers perform
service and deliver inventory? And take your trade-in?

Manufacturers hate dealers. It's mutual. The only reason consumers don't hate
the manufacturers so much is that they have never had to deal with them
directly. Dealer protection laws are there because manufacturers have a long
history of trying to steal from dealers, cheat them, and put them out of
business at whim. Those are the manufacturers that consumers are asking to
deal with directly. I'm sure they'll treat consumers better than they treat
their business partners!

~~~
rlpb
> Dealer protection laws are there because manufacturers have a long history
> of trying to steal from dealers, cheat them, and put them out of business at
> whim.

That doesn't justify them. I thought the US is supposed to be anti-regulatory?
Why didn't dealers handle this by becoming primarily multiple-manufacturer and
thus able to switch to or favor a different manufacturer at whim?

~~~
adventured
The US is quite regulated overall and is anything but anti-regulation at this
point. It has more laws governing its economy than any other nation, and adds
thousands to that tally annually. It's not an exaggeration to say that nobody
can keep up with it all, and that's before getting to the insane tax code. It
hasn't been a classic free market of very low regulation, in nearly a century.

George McGovern - politician turned entrepreneur - wrote one of my favorite
articles on the subject in 1992:

[http://www.wsj.com/articles/SB100014240529702034064045780705...](http://www.wsj.com/articles/SB10001424052970203406404578070543545022704)

------
steamer25
Related CollegeHumor/truTV info-tainment spin-off: Adam Ruins Everything - The
Real Reason Car Dealerships Are the Worst

[https://www.youtube.com/watch?v=uMWmYJOa-
BM&list=PLZxWJ6CTr6...](https://www.youtube.com/watch?v=uMWmYJOa-
BM&list=PLZxWJ6CTr63Z4OYR3gdMEEog5Zju5ihyu&index=6)

------
stretchwithme
I recently bought a new car and I bought it just like my last one. I contacted
the fleet managers at nearby dealers and asked for a price for the model and
options I wanted. Then I just accepted the best offer that didn't require too
much travel.

Oh, this time I tried Truecar first, but the fleet manager price was lower.

------
31reasons
Kill the laws that unfairly protects X business.

------
mgalka
Is it just me or did this problem fly completely under the radar during the
govt bailout?

~~~
breischl
They wouldn't have touched it at that time anyway. The point of bailouts is to
increase (or at least maintain) employment and the economy. Dismantling a
sprawling industry which provides many jobs that are available without degrees
or other credentials would have defeated the purpose.

------
alaskamiller
This is why Apple will take over the car industry.

Integrate the best supply chain management, best logistics, best customization
processes, best personalization processes, best servicing processes, best
retail sales force, best legal compliance/adherence processes.

Then look at how to make a giant iPod on wheels then deploy.

~~~
mikeyouse
It's interesting that everyone assumes Apple's supply chain is superior to all
of the auto companies. When looking at a Cost of Goods Sold basis, all of the
big auto companies spend far more money on their products than Apple does
(GM's COGS is several tens of billions higher than Apple's) -- and their
margins are much smaller, so managing their suppliers and logistics matters
much more to the auto companies' bottom line.

A single car has ~30,000 parts.. an iPhone has, what, a few hundred?

Why is it a given that Apple is going to be successful at doing something that
they've shown no skill in actually doing?

~~~
alaskamiller
You assume that a car will always have 30k parts and that Apple doesn't know
how to manage more 1k parts.

Remove the combustion engine and its related systems, don't get beholden to
legacy, and how many parts will a battery operated car really have?

To an ambitious team backed with plenty of money and expertise this is their
dream come true.

------
Digit-Al
What about used car dealerships?

------
fjdjcjfjejs
ITT:

>Let's take money out of local communities and place even more wealth and
power in the hands of wealthy megacorporations!

HN truly disgusts me sometimes.

~~~
MagnumOpus
Local labour is inefficient, expensive and highly variable in quality.
"Protecting local jobs" works against economies of scale and results in more
expensive - and often worse - service.

People vote with their wallet against the local corner store and pro Trader
Joe/WholeFoods, against the local radio shack and pro Amazon/Newegg, against
the local carpenter and pro IKEA. Their lives are better and they are
wealthier for not having to spend $50 on a HDMI cable or $800 on a kitchen
table.

~~~
fjdjcjfjejs
Removing protections for dealerships isn't about increasing efficiency:
automakers simply want a larger share of the profit. These corporations
wouldn't be clamoring to kill dealerships if they were going to take the
profit out of selling cars.

This is just going to result in capital flight from local areas, directly
making them poorer. Unless you're a major shareholder in one of these
automakers, by advocating for the deprecation of locally owned dealerships,
you're advocating for making yourself poorer.

------
nevinera
I was nodding along until that last part, where it indicated that our best
answer was to have the federal government extort states into behaving as they
ought.

~~~
shmerl
That's what had to happen with FCC repealing local monopoly protectionist laws
which ban ISP competition. How is this any different?

