Whether you are buying your first car or you already own several, you must have wondered at least once why we have to make these purchases at a dealership. After all, there should be other options, right? Take a TV for instance – you can buy one at a retail location, online or directly from the manufacturer, even if it costs $20,000. Yet when it comes to new cars, only a dealership would sell you one.
Admittedly, things are changing, with Volvo having recently announced its transition to the online world and Tesla already doing what every other brand isn’t – selling vehicles to customers directly.
So, why aren’t there any other options? Wouldn’t they make the industry more profitable as a whole? This choice rests squarely in the hands of car manufacturers, but they haven’t budged yet. Here’s why they prefer to keep things “traditional”:
Reason #1: Simplicity
Building a car is not the same as selling one to the public – mainly because each process requires its own mindset and skills. To make sure the two don’t intertwine, manufacturers “outsource” sales to organizations that are more qualified to handle them, which in this case are dealerships.
Admittedly, there are companies, like Apple, which are able to successfully take care of both a large manufacturing business and a huge retail business, but they arguably are an exception to the rule rather than the norm. Most businesses can’t handle mixing the two because doing so requires a company to essentially split into two halves.
Reason #2: Cost Effectiveness
It can cost up to $1,000,000 or more to build a dealership in Canada, and that doesn’t even include the price of the land it would occupy or the operating costs. In order to be successful, a vehicle brand needs a whole network of dealerships across the country, because otherwise they wouldn’t be able to reach their potential customers. Many manufacturers simply don’t have enough capital to invest into something like this, especially when they are just getting started. By selling franchise rights to dealers, manufacturers get to save money, which they can invest into manufacturing more vehicles.
Reason #3: Guaranteed Earnings
Most car buyers may not know this, but manufacturers consider a vehicle sold the moment it reaches a dealership. They do this because they want to profit from their inventory right away, leaving the consumer side of things up to dealerships. In fact, the majority of manufacturers make regular inventory purchases obligatory as a condition of their franchise. This allows them to sell their vehicles even if no one outside of dealerships is buying them. Of course, automakers are not heartless enough to overwhelm their dealers with too much inventory, but it’s definitely not beyond the realm of possibility.
Reason #4: Market Penetration
Another reason why manufacturers like having car dealers is the fact that they are tied to a specific geographic market – a market that they know because they are from there. For instance, a dealer in south Ontario may want a different set of vehicles than a dealer in British Columbia. Dealers can order only the cars that they know will sell. In fact, manufacturers can build cars based on the expertise of their dealers instead of trying to figure out which features and packages to include for one market versus another.
Reason #5: Local Service Centres
Aside from selling cars, dealerships also offer services, including maintenance and repairs. This means that they get to take care of recalls, warranty fixes and other problems. By establishing thousands of dealerships, manufacturers get to take care of their customers without actually taking care of them.
If you are about to head to over to a dealership, be sure to check out the following deals:
2015 Scion FR-S Coupe Automatic
MSRP: $27,850
Total Savings: $1,103
Manufacturer Incentive (After Tax): $442
Unhaggle Savings: $661
Mandatory Fees (Freight, air tax, etc.): $1,830
Total Price Before Tax: $28,577
2015 Lexus CT 200h 2WD Hybrid
MSRP: $31,050
Total Savings: $2,067
Manufacturer Incentive (After Tax): $885
Unhaggle Savings: $1,182
Mandatory Fees (Freight, air tax, etc.): $2,130
Total Price Before Tax: $31,113
The incentives above are for cash purchases only! For more information on financing and leasing incentives, consult the Unhaggle free dealer cost report.
