The real interesting point in all of this to me is how hard it is to innovate in this space on account of state legislatures essentially subsidizing car dealerships.
"So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site."
While I know that there are a lot of people employed by local dealerships in the sales department, I can't help but thinking that a lot of these jobs essentially add a percentage cost to new cars with no value added. Which, of course, means that since innovation is a threat to these old business models, most of these dealerships will only be doubling down on legislation and protectionist policies that stop or slow genuine innovators like the guys at CarWoo and TrueCar.
If they don't, there's another 1.2 million jobs lost to technology in a country that has no answer to the growing imbalance between working-age population and gainful employment opportunities. Progress can be a very damaging thing for society on some levels.
I'm tempted to delete this comment because of the quick downvotes, but I'm not going to. I think it's a valid thing to think about at the very least.
I think about it all the time. Especially at the supermarket when I see the automated checkout line.
Then I head directly for the automated checkout line and tell my wife that the main reason I use those is because I like the idea of computers putting unskilled labor out of work, because I'm a bastard like that.
All the more reason we need to support education from an early age and more importantly get back to supporting journeyman and trade education -- so we have less unskilled labor.
This worldview presupposes that there is and will remain enough skilled-work jobs to employ the entire working age population now and in the future. Whether that is safe to assume is what nags at me from time to time.
If for every 4 cashiers replaced by self-checkout, the self-checkout companies only create 1 job, what's the end game? Will we figure it out before millions get aged out of the workforce in their 40s and 50s, too soon to have accumulated a means to retire?
If we get to a point where we can do all the work we want to get done with, say, 1/4 of the workforce, then everyone can work less, or the average amount of one's life that one works can go down, etc.
There isn't necessarily value to "having a job" (especially when you talk about all the unskilled jobs that are going away, which are often jobs that people are doing purely as a means to support their life); there's value to being able to live and have the life that you want. If getting everyone they life they want takes less and less work, cool.
But really, people will likely just keep wanting more and better and we won't run out of work to do
It's tempting to think that technological progress can lead to a reduction in the number of hours worked or allow us to retire sooner, and I agree that in theory it is possible. But our economic, political, and social structures will never allow for it.
Who is going to pay people the same to work less? Indeed, as we need less and less labor, there will be downward pressure on wages, which will make the situation (for the average worker) worse, not better. The economic actors who benefit most from technological progress are those who own the most capital, and their earnings from that capital are taxed at such low amounts that it won't provide money for the government to sustainably pay people to work less either.
Despite the huge advancements in productivity and technological advancement, we still have a lot of pressure to end or cut back on things like unemployment insurance. Despite the number of unemployed people, we still have pressure to increase the retirement age. Even as we are rapidly approaching the point where many industries could still be profitable with 30 hour work weeks, we push more and more jobs into exempt status, making it far, far more likely that you'll work a 50 or 60 hour work week long before you work a 30 hour week.
I'm not advocating purposely slowing technological progress, but we do need to be aware of the ramifications of it and figure out ways to deal with economic conditions where we require significantly less labor than is available. Our current economic and social constructs aren't really setup to deal with this sort of situation.
"If we get to a point where we can do all the work we want to get done with, say, 1/4 of the workforce, then everyone can work less"
That, I doubt. The work that remains requires highly-skilled labour. I think there is a fraction of the potential workforce that will never reach a level at which it can work the remaining jobs. I also think that fraction grows as automation increases (human dishwashers? Gone. Bank tellers? Gone. Bus drivers? Not gone yet, but that could change in ten years). Net effect: there is less work, but we cannot distribute the work that remains over the same fraction of the population.
Dare I suggest it - part of the problem here is the minimum wage. I'm pretty ambivalent about even writing that, but before you downvote me, think about it. The only way it makes sense to hire a human is if you expect to make more money from having them than you pay them in wages. Which means (in the US) that human labor has to be worth more than about $10 (including taxes and benefits) per hour to even consider. It's just not worth hiring a human dishwasher at that rate. Would it be at $3/hour? Perhaps.
The trouble, of course, is that we've already been on the automation train long enough that it's not quite so simple as just removing the law now. Is not like flood of low-paying (but greater than zero-paying) jobs will materialize out of thin air.
With it, minimum wages could be abolished. Then that flood of low-paying jobs will materialize, not out of thin air, but out of China. It will, likely, also bring back jobs in shoe repair and the like.
The main benefit for me is that because most people are afraid of them or don't see the benefit, the line is shorter. When the regular line is shorter, I still use them.
This is probably a style thing - I shop 3-5 days a week on my way home, which means I never buy more than a bag or 2 of grocs and the automated machines are always faster. It also keeps things lighter on the walk home, and food fresher.
This is probably not a choice i'd make if I didn't live in a city and commute by bus and bike.
I LOVE the automated checkout line. The queue is shorter, my yoghurt isn't packed next to the hot roast chicken, and a cashier isn't there to sneeze on my lettuce or silently critique my snacking habits. Not to mention the irrational fear of embarrassment when you're walking out with feminine hygiene products or lube or something -- it doesn't matter when you're packing it yourself.
If they don't, there's another 1.2 million jobs lost to technology in a country that has no answer to the growing imbalance between working-age population and gainful employment opportunities.
Let me re-cast your comment, circa 1900 (or 1800):
"There's another one million agricultural jobs lost to technology in a country that has no answer to the growing imbalance between the working-age population and gainful employment opportunities. 'Gainful' employment doesn't mean that you yoke yourself to someone else's factory somewhere; it means you own your own plot of land and work it."
I'm tempted to delete this comment because of the quick downvotes, but I'm not going to.
The reason you'll get downvoted is because your comment fails to account for productivity and other gains from trade or specialization; taken to the logical extreme, ensuring that no jobs are "lost to technology" means that we all live as hunter-gatherers, since any level of further technological development will put someone "out-of-work," even if that work is of no value.
This is going to sound harsh, but if you don't want to be downvoted, learning some economics first (and I'm talking about micro-econ—the stuff that works).
I understand the economics. I'm not against progress. I just commented that the real suffering it can cause people is something to be aware of.
I'm watching my parents, aunts and uncles struggling to even get interviews after months of unemployment following decades of gainful employment at companies that downsized during the recession. These are mostly white collar workers that never had trouble finding a job with a few days or weeks of searching all their lives; suddenly they don't even hear back after applying to dozens of companies.
It's the productivity gains technology continues to create that allowed hundreds of thousands of businesses to lay off workers during this latest recession while maintaining and growing their profits. Society progresses, yet a significant portion of it suffers during these changes nonetheless.
Your comment admonishing me for being somewhat troubled by this shows a lack of empathy.
If people want to bring back the Works Progress Administration, so be it. But special legal favors for certain industries distort the economy (even though they may help).
I feel like that is the way this has to go in the end. When almost all our needs are taken care of through automated processes, and only a few people have the skills to contribute to the creation and maintenance of that automation, we are going to need a large orginisation (logically government) to provide the rest of the population with livelihood.
While I agree with you that the change brought on by progress can be very damaging to the elements of a society that have been made redundant, I think you have to step back and take a look at the big picture.
As I see it, when you are presented with a change that adds efficiency to an area of the economy (and thus reduces the amount of labor required to get to the same level of output), you've got a choice to make. Either you can attempt to maintain the inefficiency (in this case, redundant car salesmen) in order to keep those workers in a job or you can attack the root of the problem and put those workers to work doing something that adds value to the economy.
I'm not saying that there aren't moral and ethical arguments in trying to keep a job for those workers, because there, especially from a societal standpoint. But from an economic standpoint, maintaining those inefficiencies typically leads to systemized exploitation of artificial inefficiencies (case in point: smuggling to bypass protectionist tariffs) and that wastes additional effort that could be adding value to the economy.
If the article has it right, the car dealers and manufacturers are complaining that making the market more transparent and open will kill the industry. These companies seem to believe the basic laws of economics don't apply to them.
If you assume a simplified, econ 101 model, a competitive and transparent market will drive prices down to the point where most firms are making a low but sustainable profit. It should never drive prices down to the point where most firms are losing money in the long run.
Now, the real world is more complex than econ 101. But even so, I can't imagine a scenario where transparency and competition would have the long-run effect of putting an industry out of business. If all car dealerships were totally transparent about their pricing, and buyers could easily view pricing data from every dealership, how would that force dealerships to price cars below cost? A race to the bottom does not assume a bottom of zero, or even a bottom that's below sustainable levels. Rather, it should imply a bottom where companies make a small, but reasonable profit.
It could, however, put some of the less-well-run dealerships out of business. The equilibrium number of dealerships might be smaller than it is now, as reduced margins support fewer salespeople. I'm not saying that's necessarily a bad thing overall, but I can see why the dealers might not be too keen on it.
Hardly, they have great marketing, but not exactly bare bones pricing. They cost the dealer 300$ for the sales lead which means their price is always higher than what a dealer will do directly. Last time I checked they where 600$ above what the dealer was willing to offer after a few minutes of haggling. Though, it's not a bad price if you hate haggling.
Hint, most dealerships make more money from their service departments than their sales floors. Use that to your advantage when buying a new car.
Interestingly, dealers already sell some of their new cars below cost. But they make their money back with service and financing charges, so the basic laws of economics still apply.
I 100% agree. The labyrinth of laws surrounding car sales and dealerships is decades beyond being useful, it if ever was. It's an egregious insult to capitalism how it works now.
Thought I'd give my $.02 on this. I'm CEO of CarWoo! and we are right in the middle of disrupting the space and you guys are right it is extremely difficult, but it is possible. It's not so much of a disruption as it is an effort to level the playing field and bring an online buying experience to car buying.
It is possible to innovate here, you just have to do it the right way, within the laws that have been setup to protect the consumer and the dealer. It doesn't have to be a race to the bottom. What we see on CarWoo! are dealers offering market competitive prices and then competing with each other on things outside of the vehicle price. Things like professionalism and responsiveness become extremely important when all other things are equal (price and vehicle). Over half the consumers on CarWoo! buy from a dealer who didn't have the lowest price. A race to the bottom only exists if the only dimension visible to the consumer is price. On CarWoo! we emphasize the customer experience you're likely to get from the dealer which adds another dimension to the decision. Dealers love this, so do buyers.
The big issues in question are the brokering laws (getting paid a fee to refer someone who buys a car), privacy issues and dealership advertising laws (all vehicle offers must come with a vin and stock number). From day one at CarWoo! we have been keenly aware of these issues and worked within the rules to provide a highly valuable consumer experience, while working within the laws. It is absolutely harder to do it this way, but it can be done.
We don't believe haggling will ever go away, even if manufacturers move to a "single price" system like Scion. There is a distinct advantage for one dealer to break the rules and provide a lower price, so they will and the single price systems break down. We see Scion dealers discounting all the time, by the way. The only way to break out of this if you're a dealer is to be better at customer service and cater to your buyer's specific requests. Automation can not solve that problem, so selling cars will always have a dimension of personal touch and relationship.
What needs to be in place is a platform where buyers can shop multiple dealers online and dealers can work out the details of their car purchase before they show up at the store. This let's great dealers shine and helps them keep their margins in a highly competitive market. This is what CarWoo! provides and we've done it within the complex and ambiguos web of rules in this space. Innovation is possible here, and yes it is extremely hard. Harder than I ever imagined. But that's why it's such a huge opportunity.
One other thing I'd like to point out is the laws surrounding dealership advertising and brokering are extremely important to protect the consumer, therefor the scrutiny in the article. We agree with the laws and they do need to be in place. Here is why.
Dealership advertising laws require a vin/stock number and an expiration date to come along with all price offers. This protects the consumer from bait and switch problems which are rampant in this space. Without these protections dealers and vendors can simply make up prices to draw people into the store and when they show, switch them to something else.
I understand in depth the challenges involved in doing this right from a product standpoint and it would be orders of magnitude easier to provide a product that doesn't include a vin/stock number (a topic for another post). But the problem is consumer perception is wrong and misleading. If someone comes to my product and car buyers can get prices on a vehicle that may or may not exist (no vin/stock number) you are enabling bait and switch scenarios. On CarWoo! you will not have this problem, all offers have a VIN/Stock number and an expiration date.
Brokering laws (getting paid a referral fee from the dealer when someone you sent to the dealership sells a car) are also in place to protect the consumer. I had one of our ex-dealers that work for us explain this to me, because at first I didn't understand why this was a consumer protection issue. He used this example. It may be a bit out of date, but it illustrates the point. Let's say you're in a town with three or four car dealerships and the preacher in the town establishes a relationship with one of the dealers where the dealer will pay the preacher $500 for every customer the preacher sends their way that buys a car. On Sunday this preacher uses his influence to recommend people should buy from his favorite car dealer. The people in the congregation listen and when they go to buy a car, they go to the preacher's favorite dealer. The preacher gets paid, the dealer marks up the car $500 to pay the dealer and the consumer essentially paid $500 more than they had to. The brokering laws are in place so disclosure about the financial relationship between the buyer, the dealer and the broker are transparent.
Essentially you can get a better deal as a buyer without a broker and you should know upfront that's the case.
Hope this helps, it's taken me four years to understand all this stuff.
Tommy, I appreciate the fact that you are working to disrupt this industry, but it appears that you are treading on eggshells when it comes to the real meat of the disruption process. This whole thing sounds like a classic CARtel. Pun intended.
Are there really laws in place that block the process of open market pricing competition for cars? If so, that is crap and you should be focused on fixing that. I believe that a race to bottom on car pricing would actually give dealers an incentive and opportunity to better market and highlight their ability to consult and service consumers vs. haggling for a widget.
Dealers better start understanding that the race to the bottom is already in progress and it is only a matter of time when the well established model will have to adapt.
I'm the Creative Director at CarWoo! Just wanted to focus in on a few things Tommy said above, as I think it will provide some good input to the discussion going on here.
2nd paragraph - "What we see on CarWoo! are dealers offering market competitive prices then competing with each other on things outside vehicle price. Things like professionalism and responsiveness become extremely important when all other things are equal (price and vehicle)"
CarWoo! has a dealer rating and ranking system. In the same way, for example, Amazon or eBay has seller ratings. When buyers go through the CarWoo! product they choose which dealers they want to work with based on ratings and reviews (among other things).
Let's say you go to Amazon and are looking to buy some headphones. You find these headphones for the about same price. One is $10 cheaper. However, one seller has a 2 star rating and the other has a 5 star rating. Which one are you going to buy from?
Now, let's say you go to Amazon and you're looking for those same sweet headphones BUT there are no ratings. All you can see is there are two sellers. One is $10 cheaper than the other. Which one are you going to buy from?
The same thing is at play here in the Automotive space. This is why above Tommy said "A race to the bottom only exists if the only dimension visible to the consumer is price".
> Automation can not solve that problem, so selling cars will always have a dimension of personal touch and relationship.
Why not? Other than stricter law(?), what is the differentiating factor of selling a car vs selling other physical stuff (e.g. laptop, camera lens or jewelry) which makes it hard to automate (or 1-click purchase, more or less)?
The opaque car market does tend to increase revenues for dealers, but no one has explained how it incentivizes them to provide a better product. How could it? Car purchasing may well be a multi-dimensional problem, and price only the most visible dimension; innovation could explain those other dimensions better (like TrueCar is doing for price). But why should opacity remain a part of this process? Every car may be a unique snowflake (really?), but the price should be a function not of the buyer's bargaining power, but the car options.
The wrong incentives are unlikely to produce the right result; we know this from ECON101, why should markets for cars be exceptional?
Did not like the self-promotion here.
Finally: this article was not nearly opinionated enough. The article explains that the cars industry doesn't like TrueCar; but then it doesn't explain the argument against TrueCar. This is a common journalistic mistake; I'm happy to disagree civilly, but don't sacrifice the discussion to civility. If side X doesn't have a point, then just say so. In a debate, I'd rather have my points demolished than politely dropped. And readers are confused; I reread this article because I thought I had missed something...
"Car dealers have haggling advantages over purchasers: - You buy a car perhaps once every three years, perhaps once every ten."
Correct, this is no different than the mattress industry or bridal industry. There has to be a large premium over the price of the product to support the people operating the business. This is because there are established points-of-sale that were established before doing direct business with the consumer was reasonable, or because there is some additional value added during the sale by a physical presence (test drive, testing a mattress, getting fitted for a gown).
The remaining issue is eliminating the "icky" feeling that comes with buying a mattress or car. This could be eliminated if franchise laws could be repealed, but that's a hard battle. I believe Chrysler had set up a dealership recently in L.A. (to sell Chryslers, Jeeps, Dodges and Fiats), but dealers pointed out how it was illegal and had the state force that dealership's closure.
Imagine if there were brand-owned dealerships, that eliminated the haggle, leveraged their distribution networks to minimize the numbers of actual cars on their floor plan, and allowed customers to buy direct for a flat price. Would be nice, right? Actually, this is possible, but it does involve a bit of legwork. I've bought my last two cars straight from the port of entry, but a lot of legwork is involved, as is developing a relationship with the right individuals. I should blog about that one day, as how to get around the nonsense of the mattress industry.
I'll partially agree with you on this. Car buyers do only buy cars once every few years, but the amount of information available to a car buyer is incredible. You can know exactly what a dealer paid for the vehicle you're about to buy if you try. Dealer's are in somewhat of a vacuum from a data standpoint. Most of them have no insight into the buyer's shopping experience... meaning how many dealers are they talking to, were they on KBB/Edmunds, are they cross-shopping, etc... They may be better at haggling, but it's somewhat by necessity at this point to hold what little margin they can.
Consumers are armed with information and tools, dealers have a lot of challenges fighting this. Lots of people probably don't realize that at CarWoo! this is one of the issues we're helping dealers with when they use our product to engage with buyers. Only when both sides of the selling equation have an equal chance will the bad buying (icky) experiences go away.
Here's what I did the last time I bought a car. ($200 over dealer invoice, tax included out the door)
* I figured out the car I wanted ahead of time. Do not do a test drive with the goal of buying the same day. You will not get a good deal
* This also included all the options that I wanted. GPS primarily
* I started calling around the last week of month to various dealers within 100 miles.
* I offered a price, if they didn't want to play, I gave them my number and rang off.
* By the last day of the month, I had the price I wanted in hand and probably could have gotten another $100 off but that was at the point of diminishing returns for me.
* Took a 2 hr lunch break to go to the dealership to deal with the paperwork.
* 0% financing
* Nice and stress free.
Same deal with mattresses. I shaved thousands off the list price.
Thing to keep in mind is that they are always going to win. The goal is not to beat them but to minimize their "win".
I believe that the key point here is calling around first. Walking into a particular dealership without a negotiated price is like giving away your best asset in this negotiation - the right to choose the dealer.
Joking aside, a quality mattress can last for decades (and will often have a manufacturer's guarantee of such). The price of the mattress is surprisingly non-correlated with the annual cost of ownership:
As someone who's been through this process recently, I've never understood why car buying has to be this way. The whole process has a sleazy feel of I'll try to rip you off by as much as I can get away with. Car prices go lower as you reach the end of slow months when the sales teams don't reach their targets, they go higher earlier in the month .. it doesn't make any sense at all.
Why not just have an MSRP like the on the manufacturer's website and sell all cars at this price? The dealer can get a constant profit on the car price & servicing, buyers can feel less ripped off and everyone wins? It doesn't really have to be a race to the bottom..
Because (some) people like to get a "deal". And if you move your car brand to "no dicker stickers" and I don't, I'm likely to capture a share of the "likes a bargain" shoppers, though I admit I'll lose some of the "likes a sense of apparent fairness shoppers" to you.
Now, what happens when you have a "no dicker" policy and you need to move a car for whatever reason? Maybe the new models are coming out. Maybe the dealer needs to raise some cash to meet his loan payments. Maybe a model is intended for snow/foul weather usage, and you shipped too many of them into New England, expecting a normal winter. How do you entice customers who will eventually need a new car (according to them) into buying your car from your dealer now. Do you lower MSRP across the board for year-end models? That could work. Do you lower your MSRP only in New England? That could work, but smells worse from a globally consistent pricing point of view. Do you allow just the dealer who needs cash to lower his price? Well, you can't really do that and have any notion of consistent pricing.
And that's just the problems in the new car market, where a given car could be identical to any other any equivalent car. In the used car market, it gets way, way worse (in terms of complexity and sleaziness).
I mostly agree with your response, but it isn't entirely accurate. You can sale-price items that have a constant retail value.
If you see a sale in a supermarket, you don't think the price is inconsistent or that you need to haggle over cereal prices. You just realize it is a temporary sale, a discount on the normal price.
Agreed, but once you do that, you get away from tejaswiy's idea of just "sell all cars at that price". I don't have an issue with negotiated prices or sales, but some do.
This is a flaw in inventory control (too much of it), and it can be fixed. The toyota production system is about getting the car to the customer as quickly as possible.
If you were smart you would organize your production/inventory into a Just In Time system. Every car is a bespoke order, each store has a demo of each type of vehicle available for test drives.
There's already an order of magnitude more used cars going around that fundamentally can't fit this model. Savvy individual buyers don't buy new anyway; setting up your new car distribution system based on efficiently serving a savvy customer in a way that doesn't extend to the rest of your business doesn't make much sense.
To add to the "likes a bargain" response, there are people that don't know they should haggle over price. I have an extended family member that walked into a dealership, got a price quote and signed the dotted line - no haggling at all.
They definitely got ripped off. To be fair, these people are entirely incompetent with money in general. But I imagine there are a good number of individuals that get totally screwed over without realizing it, effectively padding the bottom line of dealers.
The worst way naive buyers get screwed is by negotiating payment not price.
The last few cars I've bought I found on Craigslist and bought from a private individual. Only way I'll do it from now on. I really see absolutely no value that a dealership brings to the transaction.
payment, not price? so were not talking about people buying cars, were talking about banks jbuying cars for people and expecting interest on top. now i see why this is. onfusing.
why would you ever buy a car on anything but price? if you have to borrow for it swallow your ego and buy something you canafford..... simple.
That's just it. In many people's minds, if the bank or manufacturer-affiliated financing arm will loan them the money, then that fact tells them that they CAN afford it, and they get an ego stroke for having been such a wise consumer, manager of credit, and provider for their family.
Same exact facts, opposite conclusion to your line of thinking. (I agree with you, in case it wasn't obvious.)
in your view theygot ripped off.
in eir view, they were happy with what they got forthwir money, hence not ripped off.
a rich man can buy a persian rug for thousands of dollars and behappy he did. a poor student cabuy samerug for 50 bucks and be happy with his negotiating skills. the guy who sold the rugs is happybeause hesold teo rugs.
for the record, i dislike how carsare sold as wel...... but in the end, it should beas simple as making your choices wisely.
These people are well over $80k in debt, have defaulted on their debt once in the past and could probably be featured on the "Hoarders" show.
No, they were ripped off. They walked into a dealer and bought an overpriced car with no haggling.
To make the story even better, the car had illegally tinted windows (driver's windows were tinted past what my state allowed). After getting pulled over and a ticket, they paid out of pocket themselves to get the windows fixed...instead of demanding the dealer does it.
GM tried this with Saturn, among many other innovations; Saturn failed, but it sounds like the failure was due to internal strife, not the no-haggle pricing.
Car dealers have haggling advantages over purchasers:
- You buy a car perhaps once every three years, perhaps once every ten. They sell a car at least once a week.
- You are basically alone; they are a team.
My sister started buying cars via fax quotes about 12 years ago. When she's figured out what she wants, she sends requests for quotes to every suitable dealer within 100 miles. (Now she uses email, of course.)
They still don't expect this minor effort to put them into competition with each other, and it seems to have worked in her favor every time. It's nice that TrueCar is automating this; perhaps more people will use it.
I used CarWoo to buy my car. The price I paid was a clear $1000 under the "Great Price" that True Car suggested, and under the estimated Dealer Cost.
Nevertheless, I don't see these services as viable long term -- it's a race to the bottom. With manufacturer sales incentives, the smaller dealers are bound to get squeezed out by volume/commodity dealers.
It's not really that difficult to get a good deal on a car. The key is knowing which car you want ahead of time: make, model, color, and accessory packages.
Then, all you have to do is call all the local dealers in your area and ask for the "fleet manager." Tell the fleet manager your requirements, and ask for a selling price. (I've never had a fleet manager renege on the deal.)
As you call around, tell the fleet manager the lowest price you've been offered (don't lie) and see if they'll make a better deal. Continue this process until you've exhausted your options. Then walk in, complete the sales paperwork, go to the finance office, refuse all extras politely, and you're done.
Note that these programs are often rebadged "aggregators". For example, AAA's "auto sale" program is Zag (Truecar). Costco's is Affinity Development, http://www.affinitydev.com/index.html
Not saying that anything is wrong with these, but just saying that if you trust AAA or Costco's internal controls and skills, you aren't getting those in these services. You are getting AAA or Costco's willingness to license their name.
As is posted many times in this thread, it's down to time vs. money. These services get you 1/2 to 3/4 of where you could get yourself, at a cost. You could do better, sometimes much better, with more time, but that's for each person to decide.
not really, car dealers make most of their money on their service department.
That new Civic might net the dealer a $500 profit....but if that car comes in for a single service, they'll net more than that from the repair. And yes you aren't paying any cash for warranty work...but the dealer gets paid by the manufacturer, so they don't care.
That's for dealerships. There's tons of small used car dealers that operate on empty lots or out of their garage. Their profit is derived solely from car sales.
I agree partially. I have been in the auto business for 20 years and have talked at length with dealer principles. My brother ran a dealership for a number of years. The money a dealer makes at the time of sale is in Finance and Insurance (F&I), as well as preloading with accessories before purchase (disclaimer, I sell truck accessories to dealers).
It is common to add points to the deal on the financing. I purchased a Jeep last year and the dollar amount was right (went through the internet guy) but they attempted to stick it to me on the finance - 8.99%! So I walked out and told them to call me when it was 4%. A few hours later they called and said we had a deal at 4%, so I had them deliver the Jeep to my work. When I used to sell automotive equipment to dealers ('90-'01), MY finance companies always gave me the option to pad the deal. I could add up to 2% to the interest rate and the finance company would give me about half of the extra interest charge. While I thought this was a sleazy practice and never did it myself, on many of my deals the interest money would have far exceeded the income on the equipment.
Besides the service that you mentioned (warranty work and customer pay), there is also a lot of money in parts, especially collision parts. I had the pleasure of spending a plane ride with a dealer principal of 12 dealers, and she said the overwhelming majority of their company profits were on crash parts - especially their domestic brands. She also said accessories for Minis were very strong for the bottom line. Her other significant comment was that they never make any real money from new car sales and they were a pain. She has a lot of headaches with the manufacturers demanding facility upgrades every couple of years (at the dealer expense), and moving cars that the manufacturers occasionally compel the dealers to take (these are the undesirable cars that get sold below cost, a unintended consequence of CAFE regulations).
Another less talked about area for dealer profits are used cars. As the old dealer saying goes "All new cars are the same; every used car is unique", and there can be more profit in a used car than the same model new. Many trade-ins at dealers go to auctions like Manheim where they are sold fast and furious in as-is condition for the most part. Used car departments purchase these cars and then sell them on their lots. A friend of mine just purchased a Honda Element that was missing back seats and some windshield trim for $2000 below KBB trade-in. Ebay and the dealer supplied the needed parts for under $200. If you are looking for a deal on a used car, try and find a friend with a dealer license.
I'm in California and my credit union, and Costco have both offered this type of service for decades. You call up the service, tell them what type of car with what options and you'll get back some no haggle prices. I've purchased a car this way and the dealers that responded were mostly "fleet" dealers. I took this to mean that they didn't really deal with a lot of walk-in traffic and most of their sales was to businesses. Both sides save a lot of time this way. If you wanted to go further, you could take the price you get back from the service and call around to dealerships to see if they'll go lower but, for me, it didn't seem to get better unless the model was in particularly short supply.
I really don't see much fundamental disruption going on here, with the exception of maybe establishing this process in some states vs others with more limiting legislature, and possibly the amount of volume that goes the traditional way vs dealer competitive bids.
As a first time car buyer one and a half years ago TrueCar gave me confidence during negotiations. In my case I didn't use it to determine a no dicker price with the dealer. Instead it was the basis for my walk away price and counter offer.
Car dealers also use pricing to get you to make a decision and buy a car. So another disadvantage to them is if the price is fixed it removes motivation to "buy now".
In the past fixed pricing has never worked and it actually works to the disadvantage of anyone who has a clue about negotiation. The fact that someone pays more is one of the reasons another person can pay less (dealers have to move vehicles).
"So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. Honda Motor Company also protested loudly, threatening to cut off marketing dollars to dealers that did not follow its guidelines when promoting its brands on TrueCar’s site."
While I know that there are a lot of people employed by local dealerships in the sales department, I can't help but thinking that a lot of these jobs essentially add a percentage cost to new cars with no value added. Which, of course, means that since innovation is a threat to these old business models, most of these dealerships will only be doubling down on legislation and protectionist policies that stop or slow genuine innovators like the guys at CarWoo and TrueCar.