Silverado EV Forum banner
1 - 16 of 16 Posts

·
Registered
Joined
·
68 Posts
Once this car bubble bursts and the recession hits... the automakers are going to do their retail channel stuffing routine again. And the dealers are going to be so pissed hah.

As much as I want Ford and GM to get rid of the retail channel, they haven't addressed the bulk of their business model that necessitates having that retail buffer with floorplanned inventory. The American autos still have really cumbersome supply chain and manufacturing requirements that don't adjust well to changes in demand. The shock absorber is the retail channel stock.
 

·
Registered
'18 Cajun Red Bolt, '19 Shock Bolt
Joined
·
85 Posts
I totally get the need for dealership lots. But I don't think they should be privately owned commission based sales. A car lot is fantastic for exploring vehicle features and ergonomics, and for selling to folks that are ready to buy now and are flexible on configurations. My ideal would be for the manufacturers to buy out the dealers, make all the salespeople salaried, and offer direct order alongside the lots.
 

·
Registered
Joined
·
68 Posts
I totally get the need for dealership lots. But I don't think they should be privately owned commission based sales. A car lot is fantastic for exploring vehicle features and ergonomics, and for selling to folks that are ready to buy now and are flexible on configurations. My ideal would be for the manufacturers to buy out the dealers, make all the salespeople salaried, and offer direct order alongside the lots.

Write your local politicians then... by and large they have been against the Detroit automakers buying out dealerships and trying to make the sales channel a "build to order". Find your local reps that are in favor of updating state franchise laws and vote for them.

It's not like this realization is new. Here's a DOJ analysis from 2009. And I personally am aware (since I worked on one of the failed efforts) of several attempts going back to the mid 2000s for the automakers to go direct to consumer.


Since I know people online hate reading lots of text... here's the DOJ TLDR conclusion. Bold emphasis added by me.


J.T. Battenberg, the former chief executive of auto parts supplier Delphi Corporation, has put forth the view that "Build-to-order is the key. That's the game changer in the industry."(23) That statement was made in early 2000. Since then, GM has launched a build-to-order, direct manufacturer sales model for an economy car in Brazil. Yet there still are no direct manufacturer sales in the United States. Although, among others, there are issues in the United States relating to union acceptance of modular assembly techniques, such issues are difficult to address effectively as long as there continue to be "stubborn state franchise laws that prevent manufacturers from selling cars directly to customers."(24)

Private challenges to state franchise laws thus far have not been successful in the courts. One case involved an Arizona law that, in part, prohibited manufacturers from marketing directly to consumers.(25) In another, Ford challenged a Texas statute that banned it from selling used cars from its website because Ford wasn't a dealership.(26) One observer familiar with state auto franchise laws said several years ago that "No matter how strong franchise laws look today, I think they are one rider away from being a non-factor."(27) Whether that prediction comes to pass will be determined by the political process, of which taxpayer-financed TARP funding is now a part. As a matter of economics, arguments for state bans on manufacturer direct sales of autos based on holdup and free-rider problems are not persuasive because competition among auto manufacturers gives each manufacturer the incentive to refrain from opportunistic behavior and to work with its dealers to resolve any free-rider problems. Just as Dell has altered its distribution model in the personal computer industry to better meet evolving consumer preferences, car customers would benefit from elimination of state bans on auto manufacturers' making direct sales to consumers.
 

·
Registered
2022 Kia EV6 GT-Line AWD, 2022 Rivian R1T
Joined
·
82 Posts
Discussion Starter · #7 ·
Write your local politicians then... by and large they have been against the Detroit automakers buying out dealerships and trying to make the sales channel a "build to order". Find your local reps that are in favor of updating state franchise laws and vote for them.

It's not like this realization is new. Here's a DOJ analysis from 2009. And I personally am aware (since I worked on one of the failed efforts) of several attempts going back to the mid 2000s for the automakers to go direct to consumer.


Since I know people online hate reading lots of text... here's the DOJ TLDR conclusion. Bold emphasis added by me.


J.T. Battenberg, the former chief executive of auto parts supplier Delphi Corporation, has put forth the view that "Build-to-order is the key. That's the game changer in the industry."(23) That statement was made in early 2000. Since then, GM has launched a build-to-order, direct manufacturer sales model for an economy car in Brazil. Yet there still are no direct manufacturer sales in the United States. Although, among others, there are issues in the United States relating to union acceptance of modular assembly techniques, such issues are difficult to address effectively as long as there continue to be "stubborn state franchise laws that prevent manufacturers from selling cars directly to customers."(24)

Private challenges to state franchise laws thus far have not been successful in the courts. One case involved an Arizona law that, in part, prohibited manufacturers from marketing directly to consumers.(25) In another, Ford challenged a Texas statute that banned it from selling used cars from its website because Ford wasn't a dealership.(26) One observer familiar with state auto franchise laws said several years ago that "No matter how strong franchise laws look today, I think they are one rider away from being a non-factor."(27) Whether that prediction comes to pass will be determined by the political process, of which taxpayer-financed TARP funding is now a part. As a matter of economics, arguments for state bans on manufacturer direct sales of autos based on holdup and free-rider problems are not persuasive because competition among auto manufacturers gives each manufacturer the incentive to refrain from opportunistic behavior and to work with its dealers to resolve any free-rider problems. Just as Dell has altered its distribution model in the personal computer industry to better meet evolving consumer preferences, car customers would benefit from elimination of state bans on auto manufacturers' making direct sales to consumers.
Please explain why ADM is not by definition extortion in the current online purchasing model? Explain how ADM helps the customer? Explain the value add of ADM? Again as related to the current online ordering construct. Keeping clearly in mind that the online quoted MSRP includes destination/doc fees and a baked in tidy sum for the dealership.
 

·
Registered
Joined
·
68 Posts
Please explain why ADM is not by definition extortion in the current online purchasing model? Explain how ADM helps the customer? Explain the value add of ADM? Again as related to the current online ordering construct. Keeping clearly in mind that the online quoted MSRP includes destination/doc fees and a baked in tidy sum for the dealership.

Ok, but do me a favor and put it in your head that just because I'm answering your question; does not mean I actually am in favor of the Additional Dealer Markup (ADM). I feel like since I understand the dealers, that you somehow think I am in favor of the dealers. I want to be clear; I am not endorsing the following:

1) "Extortion"

ADM by definition is not extortion because (when done legally) it is just a line item of a price negotiation. Before COVID and the supply chain issues, The average purchase used MSRP as the high point and negotiated down. But now, with MSRP as a starting/low point, the ADM is just the reverse of the pricing conversation. Nobody has ever said that if a customer goes to a showroom and wants a discount; such request is "extortion". So the reverse is not "extortion" since nobody is under duress to make a deal.

Where the mark-up starts to go on the wrong side of the law is when the ADM is masked and disguised.
FTC may ban some car dealer tactics

In the examples provided by the FTC, some dealers were adding in "no-value-add option" to juice the price. So they'd charge $20,000 for waxing the car; which is not in the spirit of a fair negotiation. Or, they were hiding fees in the fine print without expressly describing the pricing action. And, some dealers were creating artificial constructs in the financing.

But taken at face value, if a car buyer is told "you need to pay $10,000 ADM over MSRP to buy this car", that is not "extortion." It is a pricing conversation. Such ADM may violate the franchise agreement with the automaker though.

Where ADM starts to feel like "extortion" is when someone puts a reservation for the privilege of purchasing an EV to be built in 30 months. At some point in time, the reservation becomes a pricing conversation. Some people (I'm going to go out on a limb and assume you're one of them) think the reservation committed to MSRP pricing. However, nowhere in the fine print for the Mach-E, F150 Lightning, EV6, Jag EPACE, ID4, whatever reservation forms mentioned that the pricing was locked in at MSRP.

Lucid, Rivian, Tesla, etc do not charge ADM, so those customers get their vehicles purchased at the prevailing manufacturer price at the time. But, just because Tesla does one thing and Ford does another, does not make Ford's dealer practice "extortion." It feels bad to the consumer (I previously discussed pinch points) because repeatedly pinching a customer has proven to be profitable to the dealer and not the customer. But the dealer pinches are usually legal, and politicians continue to fight to ensure the pinches continue.

Edit: GM is barred by state franchise laws from allowing you to do an online order of a Silverado EV in Idaho. Your question is faulty because it assumes an online order where there is none. There can't be "extortion" of your Silverado EV transaction with GM because your transaction must occur with an authorized dealer instead in an offline manner. If you want an online purchase direct from the manufacturer, you can choose Rivian or Tesla.


2) Explain how ADM helps the customer?

It helps the customer have a discrete line item to negotiate price.

As you're aware, contracts are an agreement between the seller and buyer. Since auto transactions historically have involved MSRP as a starting point, the ADM provides a clear line item pricing adjustment to increase the price. Way back in the day, dealers simply just put a price tag on a car and asked a customer to negotiate everything. This led to a lot of deceptive practices, You can read up about the Monroney Sticker (window label) about why having a clearly printed line item price and MSRP was favorable to achieving a good deal. Nowhere on the legislation does it say "it is illegal to go over MSRP".

I agree with you, a higher price does not "help the customer." But a line item description to assist in a pricing conversation (one that allows the pricing action to be clearly seen and understood) does help the customer. Because maybe the customer is like you, and if they see a ADM, they walk away. So the ADM helps you learn when to walk away.


3) Explain the value add of ADM (in the modern age of online ordering)

I think there's broad consensus that except for the dealers themselves, the other parties do not see value in paying the ADM. Obviously the buyer of a vehicle receives a negative value (in the form of paying more $$$ if they agree to the terms). And, the automaker experiences negative value because disappointed/angry customers have a negative experience with a manufacturer's brand. Without going too deep into marketing; achieving a conquest sale from another automobile brand is harder than to lose a loyal customer who likes your brand. GM, Ford, Stellantis, Toyota, Honda, etc are indirectly harmed when someone in their dealer network creates a bad experience while flying those corporate banners.

As I mentioned above, even the DOJ found that consumers by and large were better off with direct-ordering practices, which presumably would remove pricing negotiations (both up with ADM and down). The only groups that seem to want each purchase to be a negotiation are the dealers themselves. They see the value, and they will continue to lobby to maintain the value add for themselves.

The "American Way" is to get as much benefit for yourself as possible in a free market. There are a massive number of hurdles to overcome for the government to get behind egalitarian pricing for all. Manufacturers like Lucid, Rivian, Tesla, etc think egalitarian pricing is in their own best interest, and it's their own prerogative to operate that way. But for now, the dealers are entrenched as the status quo, and they think ADM is both legitimate and in the industry's best interest. Their POV is debatable of course, but their POV for the most part is legal.

-----------------------------------------------------
Edit:

If you disagree with the above, start finding ways to make a difference; because posting about it on this forum isn't very effective at changing policy. Sure, you can vote with your dollars; but if you want to see big change, you'll have to do more than that. Yes, over time, if everyone votes with their dollars to stop buying from Ford and GM dealers, the problem will resolve itself. But that'll take decades.
 

·
Registered
2022 Kia EV6 GT-Line AWD, 2022 Rivian R1T
Joined
·
82 Posts
Discussion Starter · #9 ·
Ok, but do me a favor and put it in your head that just because I'm answering your question; does not mean I actually am in favor of the Additional Dealer Markup (ADM). I feel like since I understand the dealers, that you somehow think I am in favor of the dealers. I want to be clear; I am not endorsing the following:

1) "Extortion"

ADM by definition is not extortion because (when done legally) it is just a line item of a price negotiation. Before COVID and the supply chain issues, The average purchase used MSRP as the high point and negotiated down. But now, with MSRP as a starting/low point, the ADM is just the reverse of the pricing conversation. Nobody has ever said that if a customer goes to a showroom and wants a discount; such request is "extortion". So the reverse is not "extortion" since nobody is under duress to make a deal.

Where the mark-up starts to go on the wrong side of the law is when the ADM is masked and disguised.
FTC may ban some car dealer tactics

In the examples provided by the FTC, some dealers were adding in "no-value-add option" to juice the price. So they'd charge $20,000 for waxing the car; which is not in the spirit of a fair negotiation. Or, they were hiding fees in the fine print without expressly describing the pricing action. And, some dealers were creating artificial constructs in the financing.

But taken at face value, if a car buyer is told "you need to pay $10,000 ADM over MSRP to buy this car", that is not "extortion." It is a pricing conversation. Such ADM may violate the franchise agreement with the automaker though.

Where ADM starts to feel like "extortion" is when someone puts a reservation for the privilege of purchasing an EV to be built in 30 months. At some point in time, the reservation becomes a pricing conversation. Some people (I'm going to go out on a limb and assume you're one of them) think the reservation committed to MSRP pricing. However, nowhere in the fine print for the Mach-E, F150 Lightning, EV6, Jag EPACE, ID4, whatever reservation forms mentioned that the pricing was locked in at MSRP.

Lucid, Rivian, Tesla, etc do not charge ADM, so those customers get their vehicles purchased at the prevailing manufacturer price at the time. But, just because Tesla does one thing and Ford does another, does not make Ford's dealer practice "extortion." It feels bad to the consumer (I previously discussed pinch points) because repeatedly pinching a customer has proven to be profitable to the dealer and not the customer. But the dealer pinches are usually legal, and politicians continue to fight to ensure the pinches continue.


2) Explain how ADM helps the customer?

It helps the customer have a discrete line item to negotiate price.

As you're aware, contracts are an agreement between the seller and buyer. Since auto transactions historically have involved MSRP as a starting point, the ADM provides a clear line item pricing adjustment to increase the price. Way back in the day, dealers simply just put a price tag on a car and asked a customer to negotiate everything. This led to a lot of deceptive practices, You can read up about the Monroney Sticker (window label) about why having a clearly printed line item price and MSRP was favorable to achieving a good deal. Nowhere on the legislation does it say "it is illegal to go over MSRP".

I agree with you, a higher price does not "help the customer." But a line item description to assist in a pricing conversation (one that allows the pricing action to be clearly seen and understood) does help the customer. Because maybe the customer is like you, and if they see a ADM, they walk away. So the ADM helps you learn when to walk away.


3) Explain the value add of ADM (in the modern age of online ordering)

I think there's broad consensus that except for the dealers themselves, the other parties do not see value in paying the ADM. Obviously the buyer of a vehicle receives a negative value (in the form of paying more $$$ if they agree to the terms). And, the automaker experiences negative value because disappointed/angry customers have a negative experience with a manufacturer's brand. Without going too deep into marketing; achieving a conquest sale from another automobile brand is harder than to lose a loyal customer who likes your brand. GM, Ford, Stellantis, Toyota, Honda, etc are indirectly harmed when someone in their dealer network creates a bad experience while flying those corporate banners.

As I mentioned above, even the DOJ found that consumers by and large were better off with direct-ordering practices, which presumably would remove pricing negotiations (both up with ADM and down). The only groups that seem to want each purchase to be a negotiation are the dealers themselves. They see the value, and they will continue to lobby to maintain the value add for themselves.

The "American Way" is to get as much benefit for yourself as possible in a free market. There are a massive number of hurdles to overcome for the government to get behind egalitarian pricing for all. Manufacturers like Lucid, Rivian, Tesla, etc think egalitarian pricing is in their own best interest, and it's their own prerogative to operate that way. But for now, the dealers are entrenched as the status quo, and they think ADM is both legitimate and in the industry's best interest. This PV is debatable or course, but the POV for the most part is legal.

-----------------------------------------------------
Edit:

If you disagree with the above, start finding ways to make a difference; because posting about it on this forum isn't very effective at changing policy. Sure, you can vote with your dollars; but if you want to see big change, you'll have to do more than that. Yes, over time, if everyone votes with their dollars to stop buying from Ford and GM dealers, the problem will resolve itself. But that'll take decades.
I do vote and I do vote with my dollars (I have and will continue to not pay ADM) as well post on this forum. Your advice is not necessary and was provided out of ignorance.

I do understand free market and supply verses demand. Ideally if demand is greater than supply then owner of said item can an should get more for it.

As I have mentioned before the rub for me and others is that through political means dealers got themselves inserted legally as a third party which subverts free market.

I do accept and understand that you are trying to get me see how new car sales have historically and currently work and that even in the new online ordering paradigm dealerships, technically own your ordered vehicle, should be free to set the final price. If we were NOT by law forced to buy a new car from a dealership then I would agree. However that is NOT the case. Dealership are legally extorting their gullible customers.

And like you I am advocating that folks stop paying ADM!!!!
 

·
Registered
Joined
·
68 Posts
I do understand free market and supply verses demand. Ideally if demand is greater than supply then owner of said item can an should get more for it.
Isn't that what the dealer is doing with ADM? I don't understand how you could be in favor of this statement but then so vehement against ADM.

It's not like the dealer is putting gun to your head and saying you the only way you'll walk away with a new car (and no bullet hole in your skull) is to pay the ADM.

Anyway yeah, the state franchise laws are way out of date; and a huge drag on the automobile industry. We needed change 20 years ago, but NADA and the various stakeholders in favor of an independent franchise dealer network have an enormous amount of power. The old car sales tactics that repeatedly abuse a buyer to extract margin would be deplorable if they were enacted by a new company today. The only reason the dealerships get away with their practices is because the application of pinch points is considered "normal."

It's great that Tesla and Rivian have succeeded so far going direct to consumer, and I think as more consumers choose to avoid the traditional dealerships, the more pressure we'll see on getting them to change. So for me personally, I am ordering this Silverado EV with the expectation of getting hosed; and I have a Cybertruck reservation as well to hedge my bets. But I also know if I don't get that Silverado EV allocation, someone else with deeper pockets will hah.
 

·
Registered
Joined
·
47 Posts
The Dealership model even hits Tesla to a certain degree. If a customer in Texas wants to purchase a car built in Tesla's Austin factory, they are required to take physical delivery outside of the State of Texas. It is a stupid solution to the franchise laws, but the lobbyists for the dealers have made this happen, just showing how much power and inertia will need to be overcome in order to ever see this change.
 

·
Registered
Joined
·
61 Posts
Sorry I don't have a link to the interview, but a GM Marketing exec mentioned they have a system in the works called something like "e-price" where you spec and purchase your car online, then just go to the dealership to pick it up. He said they were close to releasing it, no further details but no surprise as they already have such a system in the "Partner Discount". My company has it and I've used it because we lease lots of GM cars worldwide so this is an employee perk. Anyhow you get a vehicle at a fixed price and go pick it up. Main difference will probably be what Ford did, which is the dealership sets the price, but it has to be advertised online and fixed. GM is way ahead of Ford on portfolio and architecture, but they seem willing to take more of an Apple approach where they let others release first, then they release later and do it better.

Anyhow no surprise that both GM and Ford are doing this to stay competitive with each other and Tesla.
 

·
Registered
Joined
·
68 Posts
Sorry I don't have a link to the interview, but a GM Marketing exec mentioned they have a system in the works called something like "e-price" where you spec and purchase your car online, then just go to the dealership to pick it up. He said they were close to releasing it, no further details but no surprise as they already have such a system in the "Partner Discount". My company has it and I've used it because we lease lots of GM cars worldwide so this is an employee perk. Anyhow you get a vehicle at a fixed price and go pick it up. Main difference will probably be what Ford did, which is the dealership sets the price, but it has to be advertised online and fixed. GM is way ahead of Ford on portfolio and architecture, but they seem willing to take more of an Apple approach where they let others release first, then they release later and do it better.

Anyhow no surprise that both GM and Ford are doing this to stay competitive with each other and Tesla.

Lol I want to believe what you're saying... but I'll believe it when I see it hah.

The arguments against this flat pricing being forced on the dealers is that when times are bad, the dealers say their margins get squeezed hard and they get killed with inventory carrying fees and the automakers cramming crap-metal down their throats. When times are good (for the dealers), they get to take a lot of pricing and get fat profits. Since the industry is cyclical, they need the good to offset the bad (at least in theory).

Such firm pricing would cap their upside when its good, but leave them exposed when times are rough since GM won't subvent their operations when a recession hits. When unemployment hits 10%, and sub-prime repos hit 20%, you won't see many customers clamoring to pay MSRP on some flat E-Price. So I don't know how GM is going to get the dealers on board with fixed pricing during a boom, unless GM can also get the dealers fixed pricing when there's a bust.

IMO, what consumers call "predatory pricing" is just first-degree price discrimination. Not in the woke definition of discrimination; this is just the economic practice of pricing something to be exactly what a customer will pay. Traditional dealers, Ticketmaster, Ebay, and many others all use this approach to maximize their income. Such price discrimination is totally legal, and asking businesses to abandon the practice has a significant economic impact to their model.

As long as the dealer network persists as an independent body from the automakers, all these rules, policies, e-pricing, whatever are just Band-Aids that fall apart during the next economic downturn.
 

·
Registered
2022 Kia EV6 GT-Line AWD, 2022 Rivian R1T
Joined
·
82 Posts
Discussion Starter · #14 ·
Lol I want to believe what you're saying... but I'll believe it when I see it hah.

The arguments against this flat pricing being forced on the dealers is that when times are bad, the dealers say their margins get squeezed hard and they get killed with inventory carrying fees and the automakers cramming crap-metal down their throats. When times are good (for the dealers), they get to take a lot of pricing and get fat profits. Since the industry is cyclical, they need the good to offset the bad (at least in theory).

Such firm pricing would cap their upside when its good, but leave them exposed when times are rough since GM won't subvent their operations when a recession hits. When unemployment hits 10%, and sub-prime repos hit 20%, you won't see many customers clamoring to pay MSRP on some flat E-Price. So I don't know how GM is going to get the dealers on board with fixed pricing during a boom, unless GM can also get the dealers fixed pricing when there's a bust.

IMO, what consumers call "predatory pricing" is just first-degree price discrimination. Not in the woke definition of discrimination; this is just the economic practice of pricing something to be exactly what a customer will pay. Traditional dealers, Ticketmaster, Ebay, and many others all use this approach to maximize their income. Such price discrimination is totally legal, and asking businesses to abandon the practice has a significant economic impact to their model.

As long as the dealer network persists as an independent body from the automakers, all these rules, policies, e-pricing, whatever are just Band-Aids that fall apart during the next economic downturn.
With online ordering and fixed pricing dealers will carry much less inventory. In good economic times they sell in volume. In a down turn further reduce inventory and stream line.
 

·
Registered
Joined
·
68 Posts
With online ordering and fixed pricing dealers will carry much less inventory. In good economic times they sell in volume. In a down turn further reduce inventory and stream line.

That's the problem, the Detroit automakers cannot fine tune production the way you wish they could. I know we all wish there to be a big red dial that someone can turn to adjust line speed... but that simply doesn't happen.

When there's an economic downturn, they still run 2 shifts minimum and need to fulfill their supplier POs and keep things moving in their global operations. Factories idling kill their cash flow. So to keep the system moving, they need to assemble cars. This builds channel stock and puts more metal on dealer lots.

Eventually dealers start rejecting all this trash coming into their lots, and it's just a big scramble trying to figure out how to "stream line" during the downturn. And at that point, people all care about themselves... GM won't care much if a dealer goes under. Customers sure as heck won't care if a dealer goes under. So as long as the dealers maintain their power with the state politicians, they'll cry foul about how GM screwed them.
 

·
Registered
Joined
·
61 Posts
Yeah I agree about believe it when we see it, OTOH I don’t see how GM can not do this with Ford and Tesla doing it. However probably the real test and what they’re waiting for is to see how it goes over for Ford. If Ford is successful with this strategy then GM will have to respond somehow.
 
1 - 16 of 16 Posts
Top