AFI Today - Reflections of an Automotive F&I Finance Manager: August 2008

No More Evil Car Dealerships

By: Robert Linkonis Sr.

Each time I read an article warning us about an evil car dealership taking advantage of some helpless customer, I find myself thinking about the other side of the story and ask: “what would your car buying experience be like if there were no more independent franchised new-car dealerships?’”

Sorry to interrupt the cheering, but think about this for a moment: If there were no independent dealerships competing with each other in our free-enterprise economic system, the consumer purchasing their new vehicle would be required to pay the full window sticker price from a manufacturer-owned “outlet store”. Do you think the price would be lower?

One might protest: “Of course it would be lower. We would be cutting out the middleman. Without an evil car dealership sucking up all the profits, the manufacturer could pass that savings on to us the consumers.”

Really? The only true way to cut out the middleman by this theory is to commute to the assembly plant in Detroit or whichever state (or country) the model you wish to purchase is built. Once your vehicle is tested and ready for delivery (which might be days or weeks after you were told it would be ready). You would pay with cash and drive your new vehicle home to do your own DMV work - before the temporary transport license plates expire of course.

Do you have a vehicle you need to trade? Well the factory has no interest in helping you with that one. They are in the business of assembling and selling NEW vehicles. What are they going to do with your old worn-out piece? Do you still owe money on it? Uh-oh. If the “outlet” has no interest in taking your old vehicle on trade, why should they care about helping you with potential negative equity? Nope, with the trade-in, you’re on your own. Good luck trying to sell it. It’s not that hard (really it’s not).

It is assumed that you have better things to do than changing your vehicles oil or doing other regular maintenance and would prefer to have it done for you. Until a convenient network of (probably independent) service centers was established, you would have to take it back to the assembly plant where you bought it.

You might think that to be ridiculous, “there are service stations everywhere” you respond. Yes, but do you really think the guy at the Exxon station is completely knowledgeable about how to fix the technology and many complicated electronics in today’s brand-new vehicles?

Technicians at dealerships now are pressed enough to stay on top of service bulletins for just one brand much less every one out there. Do you want your car “practiced on” by a jack of all trades?

The furious public would demand that the manufacturer set up sales and service centers close to where they live and work to make buying and servicing their vehicles more convenient. Should these outlets operate as non-profit entities or at a loss just to give you a convenient place to purchase and service your new vehicle?

I think not. The factory would expect these outlets to be profitable, as would the owners of any retail outlet. Instead of an independent franchise, the “middle man” would then become a manufacturer-owned outlet store. Operations of these sales and service centers would then be conducted in one of two ways:

1) Similar to the independent franchised dealer with the freedom to adjust retail prices of sales and service to compete in the marketplace. Pay plans for all staff would be based on net-profit. This competitive environment allows informed consumers to get better service and a much better deal.

2) Or it could be like Ford's failed experiment in trying to operate factory-owned dealerships 10 yrs ago. In keeping sale prices identical at each one of their outlets, it was assumed that more profit would be made through price-fixing.

There were numerous reasons why Ford's experiment failed. Mainly it was because there were other choices out there. Ford found out that there are many dynamics, in addition to the huge overhead involved in operating a dealership. Ford also recognized that the outlets had to be profitable (sounds like any car dealership doesn't it?).

We need to support the local dealers and ethical f&i managers that want to do business the right way. They are the vast majority. Let them make a profit. The alternative is manufacturer-controlled outlets where you are guaranteed the privilege to PAY HIGHER PRICES when buying and servicing your vehicle.

Good Stuff.

AFI

To measure a "well-run" automotive F&I Department, visit: http://www.AutoFinanceInsider.blogspot.com