Many say, "Let the snake grow long, and it'll eventually bite its tail." As it turns out, US auto dealerships do not enjoy full capitalism, especially when it is not in their favor. Franchised dealer groups and associations across ten US states are preparing for a legal battle against direct client sales by many automakers. An idea that many prospective car buyers would champion. Why deal with a pushy salesperson, when you can pick out the model of car and options; direct from the factory. According to most dealerships, the prospect of direct sales by car manufacturers in the US will cut them out of automotive sales.[1] Well of course it will. But they should remember, the consumers usually win.
History often repeats itself. If anyone is aware of the old Fisher Body Company, they know the value of changing with the times. Fisher Body started out as a carriage maker. The Fisher brothers were very smart and in 1908 saw the new automobile as the wave of the future. The company transitioned into a car body company in Detroit MI, which was highly successful for many years. Fisher Body was a division of General Motors (GM) for decades and in 1984 it was dissolved to form other General Motors divisions.[2] The then early 1900’s market changes drove the auto body industry. Horse carriages to the automobile. Now, ‘technology’ is driving the industry.
The US automotive dealerships have long enjoyed the 'middleman' role in the territory's automotive industry. The first car dealership was established in the US by William E. Metzger in 1898. More precisely, the franchise business model has enjoyed these privileges for 125 years.
While dealerships offer convenience and variety through their services, some unscrupulous businesses have taken this prized sales monopoly to ‘stick it’ to their clients. Last year, a Chevrolet Dealer was exposed for charging $90,000 over MSRP for a 2023 C8 Corvette Z06. Sadly, this was not an isolated incident. Earlier in the same month, another dealership was trying to sell a similar unit for $100K over MSRP, which, in simple terms, can be best described as highway robbery.
Last year, both Ford and GM warned dealerships against selling their units over MSRP (threatening to hold deliveries), but the industry-wide supply shortage made the markups pervasive and those who could afford the markup, paid it. But it now seems car manufacturers are pushing back as the industry shifts to electric vehicles.
With technology permitting the direct consumer to purchase from their smart phone, auto manufacturers are contemplating direct sales. The legal storm between auto manufacturers and dealerships is brewing across the country in California, Colorado, Mississippi, and Florida and parts of the US East Coast. It is important to note that while car dealerships offer the convenience of location to clients, they only exist because of State Franchise Laws. In 2023, many Americans prefer to not buy cars from dealerships. These laws prevent auto manufacturers from directly selling car units to consumers in the market. The last thing these franchises and businesses want is their privileges revoked or changed.
In April 2022, a lawsuit was filed by Illinois auto dealers aiming to stop new EV entrants Rivian and Lucid from directly selling their units to clients in their state. Unfortunately for them, Rivian and Lucid won the legal battle.
While consumers love to hate dealerships for playing middleman and consequently exploiting them over markups, they've become unlikely allies when pushing back against a more formidable enemy; subscription services. It is still important to note that dealerships only hate subscription services because they don't get to share a piece of the recurring monthly payments. When on a full scale, the new subscription-based services will rack up billions from consumers, a more worrisome eventuality for some dealers compared to direct EV sales.
What are subscription services you ask? This from the Finn Auto Subscription Services.[3] First you order your car through the service (and via laptop or cell phone). Then a customer selects a subscription service, which is term length and confirm your order. We have all the information you need to find the car perfect for your lifestyle. Once the options are selected, the subscription service needs to verify one’s driver’s license, and must agree to a credit check. Many services require drivers to be at least 25 years old (like renting a car), have had a valid license for at least two years (from date of issue), and possess a minimum credit score of 640.
What do you get? The service will deliver the car to the new car owner and at their convenience. The Finn company covers a delivery radius of Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington, DC. Some services included comprehensive insurance and maintenance, marketing to consumers as “enjoying your new car and drive carefree!” When the time comes to renew your subscription you can do so online or through our convenient app. It is hard for a dealer to compete with these type services (one stop shopping).
Most consumers will agree that dealerships offer ‘some’ sort of convenience. Having to ship your car across states due to a simple fix is strenuous. But they'd rather have that, than deal with high markups, pushy salespersons and annoying finance managers. As one commenter on Reddit put it, "The dealership model should die. They make the vast majority of their money on service and financing. The automakers should just do that themselves."
According to the Associated Press, several American states also proposed laws to make selling electric vehicles more complex for industry newcomers, such as Austin-based Tesla, Rivian, and Lucid.
The Fight is On.
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[1] https://www.autoevolution.com/news/end-of-the-road-for-us-car-dealerships-a-legal-battle-is-inching-closer-211357.html
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