ElI5 why do we have car dealerships?
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Most explanations are about the US, and this seems to be only a issue in the US, because where I’m from you can just buy a car straight from the manufacturer’s website….
But in the general sense, car dealerships exist for the same reasons real state agencies exist, you need a place to go when you need a house/car.
Would you prefer to have to buy an item in the price range of a car without having seen it before?
Because cronies lobbied Congress to make it illegal for manufacturers to sell directly to consumers.
“Why do we have car dealerships?
Based on my experience, it is to make the car buying process as difficult and unpleasant as possible.
Why do we have any retail store? Because specializing in consumer retail is not easy and it’s often easier (hence cheaper) for a car manufacturer to simply sell the cars to dealers and let them handle it.
Almost everyone in here is talking about what’s wrong with dealerships, or talking about why they still exist, but I’m still wondering why the business model exists in the first place.
Let’s try an actual ELI5 answer.
A car dealership is a store where people can buy cars. People like these stores because they can look at cars before they buy them. Then they can see if they like them. They can even drive them a little bit.
The companies that make cars sometimes don’t want to build stores. So they sell cars to other people who have stores. Then those stores sell the cars to people who want to buy them.
Some car companies have their own stores. Tesla is one of those companies.
People who make laws are called politicians. In some places, the people who own stores give some of their money to politicians. The politicians like money a lot. They like it when people give them money. The politicians will do favors for people who give them money. The people who own stores ask the politicians to prevent car companies from opening their own stores. The politicians like the money, so they do whatever the store owners want. The politicians are bad people.
When a company makes a car, it sets a price for the car that lets it make money.
At Tesla stores, that price is what people pay when they buy a car.
At other stores, the store pays that price to buy the car from the company that made it. Then the store raises the price so they can keep some money. Then the store raises the price so they can give some of it to the politicians. That higher price is what people pay when they buy a car.
People who own these other stores say that they save customers money. They’re lying. The politicians who take money from those store people are also lying.
Any car company can make their prices as high as they want. When they sell the car to a store, the owner of the store always raises the price even higher so they can keep some money too. So selling the car twice costs more money than selling it once. The only people who say it makes cars cheaper are the people who are taking extra money.
Actually…it’s law. One of the reasons why Elon Musk and Tesla are upsetting the government is that in many places, it’s illegal to directly sell a car to a customer from a factory.
For the same reason you buy food at a grocery, not a farm, and furniture from Ikea, not a carpenter. It turns out that a business which makes products is usually not interested in maintaining a point-of-sale business to sell those products, and in many cases, they may not be very good at it.
A lot of good answers on the historical reasons, especially by rabid. But unfortunately those dealer victims effectively unionized into NADA and has not been using their new power for good.
I will give you a few important functions dealers serve in the modern times.
– Manufacture inventory buffer. For the most part, factories run at max capacity, when demand is lower during winter months, dealers can help off load excessive inventory from OEMs which helps with cash flow and lower expense.
– immediate price corrections. No body better than your local Joes Ford that can determine on the daily, how much to move the price of each carline to maximize his returns and still have room on the lot to absorb inventory push. This is why haggling is a thing for auto and almost nothing else.
– parts and service. Not as big of an issue for electric cars, but you can see the service problem even Tesla is encountering as they scale.
I think the dealer system is broken in a lot of ways and needs a major overhaul, mostly their anti consumer practices but at the same time, manufacturers need dealers to scale and compete. No easy answers and fixes.
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