Home » GM Is Being Brutally Honest About Making EVs Profitable Enough

GM Is Being Brutally Honest About Making EVs Profitable Enough

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Happy Friday! And a Friday before a holiday weekend here in the United States, too. How about that? Before I send you off to enjoy your Presidents’ Day weekend (How do you even do that? Buy sheets, I guess? It’s February, so it’s not great for barbecue weather or anything) I’ll bring you The News, because I know of no other way to live my life.

On today’s docket: General Motors seeks higher profit margins in the EV game, Tesla beats BMW, Mercedes flirts with more direct-to-consumer sales in Europe, and the feds are already looking into this week’s Ford F-150 Lightning battery fire. Let’s check in before we all check out.

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GM Needs EV Costs Down, Profits Up

2024 Chevrolet Blazer Ev
2024 Chevrolet Blazer EV SS. Photo: GM

The car business is a game of profit margins. In theory, it shouldn’t cost that much more to build a Lexus than it does a Corolla. Same with the big, expensive pickup trucks that keep the lights on at the American automakers. Similarly, in theory, EVs should be a godsend in this regard. By needing far fewer parts to build than conventional cars, automakers should be able to keep costs way down as the market that way. This is part of why Tesla’s profit margins are so ridiculously high compared to other OEMs.

But that last point all depends on being able to develop things like new platforms, batteries and software operations at scale, which is the goal automakers are currently still working toward. That will take a ton of R&D investment, and it’s also partially why so many EVs are so damn expensive.

General Motors knows it’s got to win on profit margins with EVs, same as everybody else. And CEO Mary Barra was remarkably candid about all of this at a virtual event recently, the Detroit Free Press reports. As the story says, she “admits that GM is nowhere near to getting battery costs down enough to make electric vehicles as profitable as their gasoline-powered counterparts.” When asked if EVs can ever be a profitable business, Barra said yes, probably, but eventually:

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For GM to win widespread adoption of EVs, the automaker has to offer them at prices of $30,000 to $40,000, Barra has said. GM will start production of the 2024 Chevrolet Equinox EV and Blazer EV this year. The Equinox EV will start around $30,000 and the Blazer EV at $44,995, pushing it upmarket from where its gasoline-powered counterpart starts now at $34,800. That’s largely due to the high cost of the raw materials to make the battery.

So when asked whether GM could make a 20% profit margin off the sale of a $40,000 EV, Barra said, “We aren’t anywhere near where we think we can get the cost of the battery cell down. So we’re going to keep driving that.”

Barra said GM aims to have industry-leading margins as it continues to invest in partnerships.

“We’re maintaining, we’ve said in the 8% to 10% range (profit margins), while we make this accelerated investment and transformation to EVs and once we get everything ramped up, we’re just going to continue to work battery costs down, drive the efficiencies, leverage Ultium,” Barra said. “Is it going to be 20? I don’t know. But we’re not going to stop until we lead from a margin perspective.”

All of this speaks to the moment the auto industry’s in right now: one of probably gradual transition, not overnight transformation. Also, she was remarkably candid about getting her car dealers in line with all of this, and we know they’re a group that’s often been historically resistant to EV sales. Emphasis mine down below:

“I sat in a dealer meeting — which I was not the most super popular person that day — I said, ‘Look, our customer is changing, our business is changing, we think you’re a competitive advantage, but you’ve got to change with us. If you try to cling to business the way it was five to 10 years ago, it’s not going to turn out very well,’ ” Barra said. “A lot of our dealers are coming along. The dealers who are saying, ‘Hey I just don’t want to be in this business.’ There’s an offering for them.”

This is a tough challenge for dealers who make most of their money on aftersales, maintenance and finance and insurance, and EVs will (again, in theory) need less in the way of repairs. But it’s interesting to see more and more auto industry CEOs be upfront about this than sugarcoat things to keep their dealers happy.

Mercedes Expands Direct Sales, Quietly

Mercedes Eqe
Photo credit: Mercedes-Benz

The dealer franchise model has a much tighter hold on things than in other places around the world. In some markets, you see a mix of dealers and direct-to-consumer stores for cars. Mercedes-Benz’s CEO is the latest car boss to admit things are changing, according to Reuters:

The carmaker is “quietly” turning to a direct sales model in various European markets including Britain and intended to do so in Germany as well, Chief Executive Ola Kaellenius said, adding: “You turn yourself from a wholesaler into a retailer. It changes your whole attitude in how you run the business.”

Selling directly saves costs for the company and removes concerns for customers that they could get a better price at another dealer, he added.

That last part’s notable because it’s one of the talking points car dealers use to defend their existence here in America: by having lots of them, customers can shop around for the best price. (Now, that also often means haggling and picking which dealer you want to take a $50,000 markup on a GR Corolla from, but still.)

Will Mercedes try and bring the direct model to America? The franchise laws make that tough here, but you know a lot of these automakers wish they could do internet-based sales the way Tesla and Rivian and Lucid do. Or they want a mix of that plus franchised, brick-and-mortar retailers. Polestar has a hybrid direct sales model that makes a lot of sense in modern times, and I could see more automakers trying things like that in the coming years.

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Tesla Beats BMW

0x0 Modely 04
Photo credit: Courtesy of Tesla, Inc.

Speaking of Tesla, it just kind of did the unthinkable: it took the “luxury” auto sales crown from BMW here in the U.S. in 2022. Here’s Yahoo! Finance on the numbers:

Experian data shows among all luxury brands regardless of powertrain, Tesla had 484,351 new vehicle registrations last year, versus 2nd place BMW at 327,929 new registrations. That Tesla figure represents a 41% increase versus a 2021, with BMW registrations falling 4% in the same period.

Since Tesla does not break out sales data by region for its cars, registration data is the next best measure to track its vehicle sales in the U.S.

I say “luxury” because my guess is more of those cars were bargain-priced Model Ys and Model 3s vs. fully loaded 7 Series sedans or whatever, but hey, a win’s a win.
Say what you want about Tesla, but it does have a remarkable ability to surprise sometimes. The Model Y beat the Volkswagen Golf for some time in sales in Europe last year. That feels like it shouldn’t even be possible, like being able to remove yourself from experiencing linear time. Now, do I think the Cybertruck will put Ford out business? Yeah, not quite. But Tesla has a crazy way of upending things in ways nobody expects.

Feds Check Into Lightning Fire

F-150 Lightning at the Rouge Electric Vehicle Center
Photo credit Ford

That didn’t take long. The federal National Highway Traffic Safety Administration is already poking around into the F-150 Lightning battery fire that’s led to a production line shutdown, reports Reuters:

Ford said Wednesday it believes it has identified the root cause of the fire and expects to conclude an investigation by the end of next week and apply findings to the truck’s battery production process, which could take a few weeks.

The automaker said it will continue to hold “already-produced vehicles while we work through engineering and process updates.” The automaker said it was “not aware of any incidents of this issue in the field and do not believe F-150 Lightnings already in customers’ hands are affected by this issue.”

Ford has said it’s one truck and the issue was caught during an inspection (someone noticed it was on fucking fire, presumably.) Ford also says this is an example of being more proactive during the build process, rather than shipping potentially defective cars to customers and sorting things out later with costly recalls. Given how quality costs have hammered Ford in recent years, it can’t afford to not be on top of things there.

Your Turn

What does the future hold for the car dealership? Right now there’s a lot of speculation about our software-driven EV future where all problems are fixed by OTA updates and people just buy cars online. I tend to think a lot of that stuff will happen, but much more slowly than the so-called experts are predicting. How do the dealers figure into that, and who’s more poised to get it right than others?

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MrLM002
MrLM002
1 year ago

Car dealerships are not going away, but they will likely change.

Most cars will be software locked so you CANNOT repair them yourself because they’ll brick themselves if any unauthorized repairs are done. I think new car dealership lots will basically disappear, because a ton of people just order their cars, I don’t know of really anyone who buys a new car off the lot. If you’re going to be spending an obscene amount of money on a new car why get one that isn’t up to your specs?

So I think dealerships will move to mostly indoor buildings where they have maybe 1 of each model on display and for test drives.

Stef Schrader
Stef Schrader
1 year ago

I can definitely believe that stat. BMWs are just…kind of a hideous mess lately. At the same time, Teslas have become the default non-player robot car of Need for Speed: Butt-Awful MoPac Trafficpalooza. They’re as blandly styled as possible and I guess that has mass appeal.

If only BMW could go back to being somewhere in the middle between “world’s plainest vehicle” and whatever the hell they’re doing now…and I dunno, double-down on a unique characteristic, like being fun to drive……ah, memories. Puffalump Farms remembers the good old Bimmer days.

Manwich Sandwich
Manwich Sandwich
1 year ago

Regarding GM and BEV profit margins… the reason Tesla has such fat margins on BEVs and everyone else doesn’t (except for maybe Porsche) is because they have been steadily working on simplifying, improving and reducing the cost of their battery packs, motors, electronics, body shells, improving their manufacturing and sweating all sorts of details.

All that takes time, money, patience and playing the long game where the work/investment you make will take a few years to deliver benefits.

Even if a big company like GM throws all the money in the world at the problem, it still takes time to figure out and implement.

Dar Khorse
Dar Khorse
1 year ago

Lightning fires: of course, doesn’t lightning always cause fires? Why is anyone surprised?

Dealerships: I don’t know but I hope they go the way of current Polestar dealership model. You choose the car you want online, spec it the way you want, get the price and that’s the price you pay. Totally transparent process and you don’t have to deal with any humans. If you do have questions, the humans at the dealership are friendly and helpful and knowledgable. The finance person calls you and asks if you want any additional coverage packages, which you decline or accept without feeling any pressure. When the car arrives, you either go pick it up or have them bring it to your house, as I did. Either way, you spend a pleasant hour or so getting introduced to the car and all its features by a pleasant and knowledgable person. Then you spend 15 minutes signing papers and you’re done.

Taargus Taargus
Taargus Taargus
1 year ago
Reply to  Dar Khorse

That sounds great. And you didn’t even get called “chief” once?

MiniDave
MiniDave
1 year ago

I worked a number of car dealers over my 30 years in the bidness, most were really great places to work, with an owner who was there every day and accessible and who had not only a clear vision of what he wanted his business to be but also how to get it there. I didn’t stay at those who weren’t….one of which was part of a large nationally owned, name brand chain. But NONE of them ever believed that pissing off customers, stealing keys, forcing them to buy shit they didn’t want and so on was the way forward. EVERY ONE of them wanted their customers happy so they would come back for service, and spend more and maybe buy another car, or send in neighbors, family members etc. You don’t get those results by pissing people off.

So I don’t know where all these stories happen, maybe they do, maybe they don’t and have just become folklore but I believe they are way overblown.

However, I don’t understand why people think buying online from the MFR will suddenly get them a better deal. The mfr will put the price up and that’s what you’ll pay – and as evidenced by what happened at Tesla recently, that number could be whatever they want it to be. Same with service and parts costs. They won’t have to be competitive unless they want to be. And what will be the incentive for a mfr to have lots and lots of service centers? Maybe there will be one in the bigger towns, but small towns? Rural areas? More than likely they’ll pay to have the local garage do the work. I don’t see this as being better than a factory trained dealer with all the special tools and correct parts as required by their franchise agreements.

And what about your trade ins? What are you going to do with them? Drive to an auction house and leave it there? Auctions aren’t generally open to the public, and they don’t take consignments. MOST people do not want to bother with putting an ad online and dealing with strangers to sell their car.

Paperwork, titling etc? It’s a LOT of work to get all the gummint regs satisfied on each transaction, especially on out of state titles with liens on them.

As for those of you who say you always buy your cars from private parties, where do you suppose those cars come from in the first place? SOMEONE has to buy it first for there to be used cars available……I don’t blame folks for not buying new cars, but as we saw when the pandemic hit, there is not an unlimited supply of nice lightly used cars available for cheap prices.

I think we’re in for some interesting times ahead, I’ll be curious to see how it all shakes out…..but I seriously don’t believe all the stories I’ve seen about people being abused at dealerships. As for the term “stealership” – I hate this custesy internet term, because it’s a lie. No one at the dealership or any other business can steal from you unless you let them, and if you do let them – that’s on you. If their parts prices are too high, don’t buy there. If their service costs are too high, take it somewhere else or learn how to do it yourself. But if you consider it stealing just because they charge more than YOU think they should, you’re deluding yourself.

Taargus Taargus
Taargus Taargus
1 year ago
Reply to  MiniDave

Yeahhhh, you’re showing your bias here. But at least you’re admitting that.

Locally, we have a number of seriously bad dealers, and none of them are the giant chains that are maligned by basically everyone; these are smaller groups or family owned. I’ve personally dealt with the “took my keys and can’t find them” run around. Walked away from the ridiculous nonsense in the finance department. And my wife has dealt with far, far, far worse. You have no reason to trust me, but I also have no reason to believe your pro-dealer schtick either.

Luckily for us, our local Subaru dealer made us believe that the dealer model is in fact, viable, if you can find one that isn’t actively trying to screw you. They tried nothing bizarre during the sale. The service department is upfront and honest. My wife won’t go anywhere else, and while I’m pretty lukewarm on the modern Subaru lineup, I might not either.

Ben
Ben
1 year ago
Reply to  MiniDave

My experience with dealers has been that while maybe none are outright villainous, some of them try to screw you just hard enough that you don’t walk out and swear you’ll never return.

Both times I’ve bought vehicles from one of my local dealers I’ve had experiences that made me think they at least tried to take advantage of me. I can’t prove they were lying 100%, but there were a number of factors that suggested they were. In those cases the numbers worked out to what I wanted in the end, but I still left feeling like the salesman and GM probably high fived and shouted “Sucker!” after I was gone.

Ben
Ben
1 year ago
Reply to  Ben

I should also note that I have had an excellent experience with a dealer too. When I bought my first car the salesman was great – helpful but low pressure. He found me financing, even as a technically jobless college student, and the first time I went in there he didn’t even try to get me to buy the car, just gave me the information I needed and let me go.

My parents were so impressed with him that they went back and bought a car from him about six months later. That’s how it _should_ work, but unfortunately far too often it doesn’t.

Dean Reimer
Dean Reimer
1 year ago
Reply to  Ben

Unfortunately, many dealers would fire that sales person because maybe he doesn’t close enough deals in the short term. Only a dealer that values relationship building will tolerate that.

Eggsalad
Eggsalad
1 year ago

The future of the automobile dealership is exactly the same as the present. In social terms, the USA and its people are extremely resistant to change, in some cases, so resistant that change results in anger and mayhem. In 1976, the US Congress passed an Act that “declared the metric system ‘the preferred system of weights and measures for United States trade and commerce’, but permitted the use of United States customary units in all activities.” (Wikipedia). We’re still heavily on the side of the use of “United States customary units”.

There will be car dealers in the customary fashion as long as cars are sold.

The Porscheoisie
The Porscheoisie
1 year ago

Can someone comment on how auto manufacturers calculate unit margin? (Followup, do they all agree on method and report faithfully?)

Components I can think of:

Cost of development/design/engineering (spread over actual production how?)
Cost of marketing (spread how?)
Cost of tooling (spread how?)
Cost of utilities/power (spread how?)
Cost of overhead/g&a (spread how?)
Cost of logistics/shipping parts & final units
Cost of materials to make one unit
Cost of labor to make one unit
Price of unit paid by dealer
Price of unit paid by customer
Dealer costs (spread how? These are variable and fixed…I only include because it makes comparing Tesla direct model harder to dealer sold brands)

It just seems to me that a single number for margin on any given car is (1) too simplistic (2) hard to compare between manufacturers and (3) subject to manipulation by whomever is generating or quoting it.

V10omous
V10omous
1 year ago

This is my experience in a closely related manufacturing business (not an automotive OEM).

The costs we tracked at my level were broken down into:

-BOM cost (materials that went into one unit)
-Direct Labor (number of man-hours, and therefore how much $, to build one unit)
-Overhead per unit (everything else)

The first two are harder to fudge, and are tracked the closest. Overhead had a complex formula that I was not privy to. Most of the stuff you mention was accounted for somehow, but likely rough and high-level estimates. This was cost-rolled (recalculated) a couple times per year but otherwise left alone (if we made 1000 units one week, and 1200 the next, we weren’t changing our cost estimates per unit because of fixed costs).

Dealer costs and price paid by customer were irrelevant because that was outside our hands. Once the unit left our factory and was invoiced to the dealer, that was the end of it.

I don’t know if OEMs handle it the same way we did, or if they are consistent with each other. I’m also not an accountant; I just had to interact with this stuff a lot in my role as cost-savings/continuous improvement engineer. I will say that I’d be skeptical of any statements about a specific model line being profitable or not.

Factoryhack
Factoryhack
1 year ago

Manufacturer’s vehicle margins are assembly plant based, at least where I worked (FCA). I couldn’t comment on other OEMs, but I suspect it’s probably similar, accounting wise.

Development costs, brick and mortar, production equipment, raw materials, labor, incentives, marketing, and shipping are factored in to determine gross margin per unit. We were bonused based on a term called “profit contribution” which varied greatly with the type of vehicle, and the option load. For example, a loaded 3500 series truck had a massive profit contribution relative to a compact car.

Dealer’s are a whole different thing that is unrelated to what manufacturers do. They measure new car front gross (raw acquisition cost vs. selling price.), and back gross, (what they make on F&I products, financing, etc.) to determine gross margins per new vehicle.

The dealer financial statements are slightly different, between brands, i.e. Nissan vs. Ford, bit are essentially doing the same thing.

Nsane In The MembraNe
Nsane In The MembraNe
1 year ago

I don’t see what tangible benefits dealerships have over a direct sales model in the US. There are almost no protections for the consumers who interact with them in this era of off the rails crony capitalism and the horror stories are too numerous to list. Dealerships are inherently predatory and their entire business model is trying to rip you off as much as they possibly can.

As the supply chain went kaput and inventory stopped existing over the last few years what did dealerships do? Why, passed their challenges directly to consumers in the form of ludicrous markups, of course! It’s literally illegal to do that in many first world countries, but not here in the good ole US of A.

And I’m just talking generally so far-I haven’t even gotten started on the countless horrific experiences with dealerships I’ve had personally. I’ve been treated like dirt at nearly every one I’ve been to, and I’m a fairly well off white dude with great credit and disposable income. I can’t even begin to imagine what it’s like for less privileged folks…but wait, I don’t have to imagine! A dealership in my area is currently paying massive fines for the fact that they were found to be giving minorities predatory financing terms.

Before we hopped off the VW train as a family my sister had a technician at a local VW dealership (believe me, if you own a modern VW you’ll be well acquainted with your local service departments) tell her she was wrong about a problem her Tiguan was having and ask if they could speak to her husband about it. In 2022! It turned out that the technician was wrong and they’d missed a very obvious issue. Fortunately they yeeted the Tiguan and the VW Experience into the sun and now have a Lexus NX that they’ll never have to worry about anything but oil changes for.

Dealerships are leeches on society that offer consumers absolutely nothing. They make a difficult process even worse for everyone involved except themselves. A direct sales model would benefit literally everyone except them. Granted, despite me and my family’s horrific experiences with them, I do think service departments are a necessary evil to a degree. I don’t think we can just throw those out. But dealership sales? Get lost, ya jerks.

Toecutter
Toecutter
1 year ago

I would love to see stealerships disappear. Legislation that forcibly props up their existence needs to be repealed. I despise interacting with them so much that every car I’ve ever owned has been a private 3rd party sale. They serve no function other than to act as a middleman, charging me more money for a product than I’d otherwise pay. To see them go would be an example of good riddance.

EVs could be cars that have next to zero maintenance and should be greatly less complicated than their gasoline counterparts, but they’ve been overcomputerized and overcomplicated on purpose. I like my EVs dumb, without screens, and easily repairable. This is why I built one out of a classic car and custom built a pedal-electric microcar as well. I’ll never have to overpay a stealership for expensive parts and everything in these vehicles can be fixed myself with basic tools. That is how cars should be.

If the industry wanted to, they could build an electric car that would last a human lifetime with minimal repairs and minimal maintenance requirements, to where the buyer could buy it new as a young adult in college, put a million miles on it, and 6 decades later pass it down to their grandkids in usable condition as a daily driver, with maybe one or two battery pack changes and a few minor component repairs or replacements in the interim, plus small things like brake pads, tires, wiper blades, ect.

It sucks that so few people can’t see beyond the next quarterly report as the Earth’s resources dwindle and the landfills get full of toxic crap that leeches into the soil and water.

Cheap Bastard
Cheap Bastard
1 year ago
Reply to  Toecutter

‘If the industry wanted to, they could build an electric car that would last a human lifetime with minimal repairs and minimal maintenance requirements, to where the buyer could buy it new as a young adult in college, put a million miles on it, and 6 decades later pass it down to their grandkids in usable condition as a daily driver, with maybe one or two battery pack changes and a few minor component repairs or replacements in the interim, plus small things like brake pads, tires, wiper blades, ect.’

The industry already does that and has been doing that with ICE cars since at least the 1960s, longer for folks outside of the rust belt. Just do a search for million plus mile cars, they’re out there. There are also plenty of engine disassembly videos that show well maintained, high mile engines still looking new.

I’d say most cars end up in the junkyard from collision damage, emissions issues (e.g. cat theft), owner neglect, rust, filth, or just being ugly, uneconomic or unfashionable (think station wagons, minivans, Grandma’s cherry Buick, cash for clunkers and so on). Or maybe the car’s resale is so low it’s not worth keeping it going even if all it needs are a new set of tires, an oil change and a tune up. Manufacturers can only do so much to prevent that. They can’t fix a customer who doesn’t give a damn.

There is also the point that cars SHOULD be junked as better, safer, more efficient cars become available. You could have kept a mid to late 20th century crapcan going, even looking and driving like new but short of wowing the Radwood/Boomer crowd why would you? It’s a crapcan and will always be a crapcan and should you get run over by a semi you will die horribly in it vs walk away if you had been in its modern counterpart instead. Electric cars will continue to be developed as ICE cars have so it’s probably safe to assume a car made in 2075 will be a LOT better than one made in 2035. Maybe the battery will be fusion powered, maybe it will have a force field safely system, maybe the damn thing will actually drive itself, maybe it will be made of sparkly unobtanium, come with a trunk full of flying trunk monkeys, whatever.

I think if you want you already CAN have a “forever” car IF you are willing to put in the basic maintenance, buy a make/model/manufacturer with a reputation for quality and are lucky to not have it wrecked. The problem isn’t the car it’s the owners. Very few grandkids want Grandma’s minty fresh Buick or Avalon even if it’s free.

Duke of Kent
Duke of Kent
1 year ago

I’d like to see manufacturer sales as an option. That way, people who see added value in the dealer experience could still go that route while those who don’t can buy direct from the manufacturer. The added competition would likely drive improvements all around.

In fact, this would bring car sales in line with most things we buy. You can buy your phone direct from Apple (the manufacturer) or through Verizon or Best Buy (dealers). You can buy your produce at a farmer’s market (straight from the “manufacturer”) or from a grocery store (a dealer).

I hold no affection for dealers, so I would be open to buying direct from the manufacturer if given the option. But in a world where both options are present, I’d certainly shop around to get the best value.

ExAutoJourno
ExAutoJourno
1 year ago

Dealers: not in love with them, but I have a feeling that other selling methods — especially Internet purchases — will be a fad, and will die out as people realize they aren’t putting hands on the product ’til they buy it for hefty chunks of cash. IMO, franchised dealers will last as long as any of us do, and the ones that thrive will really bear down on making the buying and service experiences customer-friendly.

GM profits: Seems to me the manufacturing costs for EVs and their battery packs were pretty predictable. They chose to jump on the bandwagon without following through on analyses, based mainly on the eagerness of Early Adopters and the P.R. benefits of alleged non-polluting vehicles.

The Porscheoisie
The Porscheoisie
1 year ago

The dealer structure has changed completely from when every state leg gave in and allowed dealers to write the regulations that protect them. There were no nationwide companies that own multiple dealerships for multiple brands in multiple states. There was less information for consumers available (in the 80s and 90s, remember it suddenly got easier to find invoice prices?).
Yes there are still family owned dealerships around but they are always under pressure to sell out as they look at the new competitive landscape.
Whether you think the dealer protectionist legislation was ultimately better for the consumer, it did create and help local businesses. Good ones provided good jobs, spent money locally and treated customers right. Bad ones took advantage of their local market power.
The big dealer networks are owned by sophisticated and monied players who saw paths to take advantage of those regs and limit the power that came from informed customers (when the majority of a brands dealers within driving distance effectively conspire against a consumer, getting a “deal” is just harder).
Unless states attorneys generals get on board, I don’t see this getting better anytime soon.

Paul B
Paul B
1 year ago

If GM is really getting 8-10% margin now on their new EV’s, they’re in a really good position.

Nsane In The MembraNe
Nsane In The MembraNe
1 year ago
Reply to  Paul B

Hasn’t Ford come out and said they’re losing money on every Mach E?

Drew
Drew
1 year ago

Dealers aren’t going to disappear, at least not for some time. They’ll fight every step to keep the status quo, because the status quo is very profitable.

Inventory sitting on lots will go first (and might never really bounce back to previous levels before it starts to go), but people will (and should) still want to go somewhere and test drive, so having that also be the place that receives your ordered vehicle, inspects it, and does your paperwork makes sense. It also won’t hurt dealers’ bottom line to not sit on inventory. Sales staff will be reduced and maybe commissions will go away, or maybe they’ll be done differently.

As the switch to EVs keeps progressing, the service center will shrink. You’ll probably stop seeing oil changes at the dealers after a bit, unless they edge out all the oil change places instead. You might see dealers trying to become bigger players in things like tires, and they’ll still offer things like shocks, but they may eventually stop servicing ICE vehicles as brands go all-electric.

I also think that some (maybe most?) dealers will offer things like free charging at their lots as incentives to purchase from them. They’ll expect to capture customers that way without too much cost (most people won’t want to go to their dealer to charge all the time).

The end result will probably be much smaller lots, fewer employees, and a lot more ordering. But it will take some time.

Drew
Drew
1 year ago
Reply to  Drew

I also think we’ll see a lot of local and regional dealers bought up by massive national chains, which will not be good for consumers, employees, or manufacturers.

Wil Randolph
Wil Randolph
1 year ago

What does the future of car dealerships look like?
That depends if you mean a successful dealership or one of them that will be limping along for the next 10 years until the ax finally falls.

The franchise model isn’t going anywhere. Too many lawyers, too many lobbyists. The end consumer and what they want doesn’t matter enough to fight the NADA. With that being said, you’re going to see a lot less dealers, and a lot more dealer groups. Which you might think is a good thing, but absolutely isn’t. Dealer chains are great if you’re a dealer chain. You’re too big to get picked on by the OEM (they want you to buy all their cars, especially if you’ve got multiple locations), and like any big business layers of bureaucracy breed flaws that no one will fix because there’s no purpose.

So you’ll have big dealer chains that give zero fox about the customer beyond a number, and they’ll be battling it out with experience driven organizations that sell a car and a lifestyle in high margin regions like NE, SW, TX, CA, etc.

If you’re a mom n pop scraping it out in a building you’ve owned since the 1970s, and the OEM is coming knocking saying you need to spend $1.1 million on updates, it’s probably time to call it quits. You need scale to make it in tomorrow’s world.

Man With A Reliable Jeep
Man With A Reliable Jeep
1 year ago
Reply to  Wil Randolph

It bugs me, but you’re right. I refuse to be okay with the call to “consolidate or die” even if it’s absolutely true. Success should be a possibility even for those just starting out in our late state Capitalist world.

Gabriel Jones
Gabriel Jones
1 year ago

Regulations make that success harder and harder for the new guy. And not just the fixed costs of compliance. You have to pay somebody or a team of somebody’s to find it what it is that you have to comply with.

Manwich Sandwich
Manwich Sandwich
1 year ago
Reply to  Wil Randolph

If the big dealer chains truly give zero fucks about the customer beyond a number, that will only just push more customers to companies like Tesla.

V10omous
V10omous
1 year ago

I’m hardly pro-dealer but the level of vitriol for an experience most people do once a decade or so is always rather surprising to me.

I support opening competition and loosening the franchise laws, but I hope what we’ve seen from Tesla recently with jerking people around pricing wise will enlighten people on how a direct sales future would not be a utopia like they may imagine.

Jb996
Jb996
1 year ago
Reply to  V10omous

That kind of indicates how consistently bad the experiences are, doesn’t it?

What else happens once per decade or less, and yet it’s ingrained into our psyche as a painful experience to avoid if at all possible?
The only thing I can think of is possibly having a dental root canal? At least Dentists use pain killers.
Maybe if Dealers started by administering lidocaine before breaking out the four-square or otherwise screwing the customer over, then they would have a better reputation.

And Dealers are infamous for jerking people around on price, if you can finally extract a price out of them. Tesla making adjustments to their published prices, while perhaps arbitrary or exploitative, are at least disclosed publicly.

V10omous
V10omous
1 year ago
Reply to  Jb996

There’s no good way that I’m aware of to avoid a root canal once you need one, but I’ve found it pretty easy to avoid the worst tricks of car dealers.

Perhaps I’m just the luckiest person in the world. But I don’t think it’s unreasonable for people to get the outlines of a deal via email before going in person, to insist on a price in writing or walk away, and to have outside financing available as a backup. To me, those seem like common sense and low-effort activities that take away the dealer’s advantages.

Jb996
Jb996
1 year ago
Reply to  V10omous

I agree that the dealer experience is manageable. We could make this another thread of tips and tricks for interacting with Dealers.

But the fact that you need a battle-plan before going in, clear criteria of when to walk away, and that this battle plan needs to be taught to new buyers, really highlights the point.

No one feels the need to explain how to buy from Walmart without getting ripped off.

V10omous
V10omous
1 year ago
Reply to  Jb996

Correct, but that’s a matter of the effort to save a few pennies not being worth the time, not Walmart being inherently more ethical than a car dealer.

I would give most of the same advice to someone going to buy a mattress, a lawn tractor, a washing machine, a TV, or anything else that represents a significant expense. Shop around, get figures in writing, and be willing to walk away.

Jb996
Jb996
1 year ago
Reply to  V10omous

All you’ve highlighted is the problem with the (hidden-market: “price is negotiable” mark-up beyond MSRP for additional profit, with no added value) model, versus a fixed published open-market price. Any sales model (cars, mattresses, whatever) that allows for unpublished prices, arbitrary mark-up, and complex sales negotiation, is inherently ripe for exploiting buyers.

I completely agree with your methods, and savvy buyers, like you and I, will use them to negotiate our price to the minimum overhead profit that the dealer will allow. But it is an inherently exploitive and confrontational process. Which is why people don’t like it, even IF they are educated and savvy.

I agree that Walmart as a corporation isn’t ethical, but their prices are published, so what you see is what you get. It’s open-market competition. Even if it WAS worth my time, no one at Walmart is going to negotiate with me over those pennies. The prices at Walmart are competitive on the open market and hence have already be driven by broad, educated, consumer buying behavior to their lowest allowed profit margin.
That’s the foundation of open-market capitalism.

V10omous
V10omous
1 year ago
Reply to  Jb996

The last couple of years have changed this a bit, but for 99% of the time car dealers have existed, you would be able to go in and pay the published and advertised price (MSRP) without any hassle or complaints. Just like you do at Walmart.

The fact that we expect to haggle at a car dealership, but not at other places (even though you can, and should, on other big ticket items) is the root of the issue I think. No one can stomach the idea that the next guy might have done just a little bit better.

SarlaccRoadster
SarlaccRoadster
1 year ago
Reply to  V10omous

I like how you just gloss over the fact that the dealership model is IMPOSED on us, there’s no choice here. If it was a choice, then I might start to consider any arguments you want to make in their favor.

My take is there is absolutely zero upside to the dealership model, and THEY KNOW IT, which is why they spend millions lobbying to keep it that way.

V10omous
V10omous
1 year ago

I think you glossed over the fact that I advocated for that to change in my OP.

The rest of my posts have been seeking to understand why everyone hates the dealers so much, which remains a mystery to me given my personal experiences. After all, most things we buy, including most big-ticket items, come via middle men.

Jb996
Jb996
1 year ago
Reply to  V10omous

Hmm, my reply is stuck awaiting moderation.
Apparently our friendly discussion has triggered a filter?

Nsane In The MembraNe
Nsane In The MembraNe
1 year ago
Reply to  V10omous

This is one of the situations where you are in fact lucky, my friend. There’s a reason the dealership experience is so universally loathed.

Daemoss
Daemoss
1 year ago
Reply to  V10omous

As someone who recently spent 45 minutes listening to a finance manager trying to upsell my recently widowed mother-in-law on a whole boatload of additional coverages including several different variations on GAP insurance for a car she was paying for in cash after walking into the dealership with a full signed and written quote for the out the door price I am inclined to believe you may well be the luckiest person in the world.

SteamTroller45
SteamTroller45
1 year ago
Reply to  V10omous

Fair, but the Tesla shenanigans are already basically par for the course with the current franchise model. Dealers have the same problems lawyers do: 95% of them making the good 5% look bad. Obnoxious, special edition-killing price gouging and markups, unwanted dealer upgrades to jack up the price after an agreement was reached, and straight-up fear tactics like keeping keys to your car until you agree to buy theirs. Sure, you may never go back to that dealership again, but with OEM direct sales you could take a complaint straight to corporate customer service and publicly expose the whole brand. It puts power back in the customers hand, instead of these increasingly faceless, usurious, and borderline criminal franchise chains.

V10omous
V10omous
1 year ago
Reply to  SteamTroller45

“but with OEM direct sales you could take a complaint straight to corporate customer service and publicly expose the whole brand.”

How has this gone for Tesla complaints so far? I think it’s pretty naive to assume better behavior on behalf of the manufacturers. More likely, you’ll get a mix, just like you do with dealers now.

Again, I’ve never had anyone attempt to hijack my keys, I’ve never had a dealer successfully change the deal after it had been signed (they tried, I laughed), and I’ve never once felt afraid in a dealership (what are “fear tactics” anyways? You as the buyer are in control of the situation). And I’ve bought a LOT of new cars. I think people go in expecting the worst, that leads them to lack confidence, which prevents them from treating buying a car like any other big purchase.

Drew
Drew
1 year ago
Reply to  V10omous

I think the combination of your extra time in dealerships, your solid financial standing, and the likelihood you were not in a situation to need the car likely helped a lot. For a lot of folks, they’re going in because they need a car to commute in right away and that adds pressure. Combine that with less-than-solid credit/finances and the salescritter bouncing around the four square and a person who doesn’t know a lot about the situation is bound to get stressed and confused.

I’ve walked away from more dealers than I have purchased from, because they tend to introduce problems to what should be simple deals.

“So, we advertised this price, and you’ll get it, but the paperwork shows the MSRP and then has this discount and that discount. Then, once we get down to that price, we have to start tacking on these fees.”

“Well, they’re still inspecting your trade, but what if we start doing some paperwork right now?”

“Well, this one is spoken for, but can I sell you [more expensive model]? It’ll meet your needs and we can get you a low interest rate?”

Drew
Drew
1 year ago
Reply to  Drew

And those are the typical ones. I’ve ordered a vehicle, been given the quote and build sheet, then asked to pay significantly more once it was inbound. They hoped that my anticipation would beat my frugality. It did not. But I recognize that the ordering situation is very different from the highest pressure situations, where a person needs a car now, so they feel like they have to make the deal work today. I’ve never been there, but it would hinder decision-making for sure.

V10omous
V10omous
1 year ago
Reply to  Drew

I agree, and there are unfortunate situations where someone absolutely needs a car with zero warning. Probably few and far between though if we are really being honest with ourselves. Even the least car-savvy among us have some indication that a car is on its last legs.

Remember, this discussion is only about new cars, and I still think most *new* car buyers are in a place closer to where I am than to a desperate person who’s taking the bus if they don’t buy something that minute.

Drew
Drew
1 year ago
Reply to  V10omous

I’ve known some folks in dire straits to go buy a cheap new car in hopes of not getting the outright slimy used car dealers. Unfortunately, your local Nissan or Hyundai dealer is probably pretty close to the same level as the shady used lot.

Also, my examples in my first response were at a Kia dealer, a Honda dealer, and another Kia dealer. The ordered vehicle was a Hyundai (that’s on me for thinking the Hyundai dealer could be trusted to follow their written quote at all). I’ve run into some of the same crap at a Subaru dealer. ALL of those lots tried to get me to come sit in a room and talk things through while someone else had my car, and most of them tried to frame the deal they were offering as something incredibly time-limited to keep the pressure on.

While most new car buyers may not be in dire straits, I suspect the average buyer is probably not particularly well-informed. This leaves them more vulnerable to these tactics than your average Autopian, but somewhat less vulnerable than the person who needs a car now.

Also, even knowing what I know, I hate dealing with them, because what I don’t know is whether any particular dealer is going to try all this shit. I wasted 8 months waiting for my ordered Hyundai, only to end up walking away when they jerked me around. I could have picked up something else. (I then wasted an additional 6 months waiting for the equivalent Kia, but I gave up on that for reasons that were not the dealership.)

V10omous
V10omous
1 year ago
Reply to  Drew

Perhaps a big caveat to all my statements is that I’ve never bought a Hyundai or Kia; the tales from those dealers seem to be on average the worst.

Drew
Drew
1 year ago
Reply to  V10omous

With their recent improvements in vehicle quality and design, I wish their dealers would improve.

Honda was just as bad as Kia around here, if not worse. Some of that is my experience with one good Kia dealer, while the Honda dealers were both better than the bad Kia dealer and worse than the good one.

Ford seems like they are pretty good to work with now that they encourage orders. The dealers are realizing that people can spec it out and find a decent dealer, so they are putting in a bit more effort.

Drive By Commenter
Drive By Commenter
1 year ago
Reply to  V10omous

My significant other needed a newer car ASAP since the okay paying job relied on using a personal vehicle and getting reimbursed. The current car was totaled after an accident. So it was a “we need a car 2 days from now” situation. We did okay, more from lucking into a good dealer than anything we did.

Jonee Eisen
Jonee Eisen
1 year ago
Reply to  V10omous

I feel like dealerships are slowly starting to catch on, too. I recently bought a Ram Promaster City at a dealership and it was a very pleasant process. They bent over backwards to make sure I was happy and did everything I asked. And it’s pretty nice being able to actually test drive and poke around the thing in person.

Stef Schrader
Stef Schrader
1 year ago
Reply to  Patrick George

…did they WANT to get stabbed? Was there a bet in the breakroom as to who can anger a customer into shanking them with a dull plastic knife first? Like, did this fellow wake up and say, “yeah, I’d like to start a fight today from someone who should be giving me money?”

Good grief, what the hell is wrong with people?

Cheap Bastard
Cheap Bastard
1 year ago
Reply to  Stef Schrader

Maybe. Getting stabbed might be the only exit strategy they’ve got.

Uncle D
Uncle D
1 year ago
Reply to  Patrick George

I’ve had many horrible experiences with car dealers, but never had my keys taken away. How, exactly, do they get someone’s keys in the first place? Please explain this tactic to me.

Paint-Drinking Thundercock Harvey Park
Paint-Drinking Thundercock Harvey Park
1 year ago
Reply to  V10omous

As if dealers haven’t jerked people around with pricing for decades?

The vitriol is well deserved and self-inflicted. Let them eat cake, or something.

Autojunkie
Autojunkie
1 year ago

“What does the future hold for the car dealership? Right now there’s a lot of speculation about our software-driven EV future where all problems are fixed by OTA updates and people just buy cars online.”

I hate the car dealership model as much as the next person, but you can’t replace a ball joint or a defective steering rack with an OTA software update.

The fact is that I would rather see the franchised dealer model go away and factory-owned service and sales centers replace them.

Jb996
Jb996
1 year ago
Reply to  Autojunkie

I always had trouble understanding the EV “little/no maintenance” selling point.

How much maintenance does your average car owner actually put into their ICE car that isn’t also needed on an EV?
– Oil changes, spark plugs, air filter. And honestly, how often do you really think those things are happening to your average car?

Yes, ICEs have more drive-train parts that could break, but both of my newer cars are at 150k+ with nothing ICE related except oil, spark plugs, air filter. But, one of them is a Toyota. Maybe the problem is that Ford is the best selling truck in America. With a more quality-focused truck maker, maybe EVs wouldn’t seem so reliable in comparison.

SteamTroller45
SteamTroller45
1 year ago
Reply to  Jb996

This ^^^^^

Especially factoring in “OTA update” bullshit. How many iPhone or Windows updates have we had that were a huge pita until they released a “patch” which restored some functionality, but all the fanboys acted like people upset with it just “didn’t understand”?
I understand my ’03 Avalon just fine. Then again, I understood my $65 phone with a slide-out physical keyboard and no internet connectivity just fine too, but the phone and cellular companies colluded to eliminate those from the market too. Now I’m paying more in two months for a “data plan” I didn’t want than I did for the whole non-data phone.

Cheap Bastard
Cheap Bastard
1 year ago
Reply to  SteamTroller45

Shop around. Companies like Tello offer dataless plans with voice and text only, just like the good old days. Tello’s no data plans run from $5-8/mo depending on how many minutes you need. You may not need very many if you mostly use VOIP via WiFi.

If you want some data you’ll pay a bit more but it’s still reasonable. Their most expensive plan with unlimited everything is $29/month. I pay $15/mo for 4GB data, unlimited calls and text on Mint.

There are many such providers on various networks so shop around. They’re cheaper because their users have lower priority on the networks but AFAIK that doesn’t matter so much for calls and text. You will probably notice it on the data though.

Cheap Bastard
Cheap Bastard
1 year ago
Reply to  SteamTroller45

Shop around. Companies like Tello offer dataless plans with voice and text only, just like the good old days. Tello’s no data plans run from $5-8/mo depending on how many minutes you need. You may not need very many if you mostly use VOIP via WiFi.

If you want some data you’ll pay a bit more but it’s still reasonable. Their most expensive plan with unlimited everything is $29/month. I pay $15/mo for 4GB data, unlimited calls and text on Mint.

There are many such providers on various networks so shop around. They’re cheaper because their users have lower priority on the networks but AFAIK that doesn’t matter so much for calls and text. You will probably notice it on the data though.

Also if you want a cheap smartphone with a swappable battery the Samsung S5 and LG V20 are good choices. Both were top of the line for their day, both have 4Glte but can be had on EBay or Swappa for about what you paid for your non data phone or less. The S5 is more water resistant and can run LineageOS better, the LG is tougher and has better cameras. NOS batteries run $5-10. Battery swappable phones are IMO the only way to go.

Cheap Bastard
Cheap Bastard
1 year ago
Reply to  Cheap Bastard

Dammit, where’s that ©«¥\*] edit button?!

Drew
Drew
1 year ago
Reply to  Jb996

Oil changes are usually the big one people are talking about, though brakes come up. But a hybrid has the same regenerative braking advantage. And I suspect some of the maintenance cost comparisons are assuming a full synthetic change done at the dealership on the schedule for a conventional oil, because I have seen some really high estimates occasionally.

I also wonder if shocks and tires will be replaced more often on some of these heavy EVs. Some people pretend EVs have no wear parts or that anything shared with ICE will wear equally.

Lally Singh
Lally Singh
1 year ago

The BMW 3 series starts off lower than a Tesla Y, so I think the comparison works.

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