2021 Stock Market
- Thread starter Mtowncyclone13
- Start date
When I get to the afterlife, I want to ask my grandparents why the didn't open up a beer distribution business when they were young. #thanksalotgrammers
I can give you some insight as to where that attitude comes from. It comes from past experience. The relationship between manufacturers and dealers has been somewhat contentious over the years, with the manufacturers really putting the screws to dealers with the demands for things like facilities, etc. If the brand is strong and generating lots of sales, it has value. But if their product like is in a state of flux and sucking, that value quickly evaporates.
A little over 20 years ago when manufactures were questioning the franchise model and trying to figure out a way to circumvent it, Ford decided to launch a pilot program where they bought all the stores in a few markets and ran them themselves. It created real fear among franchisees. Well, how it ended was with Ford losing their ass and abandoning the idea soon after....claiming a moral victory on the way out the door that it better allowed them to understand both consumers and how well the franchise model works. The dealer you were talking to was probably around to see that happen, and even though he came across as an ass, I wouldn't necessarily discount what he's saying. Running a modern dealership requires a totally different skillset and the margins aren't great due to the massive overhead.
Many people consider these dealers as cockroaches, but it's the cockroaches who would survive a nuclear holocaust. If EVs become a viable alternative and I had to bet on Tesla's or Lucid's model vs. the franchise model, I'd bet on the latter. The franchisees are going to fight and claw for marketshare in a way that Tesla or any other doesn't know how to do. Ford learned this 20 years ago.
Ford tried to put an end to it 20 years ago by buying a bunch of stores and trying their hand and failed miserably. Retailing cars requires a totally different skillset than manufacturing them. Operating as an oligopoly, (or virtual monopoly depending on your viewpoint) thus far Musk has been able to get away with it. But if or when the point in time comes when EVs become just another car and Musk actually has to compete, the franchised dealers are going to clean his clock because they are used to functioning in competitive environments. They will also offer a service network that is far superior.
There is value in the franchise model. But because it's perceived as a somewhat glamorous business by the public and generates a lot of cash doesn't necessarily mean it's to the detriment of consumers. Big ticket items that generate boatloads of cash can do so with small margins. If the model changed to manufacturer direct, the net benefit to the consumer would be negligible at best.
https://www.theatlantic.com/business/archive/2009/05/dealers-what-are-they-good-for/17611/
There's a related question, though: what good are dealers? They're protected by franchise law, to be sure, but they do fill a big market niche. Why are there dealer networks in the first place?
- The franchise model provides high levels of customer service. McDonalds doesn't franchise because it can't get access to capital; it franchises because the owner of a franchise will always care more than a hired manager about things like clean bathrooms and health regulations. That helps keep the brand reputation high.
- Dealers tap their personal credit for expenses. Chrysler finances a lot, obviously, but this broadens their base.
- Dealers tap into the local community. A car is a big purchase. People are more likely to buy a product from Chrysler because they know the guy who owns the Chrysler dealer than because they know the guy who manages the local corporate-owned store.
- Dealers provide service and move used cars. In the internet age, new cars are practically a commodity purchase; most consumers know about what htey should pay. Used cars, on the other hand, are idiosyncratic. But Chrysler doesn't benefit if a consumer buys a used Chrysler lemon--that breeds consumers who won't touch a new Chrysler, and drives down the price of new Chryslers by hurting their retail value. It's useful to have dealers who have their own incentives to keep people happy with the brand.
- Auto production has a very high minimum efficient scale. The plants apparently don't break even until they're producing at 80-90%. This means that the Dell model doesn't work--plants can't just scale back production until they have cars to build. Nor does the Proctor and Gamble model work--Chrysler has to make money on every unit, but the purchase is too big for customers to be easily willing to take a less-than-perfect match. That, in turn, means that the dealers are really useful, because they do the difficult job of matching consumers to cars by adjusting price, options, and financing.
All true. Well, almost all true. That piece was written in 2009, and in the years since there's been a massive shift from family owned franchises to large holding corps. Just in the DSM metro, Lithia owns Honda and Nissan of Ames, Acura, VW, Audi, BMW, Mercedes, and now Ramsey Subaru and Mazda. The Ken Garff Group now owns Stew's, Dewey's, and Southtown. Another large group owns Smart Honda. Smaller regional outfits like Billion, Rydell, Shottenkirk, and Deery continue to grow. From my observations, they've become more efficient operationally, but they're losing that local connection.
Good insight. That dealer's skillset definitely didn't involve reading the room. It was just bizarre and I wonder how many others would have that response. It was a "government' class and the car dealer in question's presentation revolved around how much business he lost each year to NM because of City, County and State taxes. I think he's s tough hang.
I have a pretty good friend who's family owned a ford dealership in a small town that I believe was "bought" by Ford, but my understanding was that they were just too small of a marker vs. Ford actually running that one. I think Ford's goal was to push the sales to a nearby market, but you wouldn't think they would care. Perhaps they just expedited the merger/acquisition. I might be missing the exact details on how it went down though, so take that with a grain of salt. It sounds like their business went from pretty good to a ghost town over night, which is a bummer.
I'm not sure the Tesla model of having to ship a car to a major city for most repairs is ideal either. A co-worker that's had to drive to Salt Lake (8 hours) twice for repairs. It'll be interesting to see how it evolves though, as I think the direct to consumer model will be a huge disruptor.
The original test markets were Salt Lake City, Tulsa, and Oklahoma City. I think there were a couple of others. They bought out all the stores in each market. Happened in 1999 and they threw in the towel in 2001. GM was undergoing plans to buy out 800 stores of their own, but abandoned the idea after watching Ford. Both were getting their clocks cleaned by Honda and Toyota at the time, and with eroding market share and falling margins, they were looking for solutions.
You're 100% right about the service side of things. You can guarantee their competitors will drill that into customers. Most don't think their new cars will have problems. But that's where the JD Power Initial Quality info gets pulled out. Who would want to drive from Ames to Omaha or KC or Minneapolis to get a loose trim piece repaired on their new car?
As for the dealer you encountered, you just have to understand that the industry is full of really brash people. Kinda like pipeline workers but but dressed much nicer and with a wider vocabulary. Dealing with the public for years in the industry will do that to a person. LOL
It's just a different world. I think it was after about 3 years in the business when my wife asked what the hell happened to me because I used to be so nice. haha
Ha, good point. I need to change that yesterday. Clearly that was overlooked.
Its back up over 30 today. still have doubled my money.
I read some stuff over the weekend that said it may go to the moon this week. Who knows?
roaring kitty tweets first time since april 16. pushes GME up $6.... dude has the ability to print money
Did she inquire about your whole wardrobe being replaced with tacky plaid sport coats?
So…I picked up a small position in AMC a while ago during all the hubbub, and completely forgot about. I just checked and I’m sitting in a 250% unrealized gain right now. When do I dump this turd?
