Changes to Come in the Auto Industry, Goodbye Dealerships

With the BIG THREE on the verge of collapse, bailout packages in limbo, GM shutting down North American production for the month of January after already shutting down South Korean production last month, and now a battle is brewing between the manufacturers and the unions, the car industry is in dire shape indeed. There are big changes on the horizon.

Too Many Vehicles and Too Many Brands

GM is still guilty of producing duplicate brands of many of its vehicles. You can get the same car under the Chevrolet brand and the Pontiac brand. This effectively doubles marketing costs, raises production costs to produce 2 slightly different body styles, and pits the two brands, and their dealers in competition with each other. Stupid.

The drastic production cutbacks are in response to the glut of inventories of new cars sitting unsold on dealers lots. The industry was overproducing as car buying slowed.

Seth Godin thinks we need more car brands, many more brands. He wants to see turnkey car businesses that are as easy to start up as a website business. And as he put it “Use the bankruptcy to wipe out the hated, legacy marketing portion of the industry: the dealers.” He’s only partly right.

Car Buyers HATE Car Dealers

That’s a fact. Just do a search in Google for “i hate car dealers” and see all the discussion on various forums and blogs. This comment on Susan Senator’s blog sums it up well;

I hate car dealers. I hate car dealers. I hate car dealers.

Every experience I’ve had buying a car from a dealer they’ve tried to rip me off. I hate car dealers.

You know who should do an expose on car dealers and how they rip people off every single day? The local papers and local TV news. Oh wait, a HUGE portion of their revenue is ads from car dealers. Crap.

Did I mention I hate car dealers?

People hate having to haggle on pricing as most of us are not good at it, meanwhile the salesman can spot us suckers from a mile away. But the internet is changing that.

Car Dealers Embraced the Internet and Local Search

In the realm of local SEO new and used cars are up there with real estate agents as an ultra competitive sector of the search marketplace. Through the internet people can do a lot more research on their vehicle choices before they even speak to a salesman. Many are also now armed with dealer invoice pricing and tips on how to deal with sales people, found on the net. states that their business is still steady despite the recession. Sure, car dealers may be funneling more of their marketing dollars to the net vs. traditional local media but when 700 dealerships have gone bankrupt so far this year in the US (projected to be 900 by year end) I have doubts about their projections. If GMAC goes bankrupt GM may loose 40% of its dealers, that’s another 2600 dealerships closing.

Dealers are dropping like flies and the best rankings in Google won’t help them as buyers are afraid what a manufacturer’s bankruptcy may mean for warranties on a new car or truck.

The New Model : Vehicles Made to Order

As Seth Godin rightly pointed out- the legacy marketing portion of the industry will change. Dealerships are not only hated, they are a poor business model. The overheads involved in that business are crazy. Millions of dollar in inventories sitting on the lot waiting to be sold, large buildings housing too many salesmen, the dreaded business office where they try to sell you overpriced unneeded things like rust protection, undercoating, fabric guard, etc… There is a better way and I’m sure it’s coming.

Dell does it with their computers. You choose your model and it’s options online and the unit gets made in the factory and shipped out to you. Why can’t cars be bought the same way?

People already do most of the research part of shopping for a new car online. Why can’t the manufacturers and dealers websites have a “buy it now” button and you’ll never have to speak to a salesman. Need financing? Apply for it online on the same site. Two weeks later your new car arrives.

I mentioned this to a friend of mine who is a car salesman. At a GM dealership no less, owned by his father, so he has strong bias. He adamantly rebutted me. He’s of the old school idea that the salesman is the most important part of the transaction. This is the self preservationist knee jerk reaction that will come from the industry, but it will loose that battle eventually. People hate the dealers and the salesmen, remember, and would embrace a change.

For those people who still want to deal with a salesman the new model of dealerships only need a couple staff and a computer terminal. Dealerships can downsize to a small office, no inventories on the lot. Maybe a few vehicles in a showroom and a few demo’s for test drives, that’s it. With such low overhead they can out-price a traditional dealer any day of the week. And one dealer can easily be selling multiple competing brands. Of course their service section will still be important.

No More Haggling Over Price

With a made to order online shopping model a fixed sticker pricing model may eventually become the norm. GM may have had it right with the Saturn brand and it’s no-hassle, no-haggle pricing. Granted that is not how it actually works. Saturn dealers still negotiate on price if it means moving a unit off their lot, or negotiate on the financing rate, or trade-in values, but generally Saturn customers enjoy the fixed pricing.

Saturn, it appears, is also already starting to experiment with the internet along the lines of what I think is coming. Ten Saturn dealers are participating in a pilot project where customers can use the internet to apply for credit, schedule test drives, set pricing, etc… Even trade-in values of used cars can be ball-parked online.

It Will Still be Local

There will still need to be a local dealer presence. It’s not about cutting out dealerships entirely with internet shopping taking place on the manufactures website. Internet auto purchases will be funneled to the local dealers. We car buyers still want to take a test dive at the very least. And there should be some continuity on the service side and honoring warranty claims.

It will take a while yet. The dealerships will resist it (change, yuck!). The manufacturers are not internet companies so they will botch the initial attempts, not understanding the web and marketplace. But it’s coming I tell ya.

Question is, will all 3 of “the big three” still be around when it comes?

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2 Comments to “Changes to Come in the Auto Industry, Goodbye Dealerships”

kim (20 comments.) on December 15th, 2008 wrote:

I don’t think they’ll be left standing- people are far too disillusioned with their failed business model & decades of arrogance. The salesman and the smarmy “wheelin’ dealin’” part of the car purchase is always the crap part- I think an industry change will be good.

Aditya (1 comments.) on July 30th, 2009 wrote:

Great eloquence with what you wrote…Sadly enough you’ll never get these GM loyalists to agree with you.

GM loyalists talk of supporting AMericans by buying GM products, even though GM builds and distributes cars in almost every major country in the world including one of their biggest and growing markets.

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