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Cars Vs. Computers

The domestic auto dealers are in trouble. Again.

This Oct. 18, 2006 article on details just how bad things are for the automakers:

It's Economics 101. When there's more supply than demand, the supplier is in trouble.

That's the situation at DaimlerChrysler's (DCX) Chrysler division. People aren't buying their cars. Their dealers—including some of the country's biggest retailers, Group 1 Automotive (GPI) and AutoNation (AN), which combined own nearly 500 dealerships across the country—have stopped taking orders because of lack of demand.

I find it interesting that reports focus on supply and demand, without considering the factors that can reduce demand. Is it only economic factors that contribute to slowing sales? Are there any other factors that may contribute to declining sales in recent years?

Another reason for sagging sales?

Most reporters won't focus on this, but I think that many people just can't stand to enter a car dealership unless under duress. I know of many people who don't care for the new car sales experience, so much so, that they will use a broker instead - in effect, buying a new car as used through a third-party, with all the hassle that entails.

As a long-time observer of human nature, I find the entire new-car buying experience (having to buy through a licensed dealership) to be bizarre, and I can't come up with any good reasons for its existence. It exists for reasons which are no longer good or valid. It exists for its own sake, and nothing more.

Are cars really that complicated?

Are cars anywhere near as complex as a modern computer?

I've watched people at car dealerships being given a guided tour, post-purchase, of their new car by the salesperson - that always struck me as an odd thing, and I'm not sure if it's just a part of the "customer service" policy, salesmanship, or if people really want or need that kind of thing - I know I don't, and I don't know of anyone who really does - after all, if you've driven dozens of cars over the years, is there really anything new about the latest car? Yeah, there are gizmos and gadgets that might not have been available in the last car you bought, but let's be practical - if you can't figure this stuff out for yourself, a 20-minute guided tour isn't going to save your butt.

Does a new car owner really need handholding in order to choose, purchase, and then operate a newly-acquired car?

I once worked for a Computerland in the early '80s - at a time when computers were far simpler, less sophisticated, and far less of a commodity than they are now. People sometimes wanted, or needed, some handholding for their new toys. But, it was entirely up to the consumer whether they visited the Computerland store - or mail order a system.

My point is: even today, with the vastly increased power of computers, many people just buy a machine at Costco, or direct from Dell, and begin using it when it arrives. Why are cars, which are developing far less rapidly and are operationally indentical to those available more than fifty years ago, sold as if the buyer has to be coddled and shepherded through the entire process? Can you imagine how many people would actually buy a computer if they had to go through a similar experience?

Yes, you can go purchase a computer at a "full service", hand-holding computer store (if you can find one, and if you so choose). And you will pay a premium. Or, if you so choose, you can order a new computer at deep discounts with exactly the options you want, and pick it up at a discount store, or, have it delivered to your door in only a few days.

Why can't I do the same thing when buying a car?

Sales pressures

The structure of new car sales organizations causes people to buy things they don't really want. The manufacturer, dealership, and sales staff are all under pressure to load up the car with as much optional equipment as possible in order to boost margins.

A recent example: manufacturers are loading up cars with XM (or other) satellite radios or OnStar systems - which of course necessitates the addition of an ugly "shark fin" antenna on the roof of the car - and if you tell a salesperson that you don't want a car with those options, you will probably receive a moderately lengthy exposition on why something like that is such a great investment, and why you really do want it in your new car. (I have received such an "education" on more than one occasion.)

I don't want (or need) an XM/Sirius radio, or OnStar in my car - I can assure you I'm not going to pay a monthly subscription fee to use one of these non-essential accessories in my car. (This just amazes me - we must be a tremendously wealthy nation if people are paying for these monthly subscriptions.) If the manufacturers want to put accessories requiring paid subscriptions in their new cars, let them - just don't charge the consumer for the thing - let the company who makes the money from the subscription subsidize the installation, since they stand to gain from the equipment. Making the consumer pay hundreds of dollars for this sort of gear adds insult to injury. What's next? Drop in a quarter to use the air conditioner for 15 minutes?

Basically, the dealership and sales staff are motivated to sell you what is in current inventory - and you can tell, based on their responses when you ask for something without certain in-stock options.

Further, I think it is intuitively obvious that the current dealership sales model adds considerable cost to the new car purchase. After all, with every car purchase, you are supporting a dealership's staff, the storefront, and everything that goes with it - maintaining that aforementioned inventory costs you, too!

I know that some dealers offer internet pricing, allowing you to go through their 'internet sales manager' - the Costco club allows you to buy at fleet pricing, but then, you are still supporting the current dealership structure - these 'alternate' schemes involve dealership staff, so the markups are still there, even if reduced.

Yeah, but what about repairs?

Ah, but what about getting in-warranty (or post-warranty) repairs on your shiny new car? Well, I can't see any reason why car manufacturers can't set up local shops who are trained and certified to perform repairs on your car. That's really what they are doing with the dealer's mechanics (oops, I mean technicians - there are very few mechanics these days, after all.)

And, my recollection is that by law, manufacturers cannot require that you use their in-house repair shops or techs for warranty repairs - you can go wherever you want, and as long as the repair is necessary and the charges are reasonable, the manufacturer has to reimburse for the repair work.

How I'd like to purchase a new car

I'd probably buy more new cars (finances permitting, of course) if:

  • I could order exactly the car I want, and have it in a reasonable time frame
  • I wasn't forced to enter into marathon negotiations with professional salespeople
  • The base price was lower by a significant amount, reflecting the fact that I did not use the 'services' of a dealership - direct-to-consumer pricing, if you will.

Are there any automobile manufacturers brave enough, visionary enough, to offer consumers this kind of experience? I think not.