People often view dealers as on the side of automakers in a transaction, but the last couple of years have been dominated by dealers pushing back against their brands, often for the at least incidental benefit of consumers. None of this is black-and-white, of course, though it’s likely more strategic if you go into a purchase or warranty claim with the goal of working with the dealer to get a better deal at the expense of the automaker.
I mention this because, of course, Tesla showed that it was more profitable to skip the dealership experience. Is Tesla the rule or the exception to it? European automakers have been attempting an “agency” model to try and augment dealers, similar to how Hyundai is trying to work with Amazon to drive sales. So far it’s been a failure.
If you read The Morning Dump regularly you know it’s not like Germany needs any more automotive failure. The three big German automakers had a rough year and now Chinese automakers are sniffing around Volkswagen factories in Germany. It makes sense, right? At the same time, China is raising retaliatory tariffs against Europe and the United States.
And, finally, the Feds made a deal with Toyota over diesel emissions cheating. That’s right! Dieselgate never ends.
Mini And The Agency Problem
Automakers seem to be enamored with the idea of transacting directly with consumers, yet, for all their efforts it doesn’t seem to work. Audi bought the rental agency Silvercar, only to shutter it. Cadillac, Porsche, Volvo, and many others attempted a so-called ‘subscription model’ for car ownership, only to abandon those projects.
Hyundai is trying to get dealers into cars via Amazon, which has sort of worked, though all of those customers do still end up at a dealer. For traditional automakers, state franchise laws mean it’s almost impossible for them to completely ignore the existing dealer network. The idea that Volkswagen might sell Scout and Honda might sell Afeelas directly to consumers has dealers revolting.
In Europe, companies have tried to use an agency model that outsources some sales, mostly to online portals. Dealers in this model have less work to do as the customer comes to pick up the car with the details of the deal worked out, but dealers also make less money.
It hasn’t been working. Here’s Cox Automotive on the logic of it all:
The pitch for agency was that it would allow established OEMs to cut their cost of distribution in half to match the reported 15% level of Tesla, with ‘fixed’ or ‘transparent’ pricing preventing dealers from ‘giving all our money away’. This is wrong on every count.
Tesla probably did have a much lower cost of distribution until around 2021, but that was when there was very limited choice of premium BEV product and capacity still lagged demand. That has now changed, and Tesla has repeatedly slashed prices in a highly visible way and now sells from inventory rather than from the order pipeline. Its volumes have dropped for each of the last two quarters, and it has slashed headcount by 10%. It has become ‘normal’.
Cox’s Steve Young blames consultants for dangling the idea of savings in front of automakers, who jumped at the idea without actually taking the many important steps necessary to make it work. Here’s the other issue:
The almost universal problem with agency implementations to date is that OEMs continue to push excess supply into the market, and they have not developed new pricing mechanisms that allow them, or the retailers on their behalf, to achieve a matching demand. Beyond the unlikely scenario of OEMs following a strategy of matching supply to real demand, the theoretical answer is a sophisticated, centralised dynamic pricing approach that adjusts the offer continuously through promotions and deals that result in a supply-demand balance on each model line to meet the targeted volume. This is effectively a more precise approach to metering out how variable marketing funds are applied compared to current approaches that often result in knee-jerk reactions that result in deep discounts in some fleet channels and pre-registrations by retailers.
Carmakers are going to carmaker, and there are reasons why a company will continue to produce a car even if it ends up not being exactly what the market wants. See: Almost every car Nissan and Stellantis sold last year.
Ford planned to do an agency model, and then changed its mind. Volkswagen and Audi had to apologize for how much chaos the model caused in Europe.
BMW’s 2024 wasn’t as bad as the one Mercedes or Volkswagen had, and BMW even managed to improve its electric car sales. One obvious weak spot was Mini, which saw sales decline by 17.1%.
Why? From Manager Magazine (translated):
The brand has “renewed its entire portfolio” in 2024, it simply says. Model changes can cause dents in sales figures. Production of the old vehicle is being scaled down, and the new one is not initially being built at top production speed. Mini also had production problems during the year, and in the first half of the year dealers complained about too few cars being available. This explains some of Mini’s lean months in 2024.
But a closer look at the statistics reinforces the impression: The brand, which has a winged wheel as its logo, crashed last year for other reasons.
Dealers are happy to point out that Mini’s attempt at an agency model isn’t helping:
It is often the details that are annoying. The purchasing process has become too complicated for customers, complains one dealer. For example, they have to register again with BMW even if they have been buying cars from their dealer for many years. Mini demands too much from prospective customers, confirms another dealer: “The customer does not want to answer 1000 questions before he gets his car. He has not had to do that before.” His salespeople “don’t want to be the buffers.”
Obviously, this is mostly from the dealer perspective and a lot of the problems seem solvable, of course, as the rollout of any new and complex system isn’t going to be smooth. If the sales model is aligned with the production model then maybe it can work, but that’s a big maybe. As one dealer said about BMW’s move to make all sales via agency in 2026 in Germany: “We cannot afford a disaster like the one at Mini.”
Chinese Companies In German Plants Make Sense
Germany was one of the countries that didn’t vote for EU tariffs, presumably because German companies really need China as a market. This is tough for Volkswagen, which made a last-minute deal to avoid plant closures in spite of financial headwinds.
What will happen to our poor VW worker, pictured above, in the future? One outcome, according to a source familiar with the thinking of the Chinese government who spoke to Reuters, is Chinese car companies moving into these plants:
Buying a factory would allow China to build influence in Germany’s prized auto industry, home to some of the oldest and most prestigious car brands, the person said.
Chinese companies have invested across a range of industries in Germany, Europe’s biggest economy, from telecommunications to robotics but have yet to set up traditional car manufacturing there, despite Mercedes-Benz having two large Chinese shareholders.
Any such move could mark China’s most politically sensitive investment yet. VW has long been a symbol of Germany’s industrial prowess, now threatened by a global economic slowdown hitting demand and a creaking transition to green technologies.
Yeah, it’s not a great look for Germany as an industrial powerhouse, but there’s a lot good here for Volkswagen potentially. It can be the beneficiary of EU tariffs it voted against, as a plant within the EU building BYD Seals won’t be subject to those tariffs. It reduces the company’s overhead and I’m sure VW could get a good deal for its plants.
China Has One Word For The West: Plastics
Europe, Taiwan, Japan, and the United States have all been variously antagonistic towards China when it comes to trade. Whether you think that’s fair or not will depend a lot on which side of the Taiwan Strait you find yourself on.
In response, China is launching a series of retaliatory tariffs according to Reuters via Nikkei:
China said on Thursday it would apply provisional duties on imports of industrial plastics from the United States, European Union, Japan and Taiwan after a months-long anti-dumping investigation.
The provisional anti-dumping levies on polyacetal copolymers range from 3.8% to 74.9% depending on the country and company and will commence from Jan. 24, the Commerce Ministry said in a statement.
China launched the investigation in May, the same week that the U.S. hiked tariffs on Chinese electric vehicles and the European Union launched a trade investigation into certain Chinese steel imports.
All governments are establishing a starting point for negotiations with the United States and Trump, so we’ll see if the President-elect can work a deal.
Toyota Settles Its Own Dieselgate
I don’t think about Hino very often as we don’t regularly cover big trucks here, but you’re probably surrounded by vehicles powered by motors made by the Toyota subsidiary. While most of the attention was paid to Volkswagen for its “Dieselgate” emissions cheating scandal, most automakers that sold diesel-equipped vehicles globally had to admit to at least some small amount of malfeasance.
And, now, it’s Toyota’s turn. The company will have to pay $1.6 billion in a settlement with the US EPA. What did they do? Cheated on the tests.
Here’s what the Feds had to say:
“Hino knew the requirements that engines must meet to be certified to operate in the United States, yet it falsified data for years to skirt regulations,” said Assistant Attorney General Todd Kim of the Justice Department’s Environment and Natural Resources Division (ENRD). “Hino’s actions led to vast amounts of excess air pollution and were an egregious violation of our nation’s environmental, consumer protection and import laws. Today’s plea agreement and civil settlements, on behalf of myriad federal entities, mark the Justice Department’s commitment to protecting our environment and holding companies accountable for corporate wrongdoing.”
“Corporate crimes such as these endanger the health and well-being of innocent Americans, as well as the environment in which we all live,” said U.S. Attorney Dawn N. Ison for the Eastern District of Michigan. “My office is committed to aggressively seeking justice when corporate actors violate air quality standards and place our community at risk in order to increase their sales.”
In addition to paying the funds and recalling some vehicles, Hino is prohibited from important engines for five years.
What I’m Listening To While Writing TMD
Ok, let’s do The Roots again. This time it’s from my favorite album “Things Fall Apart” and it’s “You Got Me” featuring the incomparable Erykah Badu. Also, what is it with videos having people lying on the ground?
The Big Question
Do you want to buy your next car entirely online?
I bought my Prius through the Costco thing. Pretty easy and seamless. Well, other than that they sold me the wrong Prius version. Same color though, so I didn’t notice immediately. All the paperwork showed the AWD version, and they sold me the non-AWD version. Once they figured out that THEY screwed it up, they did me right and got the the right car quickly. So, pay attention to everything when done online, and in real life.
I work in an industry that is broadly analogous to the auto industry – enterprise IT hardware. AKA, big servers and storage arrays. They START at the price of a decent car and go up from there. Some of the stuff is off the rack, some is custom ordered. My employer is effectively a “dealership” for Dell, HP, Lenovo, etc, and we also work as an incubator for new small IT hardware startups. And here’s the thing – if you can get the word out, when you are SMALL, direct sales works just fine. And once you get to be Dell, SOME direct sales also works fine. But the ideal is a partnership model. You sell direct where it makes sense to, and you let your “dealerships” absorb the cost of sales where it doesn’t make sense to. Sales are *expensive*. They are time-consuming. The facilities to make them from are *expensive*. Inventory so you can fulfil immediate needs is *REALLY expensive*. Having enough retail outlets that you can sell everywhere is *REALLY REALLY expensive*. Literally every time a big IT company has decided to keep the whole pie for themselves and cut out the middlemen, they have pretty immediately regrated it and backpeddled. The most recent example being the Broadcom aquisition of VMware. Which has been an epic shitshow on so many levels, and continues to be so – but I digress.
Distribution of sales and service is a big problem for Tesla. There is a reason that the absolute MASTERS of selling direct, Apple, still partner with Best Buy, Amazon, and the phone companies, and lots of other sales outlets to sell their stuff. And that is relatively simple, they are all the same, pick from this limited selection of configurations phones, tablets, and personal computers. Nothing like the complexity of a car lineup or a server. Dealerships don’t cost the makers money, they SAVE the makers money overall. The money is not in selling the new stuff, it’s in selling all the services AROUND the new stuff. My end of our business as one of the implementation guys who makes the magic happen with integrating your new stuff with your old stuff. Again, once you get big enough that you really need to cover the whole country. When Tesla was selling 50K cars a year, it didn’t matter. But at 500K+, nobody really wants to be 100+ miles from the nearest sales and service outlet when the alternatives are right up the street. And even in not that rural areas, that is the reality today for them.
The other issue – if something goes sideways with your order, your server, or your car – who is going to CARE? Dell sure as heck doesn’t unless you are buying $500M a year from them. Tesla really doesn’t care about the single $50K car you bought either. But a local dealership – well, they at least care MORE. Especially the small ones. My company is one of if not THE smallest top-tier resellers in the country, and we care, and have the customer loyalty to prove it. We are also just better at the sales and service end of things than the makers are. They are big unwieldy organizations where the left hand and the right hand have never met. We can work around that so our clients don’t have to.
The only issue in the automotive world is that due to some really seriously bullshit shenanigans that the automakers pulled on their dealers decades ago, the dealerships banded together and got some laws passed to protect themselves. And having read up on it some, I don’t blame them at all. What the automakers really want is more CONTROL over their dealerships, but with the laws the way they are, it’s pretty much an either-or situation. The ideal is to be Dell or Apple – sell direct, sell via dealers, whichever makes sense in the given scenario. The price is pretty much the same either way.
I can relate on computer hardware. I work for a company serving small business IT so we resell big name. Our primary server source is HP because we get much better pricing than Dell so only a few clients have Dell servers and the majority are HP, and yes even a small business with one VM host ends up spending around $20,000 between hardware licensing and backup.
Ok, but tomorrow you should post the live version of ‘You Got Me’ with Jill Scott
I’m probably in the minority, but I love the dealer process. I used to be in sales, so I know their silly games. It turns into a game for me and I know I have the upper hand. I helped my buddy lease his Mach e and enjoyed pitting dealers against each other. I can’t wait to help the next friend or family member buy a car.
Same. It doesn’t bother me at all. I am not in sales, but I am very “sales adjacent” in a pre and post sales role. So I know how the game is played, and I also know that at the end of the day, I do NOT ever need to buy a car, but they sure as Hell need to sell one if they want to eat. Saying NO gives you all the power, and it amazes me that so many people seem to be so timid about it.
I would love to buy my next new car entirely online.
I basically bought my Wrangler online…I did test drive a few different trims, but I did all my homework online. I picked my options, printed out the build sheet, knew the price and discounts, then I dropped the order off at the dealership told them to give me a build number when the order is in and paid my deposit (with a signed agreement on price). They called me about 60 days later, I came in to finish paperwork, declined all the extra crap, dropped off my check at the same time and the jeep was delivered after it was washed and prepped. Honestly dealerships are not that hard when you make it clear that you can firmly say no and turn on your heel and leave…and ALWAYS finance elsewhere unless there is 0% interest that is a better deal than taking incentive money. Do some math and I will admit that metro Detroit is a weird market because there isn’t much price negotiation. You can find a way to get supplier pricing on almost anything, so dealers mostly live on volume here.
Pretty much my experience ordering two new BMWs. Completely painless.
I think most people would love to avoid the dealership. Personally I still want to drive the car I may buy before putting the money down, but there is no reason OEMs can’t have product centers where I could do that without some guy begging me to “talk numbers” after that. You could have some limited stock there too for the people who need a car “today” because theirs just got hit by a semi.
I’d also want to feel confident I’d be getting something in good shape. Even a new car can be damaged in transit. If a new toaster oven has a dent in the side of it, I can send it back for a different one. Can I do that if I order a $50k car? At least if I buy from dealer stock I can see the car does not have a scratch on the side or a strange smell inside.
Problem with all the “online car buying” ideas these days (minus the EV brands) is that they all still plop you down at a dealer. I have little confidence that the Toyota Smartpath price I see on Toyota.com or the Hyundai price at Amazon is actually going to be the car’s price.
I’m sure after I click “buy the car”, I get a phone call from someone who wants me to come down to the show room where they show me a different number and tell me the extra $1000 for Tru Coat was put on at the factory.
That’s a good time to flee the interview.
When I buy a car, I go and do any test driving at the closest dealerships while firmly telling them that I am both not buying today AND I am not interested in discussing the price at this time. I am just figuring out what I want. Or most recently, what my sainted mother liked best. We looked at every car for sale new in the country under $30K before deciding on a KIA Soul and beginning the actual buying process. THEN, once I know what I want, I do my due diligence, figure out what the thing should cost after discounts and incentives, and start making phone calls. I am NOT setting foot in the dealership without a contract in hand with a firm out-the-door price. If the dealership doesn’t like that, well, the nice thing about new car dealerships is that there are LOTS of them, and they all sell the exact same thing. I dismissed several KIA dealerships before I found one that would play ball, and I painlessly got the price I expected – but there are a DOZEN of them within an hour or so drive of our spot in God’s Waiting Room, FL. We bought the car an hour away. The local dealership is one that plays games with loading TruKote on every car on the lot “KIA Protection Package”. Great service department though, as it turns out. And convenient for the test drives.
Of course, if you are looking for a PARTICULAR rare car or used cars, things are rather different, but for ordinary garden variety new cars this is the route. The most powerful thing you can do is simply refuse to play their games. Channel your inner two-year-old and say NO, then get up and walk out. It’s quite fun to have the sales dude and his manager chase you across the parking lot. I don’t NEED to buy a car, but they NEED to sell one if they want to get paid. Of course, you do have to be reasonable in your expectations, contrary to popular opinion, absent automaker incentives, there is actually VERY little margin in new cars.
If you are looking for that hot new 1 of 25 in the country hotrod, and/or need to be first on YouTube with one, well, that’s a different ballgame. Pay up and shut up, buy something else, or don’t buy anything at all and wait.
“People often view dealers as on the side of automakers in a transaction”
Counter-point:
New car dealers are parasites, living off of the life-blood of a fruitful economic transaction, siphoning off value between the manufacturer and the consumer. They are only on their own side. But they’ve sunk their little hooks into the relationship for so long, the surgery to remove them will be quite invasive, and no one is willing to do it.
Ruin a manufacturer’s exciting roll-out by marking up the cars to the point they don’t sell, and thereby kill the product? Sure.
Decide that a car is bad for dealer repairs, or are too lazy to learn about something new, thereby killing the car (e.g.Volt)? Sure.
Shaft the customer for every penny (terrible loan deals, markups, shady practices in general) until the customer hates and resents the entire brand and never comes back? Sure, why not? We made a buck!
*Used car dealers are still shady, but at least they actually create value if/when they inspect cars, repair or certify them, or transport them for sale in different local markets.
In my area, the dealer lobby has successfully made it legal for them to tack on $1000 in “processing fees” to the car. Now, with some leverage you can possibly negotiate that off (even if they tell you it is “impossible”), but the dealer is now directly costing you $1000 just to make buying a car miserable. Never mind the places that saddle your car with crap you don’t want – like the entire Southeast Toyota distributorship.
A test drive? Send me out on my own, it’ll cost you $5 in gas. Filing registration paperwork? For $1000, I’ll do it.
Dealerships SAVE the automakers money. That they can be but are not always terrible is an entirely different issue from that. At the end of the day, what automakers really want is more control over them, not eliminate them. Sales and service are really, really expensive, and really hard to scale.
I would totally buy my next car entirely online, especially if I’m shopping new. Dealerships are a stressful part of the buying experience.
I thought the CARS rule was supposed to help with the shady dealer shenannigans. The fact they had to make the CARS Rule should already be an argument in the manufacturer’s corner for bypassing the dealership model.
I do appreciate being able to see cars in person and sit in them, even the local auto show is put on by the local dealer association, it let me see that I am in fact not comfortable in a RAV4, but strangely the smaller sized Escape or Kona was fairly comfy.
The last time I did buy a car from a dealer though I did get some crap I didn’t want(the ceramic coating package which clearly was not applied to the car, which was used, and already had scratches, so wth?) But supposedly they couldn’t remove it. Was pandemic times and prices were already starting to shoot up so got what I could get but maybe the Carvana route would’ve been better.
The only thing I want to go to the dealer for is to test drive or for service. I don’t want to buy from them any longer. I’m still one of those people who need to drive the vehicle I’m interested in buying.
If it takes three hours of waiting for the AI to ask its manager AI about my price, coming back and offering me lifetime wiper blades or some other shit, then no.
If it takes two minutes (after I’ve done the homework that I would already do) and I can chop off some amount from the price because no middle man is getting paid, then sure. I also will want a specific color, manual, wagon-shaped small car similar to my own, and I’m willing to wait for it. Will I get it? No. I’ll probably settle for some EV that my wife wants and I will get her boring car. Then I die. The end.
What I want is a straightforward transaction. Walk in, buy/finance/lease a car for the advertised prices, sign paperwork, and leave in 30 minutes.
No arguing with sales ghouls, no hidden fees, no nonsense upsells, no rug pulls.
Whatever carmakers and dealerships want to do to make that happen, whether it’s direct sales, or overhauling their dealer network, so be it.
“Do you want to buy your next car entirely online?”
Sure.
I think something like Hertz’s Rent2Buy and/or 7-day/250 Mile Buy Back Guarantee would go a long way to alleviating concerns.
I’m not interested in buying 100% online. I enjoy test driving different vehicles. I’m not willing to give that up, even if it means skipping some of the dealer BS.
I presume dealers actually want people like me to buy online, even if it reduces their profits. Most of my test drives end with me deciding to keep my old vehicle.
Same. I drove at least five cars when I bought my last one. I think there’s only ever been one time in my life I walked into a dealer knowing I was leaving with a new car, and I had driven the same model a couple years earlier.
Ditto – I bought a Bronco because of it…..I’ve never owned any sort of truck/heavy SUV and just went in on a whim to do a quick test drive and completely fell in love. And yeah, plenty driven in the past where I realized grass wasn’t greener.
Way too big of a purchase to go by reviews/brochures alone
I don’t understand how people buy it sight unseen, but apparently people do it. I at least want to sit in the seat for a bit, make sure there isn’t some quirk on the seat that presses into my back a strange way.
People also buy houses without actually stepping foot in it, so what do I know.
Still are an amazing number of mainly French diesel cars which, when you turn on the ignition, floor the accelerator twice, and then start the engine, go into special “test” mode, which, among other things limits revving and so about of gas going out the back…
I likely will never do the whole thing online. Simple ergonomics questions (does my big ass fit?) need answers as does whether I like driving the thing. Feel is incredibly important to me, and I’ll know when I have the right vehicle.
Absolutely