Ask a car salesman anything...anything at all (Vol. 2).

[jamoor]

DanL said:

I don’t think that depreciation has anything to do with the initial margin on a car. Surely it’s purely a factor of what someone’s willing to pay for a thing?

This suggests that the model 3 is very popular, and people are willing to pay to get hold of one quickly. If I were pricing it, I might well think that I could increase the list price as a result...

My thinking was the market determines what it’s worth


When you buy from Tesla you get a car for 40k. The manufacturer will not sell it cheaper so the market will think that it’s worth 40k

When you buy a car from a dealer for 40k the manufacturer sells it to the dealer for say £35k and the dealer sells it for 40. The market may think the car is worth 35k as that’s how much the manufacturer sells it for and the 5k for the dealer is just overheads.

The numbers above are made up fyi.

[Sheepshanks]

jamoor said:

When you buy a car from a dealer for 40k the manufacturer sells it to the dealer for say £35k and the dealer sells it for 40. The market may think the car is worth 35k as that’s how much the manufacturer sells it for and the 5k for the dealer is just overheads.

That's as nonsense as the "you lose the VAT as soon as you drive off the forecourt" brigade.

[jamoor]

Sheepshanks said:

That's as nonsense as the "you lose the VAT as soon as you drive off the forecourt" brigade.

Yep possibly.

[DanL]

jamoor said:

Sheepshanks said:

That's as nonsense as the "you lose the VAT as soon as you drive off the forecourt" brigade.

Yep possibly.

Yeah, I don’t think it works like that either. Apart from anything else, you’d never see in demand cars trading for over list if this was the only driver of price. Supply and demand - it’s pretty basic, but it generally holds up... Lots of demand, little discounting. No demand, large discounts may be needed to find the point people believe that something is worth buying.

Dealer margin isn’t a significant factor in the above.

[The Rotrex Kid]

DanL said:

Dealer margin isn’t a significant factor in the above.

Dealer margins are tiny. The vast amount of profit in the car is made by the manufacturer, getting rid of dealerships (the wet dream of some!) wouldn’t make cars any cheaper, it would just mean the manufacturer makes more money.

[HTP99]

The Rotrex Kid said:

DanL said:

Dealer margin isn’t a significant factor in the above.

Dealer margins are tiny. The vast amount of profit in the car is made by the manufacturer, getting rid of dealerships (the wet dream of some!) wouldn’t make cars any cheaper, it would just mean the manufacturer makes more money.

And the consumer paying more due to less competition.

[itcaptainslow]

jamoor said:

DanL said:

I don’t think that depreciation has anything to do with the initial margin on a car. Surely it’s purely a factor of what someone’s willing to pay for a thing?

This suggests that the model 3 is very popular, and people are willing to pay to get hold of one quickly. If I were pricing it, I might well think that I could increase the list price as a result...

My thinking was the market determines what it’s worth


When you buy from Tesla you get a car for 40k. The manufacturer will not sell it cheaper so the market will think that it’s worth 40k

When you buy a car from a dealer for 40k the manufacturer sells it to the dealer for say £35k and the dealer sells it for 40. The market may think the car is worth 35k as that’s how much the manufacturer sells it for and the 5k for the dealer is just overheads.

The numbers above are made up fyi.

The same model Daewoo employed-no discounting and no dealerships.

[Fast Bug]

HTP99 said:

The Rotrex Kid said:

DanL said:

Dealer margin isn’t a significant factor in the above.

Dealer margins are tiny. The vast amount of profit in the car is made by the manufacturer, getting rid of dealerships (the wet dream of some!) wouldn’t make cars any cheaper, it would just mean the manufacturer makes more money.

And the consumer paying more due to less competition.

This. But what do we know

[DanL]

itcaptainslow said:

The same model Daewoo employed-no discounting and no dealerships.

Dae-who? This speaks to my point about sentiment and value. You can have no haggle dealerships, but if the price point isn’t aligned with people’s perception of what the car is worth then it won’t work out.

It shows Tesla’s remarkable arrival into the car market that they can apparently work with this newer model for sales, and have it work for them.

I have a feeling that as the other major brands begin to compete more strongly in the market, we’ll see the traditional “premium” brands start to dominate and Tesla fall back. That or Tesla will have to make significant improvements in perceived product quality.

[jamoor]

HTP99 said:

And the consumer paying more due to less competition.

Now this is nonsense.

Making an inflated retail price and then discounting to create the illusion of competition isn’t a thing.

Competition is between manufacturers not dealers.

Edited by jamoor on Saturday 14th November 12:58

[itcaptainslow]

jamoor said:

HTP99 said:

And the consumer paying more due to less competition.

Now this is nonsense.

Making an inflated retail price and then discounting to create the illusion of competition isn’t a thing.

Whereas a manufacturer selling direct will of course not over inflate a price, whatsoever, because they’re a bunch of great and honest guys?

[Fast Bug]

jamoor said:

HTP99 said:

And the consumer paying more due to less competition.

Now this is nonsense.

Making an inflated retail price and then discounting to create the illusion of competition isn’t a thing.

Competition is between manufacturers not dealers.

Edited by jamoor on Saturday 14th November 12:58

You mean dealers trying to undercut each other on price for the same product doesn't make it cheaper for the customer?

If the manufacturer cuts out the dealer network they won't make the product cheaper. They'll keep that extra margin to themselves, you do know that don't you?

[jamoor]

Fast Bug said:

You mean dealers trying to undercut each other on price for the same product doesn't make it cheaper for the customer?

If the manufacturer cuts out the dealer network they won't make the product cheaper. They'll keep that extra margin to themselves, you do know that don't you?

You mean manufacturers trying to undercut each other on similar products?


Imagine if everything was direct to retail, does that mean there will no longer be competition?

[BrabusMog]

Jamoor would have a mental breakdown if he ever found out how IT sales works

[93DW]

BrabusMog said:

Jamoor would have a mental breakdown if he ever found out how IT sales works

That would imply that he hasn't suffered one already...

[Avantime]

jamoor said:

Nope that model 3 was probably 36-37k new including government grant.

Today you can buy a zero miles model 3 for 40.5k exactly like that white one.

Indeed - £40840 before Govt contribution of £3500 at the time. Positive equity!

[Fast Bug]

jamoor said:

Fast Bug said:

You mean dealers trying to undercut each other on price for the same product doesn't make it cheaper for the customer?

If the manufacturer cuts out the dealer network they won't make the product cheaper. They'll keep that extra margin to themselves, you do know that don't you?

You mean manufacturers trying to undercut each other on similar products?


Imagine if everything was direct to retail, does that mean there will no longer be competition?

No, I mean rival dealers for the same brand. Say you want a new Focus, decide your spec and ask Hendy for a price, then Trust Ford and one other. Each will try and win your business and you'll find one will undercut everyone else for the order.

Now in your utopia all dealers will belong to Ford and the list price is the list price. Ford will happily pocket dealer margins themselves. Your Focus has now cost you more money.

And thats before we look at pre reg deals that are done in order to hit a target and often sold at a loss...

[jamoor]

Fast Bug said:

No, I mean rival dealers for the same brand. Say you want a new Focus, decide your spec and ask Hendy for a price, then Trust Ford and one other. Each will try and win your business and you'll find one will undercut everyone else for the order.

Now in your utopia all dealers will belong to Ford and the list price is the list price. Ford will happily pocket dealer margins themselves. Your Focus has now cost you more money.

And thats before we look at pre reg deals that are done in order to hit a target and often sold at a loss...

This is before VW launch the new golf with a fixed list price of £250 less...

And then Honda for even less...

[DanL]

jamoor said:

This is before VW launch the new golf with a fixed list price of £250 less...

And then Honda for even less...

This already happens - a Golf is more expensive than a Focus, etc. People don’t just buy a 5 door car of a certain size - they try a few, then decide they want the car from brand X. When all of brand X’s cars are sold by the same entity, the price is the price.

This is the argument they’re making.

Edit: let’s do this with corn flakes. You want Kellogg’s cornflakes. You’ve tried a few, but Kellogg’s flakes are the ones for you. When you have Sainsbury’s, Tesco, Waitrose, etc. all selling them, this creates a market opportunity for competition.

I think you believe that if they were sold direct by Kellogg then they’d be cheaper, as you’d be buying at wholesale rather than retail? I think this is incorrect, for two reasons:

1. direct sale would mean that Kellogg would increase the wholesale cost to match retail.
2. it ignores the concept of loss leaders.

A loss leader in the car sales world would be where a dealer is willing to sell an individual unit or units at a loss in order to get a volume sales bonus.

Edited by DanL on Saturday 14th November 17:13

[jamoor]

DanL said:

jamoor said:

This is before VW launch the new golf with a fixed list price of £250 less...

And then Honda for even less...

This already happens - a Golf is more expensive than a Focus, etc. People don’t just buy a 5 door car of a certain size - they try a few, then decide they want the car from brand X. When all of brand X’s cars are sold by the same entity, the price is the price.

This is the argument they’re making.

Edit: let’s do this with corn flakes. You want Kellogg’s cornflakes. You’ve tried a few, but Kellogg’s flakes are the ones for you. When you have Sainsbury’s, Tesco, Waitrose, etc. all selling them, this creates a market opportunity for competition.

I think you believe that if they were sold direct by Kellogg then they’d be cheaper, as you’d be buying at wholesale rather than retail? I think this is incorrect, for two reasons:

1. direct sale would mean that Kellogg would increase the wholesale cost to match retail.
2. it ignores the concept of loss leaders.

A loss leader in the car sales world would be where a dealer is willing to sell an individual unit or units at a loss in order to get a volume sales bonus.

Edited by DanL on Saturday 14th November 17:13

The kelloggs cereal needs to be a competitive offering in the first place, we have seen how Infiniti failed in Europe. If the value offered by the kelloggs cereal is acceptable to enough people in the market then people will be interested in buying it. If kelloggs tripled their cereal prices overnight then their market share would diminish to the competition.

The direct sales model means they may invest the money they would in "volume sales bonuses" in lower pricing to attract customers away from Nestle cereals.

Competition between Kelloggs, Nestle, Jordans etc means they will, if market failure isn't occurring, lead to lower prices.

The lack of the retailer profit element means the prices of cars should be less as the manufacturers can compete down to the wholesale price of the cereal rather than the retailer looking to compete down to the the wholesale cereal price + retailers overheads + retailers profit margin.

This isn't a revolutionary business model, in fact it has just simplified what already exists.