Pub 6 2021 Issue 1

21 Spring 2021 “But what about the profits?” one might ask. “Can’t selling direct eliminate dealership profits?” Not really. The fact is that dealerships make very little money selling new cars. Local dealerships are only profitable when they consider the entire ecosystem of the vehicle — sales, service, financing, used vehicle sales, reconditioning contracts, f leet maintenance, and on and on and on. Local dealerships are capital-intensive businesses — meaning it costs a lot in land, buildings and equipment to run them. American dealerships have invested more than $200 billion in land and buildings alone. Any factory wishing to sell directly would incur those same costs of capital — and its shareholders would certainly expect to get a return on those expenditures. Why sink money into a retailing operation when there’s no return on it? For consumers, it’s even worse. When factories own retail outlets, there is no competition to keep prices down. Factories set prices and hold excess profits for themselves. When independent retailers compete, that always creates price pressure. That’s why no supermarket can sell Campbells Soup for 10% or 20% more than another supermarket — they’ll eventually go out of business. Same thing with car dealerships. When car dealers compete, prices go down. One peer- reviewed academic study has shown that when dealerships compete in proximity to each other, the average price of a vehicle goes down by about $500. And price competition impacts not only sales but service and repairs as well. Customers at one factory-owned dealership chain have had to wait three weeks or longer for a service appointment. Can you imagine waiting three weeks to pay to get your vehicle fixed? Nowhere in America today would a customer have to wait that long to get service on a Chevrolet, Toyota or Jeep. If one local dealership can’t get you in for a service appointment this afternoon, the one down the street most certainly can. Consumers win when dealerships compete. In the end, the “middleman” myth is a really lazy and simplistic way of thinking about business. If local dealerships are middlemen, then Walmart is a middleman. So is Amazon. And Walmart and Amazon aren’t expected to service or repair the products they sell as dealerships do. Local dealerships do more than sell cars. They help their customers over the car’s lifecycle — from sales to financing, registration, service, and trade-ins. They compete for customers at every stage of the ownership cycle, providing choices and competitive pricing. That’s why locally-owned dealerships are good for consumers and the communities where they operate. It’s been that way for a hundred years — and the iron law of distribution explains perfectly why it’ll be good for customers for the next hundred years.  CONCERNED WITH THE COST, COMPLIANCE AND SERVICING OF YOUR DEALERSHIPS’ INSURANCE? EPIC CAN HELP WITH YOUR BENEFIT AND BUSINESS INSURANCE NEEDS • CNCDA's only licensed broker for Health and Business insurance • The largest insurer of auto dealers in the state • The only broker with proprietary products specific to dealerships • 15TH largest brokerage firm in the nation We know dealerships have specific needs and issues, we are here to help. Please contact us for a free evaluation of your insurance and HR/compliance packages. © EDGEWOOD PARTNERS INSURANCE CENTER | CA LICENSE 0B29370 EPICBROKERS.COM Alison McCallum 949.417.9136 alison.mccallum@epicbrokers.com Eric Kitei 949.417.9145 eric.kitei@epicbrokers.com