The Decline & Fall of the 20th Century Car Dealer

“You must understand the past; no empire lasts forever”
- Ray Dalio

This is a recent quote from an article in the Wall Street Journal, The New Sticker Shock. “Some auto makers, such as Honda and Toyota are pulling individual dealers aside to talk about their charging above MSRP. Jack Hollis, Toyota Motor of North America senior VP of auto operations, said the company has encouraged dealers to look at the bigger picture instead of trying to capitalize on the current market. He said to his dealers, “If you’re thinking about it in the short run, I think you’re mis-stepping. If that customer’s experience is great during this time, they’ll be with you.”  (emphasis mine)

The car dealer retail network came into existence more than a century ago, after Henry Ford created the Model A Ford, but, more importantly, assembly line production. At first the car dealerships were owned by Ford and other manufacturers, but to handle the huge demand for lower priced cars, manufacturers began to contract with independent businessmen to retail their cars. The contracts were called franchise agreements. The contracts were for short periods of time, one or two years. The manufacturers wrote the contracts so that they had total control over the franchised car dealer. A manufacturer could cancel the contract with his dealer for virtually any reason, which was typically because the dealer didn’t sell enough cars. The manufacturers could add as many dealerships as close to the existing dealers as they wanted, creating so much competition as to force some dealers out of business.

 
The dealers began to organize with local, state, and national associations. Collectively they were an economic force almost as strong as the manufacturers, but the strength and influence that the manufacturers hadn’t anticipated was their dealers’ power and influence in their local, and state governments.

 
Car dealers were, and are, wealthy individuals. Today, there are more than 17,000 car dealerships in the US. They employ well over a million people. With this local and state power, car dealers successfully lobbied their local, state, and the national governments to protect them against the predatory, unfair, actions of auto manufacturers. Over the last 100 years car dealers have gone from victims of the manufacturers’ every whim to virtually untouchable. Car dealers of almost every manufacturer have the exclusive right to sell the vehicles built by that manufacturer. Manufacturers are prohibited by law from selling directly to the consumer. Tesla is the rare exception due to its recent arrival with a totally different technology and total online sales. Car dealers are granted exclusive rights to large areas in their markets. The manufacturer is prohibited by state law from adding a dealership “too close” to an existing dealer. Also, the length of dealers’ franchise contracts is virtually “forever”. State laws prohibit manufacturers from terminating dealers’ franchise agreements except under the most extreme cases, like being convicted of a serious crime. Manufacturers are forced to treat their dealers as “independent businessmen” that can, pretty much, do whatever they like.

 
What no one anticipated until it was too late, is that these same state laws intended to protect car dealers from their manufacturers, now allow them to deceive their customers with impunity. Most states have insufficient state laws protecting the car buyers, and don’t enforce the ones that exist. This is because of the huge lobbying strength of car dealers because of their independent wealth, Political Action Committees, and Dealer Associations. The average car dealer employs about 70 people. In most communities they’re, collectively, the largest or one of the largest employers. Most of their employees are also voters.

 
Therefore, car dealers have been able to get away with the bad behavior that you probably have experienced most of the times you purchased a vehicle. The Gallup annual poll on Honesty and Ethics in Professions (Google it), has ranked car dealers last or next to last for the past 56 years! Car-retailing unfair and deceptive behavior has been frozen in time for a hundred years.

 
The “thaw” has begun. It began in 1983 with the birth of the Internet which triggered the knowledge explosion. In 2022 a consumer can find the answer to any question she has, like “what is the lowest price paid in the last 30 days for car I want to buy?” A car buyer can go online today and buy a car without ever entering a car dealership and can get out-the-door prices from as many car dealerships as she wants.

 
Manufacturers and the smarter car dealers are “seeing the handwriting on the wall”. The educated consumer is the car dealers’ worst nightmare. Legislators and regulators who are, more and more, being elected by the educated and demanding consumers of the 21st century are also beginning to get a little nervous. This is because the educated voter is the politician’s worst nightmare. The media and the manufacturers are slowly gaining the courage to speak out about the terrible way car dealers treat their customers.

 
I’m predicting that the current, unconscionable, out of control pricing of new cars precipitated by the pandemic induced high-demand/low-supply will be the “straw that breaks the back” of the antiquated car dealer franchise system’s immunity from regulation by the laws and their manufacturers.

Take Good Care of Your Older Car

Save Thousands When You Replace it

I’m dedicating this column to Nancy Stewart, my wife and co-host of our radio show, Earl on Cars. On Monday mornings when I write this column, I often have “writer’s block”. I did this morning, and Nancy came up with this great suggestion. For those of you who know her from our radio show, you’ll know how “into” maintaining and taking care of her car she is.

 
Regular readers of this column know that I’ve been advising you for over a year not to buy a new or used car until these sky-high prices come down further. You might also want to admonish me for predicting prices would be lower now than they are. I stand guilty as charged; I was wrong! Although prices have come down from their peaks in the last quarter of 2021, their still higher than I, or anyone, expected. New car prices are slowly coming down and used may be beginning to follow. Supply chain issues, Covid variants, political/bureaucratic ineptitude, and car dealers’ insatiable greed are difficult to forecast.

 
You’re probably driving a car less than 10 years old, and that means that you’ve got most of the major safety features that have made car much safer than ever before in history. Your current car requires very little maintenance compared to cars 20 years ago. This doesn’t mean that you shouldn’t take good care of your car, but the cost of doing this is less than it’s ever been in previous cars you’ve owned.

 
You should drive your car to your chosen service department about every 6 months or 5,000 miles whichever comes first. I can easily understand why many people don’t understand why you should bring your vehicle in for service when you put very little miles on it. The main reason is a “checkup”, just like you should do with your doctor. The older you are, the more frequently it’s recommended you come in for an examination, even though you “feel fine”. You need to find a service department you can trust, just like a doctor you can trust. A good service department will check all the important parts of your car, especially safety related like your tires. These inspections are usually free, but you should have confidence that your service person is telling you the truth about repairs you’ll be charged for. If something is recommended that raises your eyebrow, get a second opinion just like you’d do with your doctor if he recommended surgery.

 
Familiarize yourself with your cars owner’s manual and the manufacturer’s recommended service. Don’t pay for any service that is recommended by the dealer, but not by the manufacturer. Most service departments have their own recommended services which are more numerous and expensive than what the manufacturer recommends. This has become more prevalent since the quality of cars has increased and the maintenance requirement have decreased. The service department of most dealerships is their most profitable department, but the surge in quality and lower maintenance requirements have seriously cut into that profitability.

 
If your car does require a major, expensive repair, you have a difficult decision to make. First, be sure your car does have major problem by getting at least one other opinion and preferably two. If it does, your difficult decision is whether to fix it or sell it. There are lots of variables. If you pay a lot of money to fix it, will the savings on your replacement car in 6 months or a year offset the cost of your repair? How much will the value of your car drop by that time. Used car prices are at historic highs. You can try to “have your cake and eat it too” by trading in your used car on the new or used of your choice today. The higher price of your trade-in will somewhat offset the inflated price of the car you buy. Or, you can simply sell your used car and try to make do without a car until prices come down…Uber, renting a car (very expensive), public transportation, carpooling, or borrowing a car from a friend.

 
We keep hearing commentary from the media about the “new” normal, but everyone is guessing and nobody knows what that might be. One aspect of the “new normal” might be car buyers keeping their cars much longer. I have customers and quite a few of my dealership’s technicians that drive their cars and trucks for 20+ years and hundreds of thousands of miles. If you saw or drove one of their vehicles, you’d swear it was almost new. These folks have been doing what I’m, suggesting to you, take good care of your car. Car manufacturers and dealers have been admonishing the public to buy a new car every 3 or 4 year for the last 100 years. Does that really make since when today’s cars last many, many years longer and cost far less to maintain?

The Dealer Won’t Repair Your Car Under Warranty

What Action Should You Take with the Dealer or Manufacturer?

Most manufacturers give you a 3-year 36,000 mile “bumper to bumper” warranty on your new car. A few makes like Hyundai and Kia have a 5-year or 60,000 miles. There are more new car warranties for longer times on certain components of the vehicle like the powertrains and emission related devices. 

Most people think that “bumper to bumper” means the warranty includes EVERYTHING. This isn’t true. For example, your tires are not covered by your new car warranty; they’re covered by the tire manufacturer’s warranty. If you have a problem with your tires, you’ll have to deal directly with the tire manufacturer, unless you dealer does you the “favor” of handling this for you.

Another common problem with new car warranties is the opinion by the manufacturer and dealer of why the failure occurred? For example, if your paint fades, the manufacturer may deny the warranty repair because you didn’t wax your car more frequently or didn’t keep it garaged or shaded from the sun. These differences of opinions on warranty eligibility of paint issues can include “love bugs” not being washed of quickly or “environmental fall out”.

If you do have a problem with your warranty not being honored, these are my suggestions:

(1) Choose a dealer for the make of your car that you feel will “go to bat” for you on your warranty issue. Hopefully, this is the same dealer you bought your car from. Try to find a dealer that has good Google reviews and is well respected in the community.

(2) Speak directly to the service manager, or the general manager or owner if that’s possible. Be sure you are speaking to, at least, the service manager. Oftentimes service personnel infer that they manage the service department but are just service salesmen aka ASM or “assistant service managers”.

(3) Make your request in a low-key, friendly manner, short and sweet. Be as brief as you can and still include all the pertinent details.

(4) The manufacturers/dealers can agree to make the repair at no cost or a reduced cost even if the manufacturer “sticks to his guns” about the fix not qualifying for warranty. This comes under the category of “Goodwill” which means you don’t have to pay, or pay much less than you normally would have.

(5) Goodwill is granted to keep you happy as a customer, keeping you coming back to buy more cars and service, and tell all your friends how “nice” your car dealer and manufacturer are. The biggest factor in winning both goodwill on a “dubious” warranty repair is customer loyalty. The more cars you’ve bought from this manufacturer and dealer, the stronger your loyalty and goodwill credentials.

(6) A “dirty little secret” of why some dealers can get things covered under warranty and some can’t is that manufacturers don’t trust some of their dealers. This is because some dealers take advantage of their manufacturers by lying or being careless about submitting claims for reimbursement for warranty that aren’t legitimate. Car dealers make a lot of money when they perform a warranty repair on your car…about the same as they make when you pay them for a repair not covered by warranty. Also, remember that virtually everybody in the dealer’s service department is paid on commission. The mechanic that fixes your car, the service advisor that writes up the warranty application, and the service manager all get a “piece of the pie” …in this case the money paid to the dealer for your warranty or goodwill repair. By choosing a dealer that is on very good terms with his manufacturer and is trusted, you greatly enhance your chances of getting your warranty or goodwill repair paid for by the manufacturer.

(7) Now, here’s your “ace in the hole” play when all else fails. If you can persuade your dealer to reduce the cost of the parts and labor that he charges the manufacturer for your warranty or goodwill repair, it greatly enhances your chances of getting your repair 100% paid for by the manufacturer or, at least, a significant reduction in cost to you. Why? Firstly, it proves to the manufacturer that the dealer isn’t “BS’ing” him about believing that you’re a good customer entitled to assistance. Secondly, it significantly reduces the cost of the repair to the manufacturer. I hate to brag, but I invented this ploy and I’m “batting almost 1000 on winning” approval. I offer to sell my parts at my cost to the manufacturer and do the labor at what I pay my mechanic. I make ZERO PROFIT on the repair; only my mechanic makes money. If this is the only way you can have your warranty/goodwill taken care of, why wouldn’t your dealer agree?

Good luck with your next warranty or goodwill repair.