Here’s What Sucks About The Current Car Dealership Model
In the past 4 months, I’ve been to 4 different car dealerships helping my friends and family get cars.
The 4 dealerships in NY that we visited were Kia, Hyundai, Mazda, and Nissan and they all shared a common theme:
Not in terms of quality of car, but in terms of the customer experience.
We were there to buy new cars in the range of $17,000-25,000, from sedans to SUV’s.
If you’re going to shell out that much money for cars, couldn’t you at least make the customer feel welcomed?
Little things like remember their names as they come back over several days to finalize the financing, the insurance, and the pickup of the car?
Wouldn’t it be better if they made car dealerships not feel so predatory, like they were out to make as much money from you as possible?
I asked my friends and family who bought new cars these past few months if any of their sales reps ever called them after they bought the car to follow up and they all said no.
Across the board with all those brands, they all said no.
My brother was a car salesman in Thailand and he said that they called every month after the initial sale to check up on how you’re doing.
Then they’d call after every two months.
Then they’d call every so often to see how you’re doing.
I think that’s the way it should be, not ghosting after they made the sale and then go drinking with their commission money, seeing you only as a fat piggy bank to break and take your cash.
The Car Dealership Model Is Broken
The sales model for car dealerships is inherently broken because of what economists like to call “information asymmetry.”
Basically it’s when the car salesmen know how much the car costs, they get given a budget of how low they can go, and then they try to get as much out of you as possible to keep their commission as fat as possible.
That means, not budging much on lowering the price, back and forth negotiations, hours and days spent haggling, etc.
It’s a waste of your time, money, and energy.
You have better things to do.
So how can we fix the car dealership experience?
(And make more money doing it?)
Here’s The Solution To The Car Dealership Business Model And How YOU Can Make Money From It
This might sound radical but bare with me.
Say your car is a Kia Rio 2019 sport edition for $17,000.
It might cost about $7,000 once it’s all said and done to create it.
And then the dealership buys it from Kia for $12,000 and sells it to the customer for $17,000.
Let’s say Kia makes approximately $5,000 and the dealership makes $5,000, to be split in some way between the dealership and the sales rep’s commission.
The closest source I could find on how much it costs to manufacture a car is from Canada so here you go: https://www.quora.com/How-much-do-cars-cost-to-manufacture
Instead of going to the dealership with as much information to as you could via google searches, you still have to contend with the dealer knowing more about the price of the car then you do.
The Business Proposal
So here’s the proposal, and it’s taken a little bit from the Costco model so bare with me.
The dealer should display in clear, big numbers on each car, both displayed in the dealership and online, how much they got the car for and how much they’re charging for it.
For example, at your dealership you can show something like:
“We got this 2019 Kia Rio Sport from the manufacturer for $10,000.
Our business model is that we only charge 20% over what we paid for it and here’s why:
The first 10% goes to the dealership to pay for rent, utilities, storage, the finance people, the cleaners, the mechanics, etc. so everyone can put food on the table and feed their families.
The second 10% goes to the sales person for convincing you to get the car and making you feel welcome and valued.
So in all, we got it for $10,000, and 20% on top of that is $2,000. So the total price you’d pay is $12,000 plus tax, which brings the total price of the car to about $14,000.”
And before you cry in outrage, here’s why it’ll benefit everyone.
Psychic Returns Can Lead To Increase In Sales
By clearly labeling your prices and your commission and percentage charges, nothing is a surprise.
People feel safer buying from you because at least they know your price and they know where you stand.
Yeah in the short term you might be leaving money on the table from not making as much commission by pricing it higher.
But because you’re transparent, in the long term, people know where they stand with you and will come back and buy from you over and over again because there’s the perceived sense of fairness.
Here is a research article on the positive benefits of perceived fairness on psychological happiness and well-being.
Customers don’t have to do much google searching about price etc. because you’ve already clearly labeled it out in the open.
You gave the ultimate transparency.
And I think customers from far and wide would flock to your dealership if you did that pricing model.
Do Away With Predatory Car Dealerships
I don’t know about you but in all 4 dealerships that I’ve gone in, it all felt so predatory and sinister.
It felt like the sales people weren’t on my side and it all felt contrived.
And if it’s not just me, it’s the tens of thousands of people going to car dealerships everyday in America.
That’s why for my next car, I’d rather go to the dealership to test drive the car, then buy it online directly from the manufacture and pay for the shipping to have it shipped directly to my house so I don’t have to deal with the predatory sales people because it sucks that badly.
Create A Better World
Let’s create a world where we can test drive the car we want, the sales people are super friendly, remember your names, take care of you during the shopping experience, and then follow up with you after.
Not only that, everyone who walks in through the door, regardless of whether they bought a car or not, gets greeted with a smile and a “How are you? How can I help you?”
Because I noticed that right after I bought a car, gone were the greetings and the smiles at the dealership I got the car from.
Like WTF guys.
I know we’ve got a long way to go, maybe we’ll never get there.
I just know in my entrepreneurial bones that the car dealership that can do this sort of pricing transparency model has a likely chance to become the highest selling car dealership in their region.