Re:SUVs parked on cargo ships reveal scope of U.S. auto mark...
by s1artibartfast on Saturday May 02, 2020 @03:00PM
(#23054041)
Thanks for the thoughtful response, but I don't agree with the reasons you stated. If we don't see a race to the bottom today, why would we see it in the future?
According to this [1], new car dealerships have a profit margin of 1-2% while auto manufacturers have a profit margin of ~10%. Anecdotally, some dealerships have no profit on vehicles, and rely on services contracts to drive profit.
I interpret this to mean that there is significantly more competition between dealerships than auto-manufacturers. If a consumer wants a specific brand, they can choose between dealers and often will travel long distances to get the best price. When a dealer buys a brand, there is a single supplier with global monopoly.
I think the disproportionate share of profit already going to manufacturers also undermines your argument on the trade-off between sales volume and splitting of profit.
The manufacturer might like to claim the entire savings, but there are two reasons that typically wouldn't happen.
First, then the manufacturer's margins are higher, which changes the calculation of how much margin to sacrifice to increase sales volume. If before the manufacturer was making $2000/car and the dealer was making $2000/car then the manufacturer lowering the price by $1500/car to double their sales isn't profitable; double $500 isn't more than $2000. If the manufacturer is now making $4000/car by cutting out the dealership, lowering the price by $1500/car to double their sales is worth it; double $2500 is more than $4000.
And then second, because the competing manufacturers would have the same incentives under the same circumstances. If they lower their prices by $1500 to double their sales, that's coming at your expense if you don't do the same.