How the Chip Shortage Will Change The Dealership Model

What do you think the future is for dealerships in the next couple years besides higher profits? Do you think it gives a new life to the model of dealerships in the marketplace?

If they really stick to the lower inventory model, I would think that would make dealers happy in terms of, as you pointed out, you know, lower carrying costs. With the floor plan costs, they might be able to, even if demand remains strong, they can advertise a little bit less because they don't have to do that as much if they're selling every car and truck they have. So I think the next big thing for dealers that I'm really curious to watch is as all these EV startups start rolling out and most of them have similar models to Tesla where it's direct to the consumer, no dealerships, how that's going to affect the dealer model? How are dealers going to try and leverage. Dealers are really, as you know, Chris, having been a dealer, dealers are very powerful sort of body politically in dc. I mean they're tied into the lawmakers. So I'll just be fascinated to watch how this plays out as the EV startups really start rolling out their vehicles.

Yeah, I think that the biggest issue for them has been that consumers don't like the way that dealerships have done business. And so that's where Tesla gained so much leverage, is that it's very consumer friendly and dealers are trying very hard to change, but they're slow to change and their systems are antiquated. I mean, if you go into a service department, the basic system of how a customer is greeted, the ro's written, the work is given to a technician, is the same that it was a hundred years ago. Like I literally have a manual from Ford on how to run a service department and is exactly how most of them are ran today. But consumers have changed their perception, their needs, their wants, the, the vehicles have changed, everything has changed except, you know, except for us. And that's the, that's the thing that, that concerns me, you know, that's where Tesla gets the advantage and we're handing it to them. We're handing it to them and we shouldn't, we, we have home field advantage and we have that, you know, that leverage, but we lose it when consumers don't perceive value in what we're doing.

Yeah, I think, you know, dealers are going to need to, where are they strongest and leverage off their strengths. You mentioned your wife wanting to test drive a Tesla and not being able to. I think a lot of people still are going into the dealer even though they can move to online. Not that online isn't growing. Online with the dealers is growing. But there's still a lot of people that like to go into the dealer, at least at the end of the process or at some point, touch the vehicle, see the vehicle. So, like that as an example, if there are other things that dealers can do where that is their sort of natural advantage, they're gonna have to leverage off those types of things.

Yeah. So, like just the team I have here in the office, like, they've bought cars recently and they all come back and it's a terrible experience. They don't, they're, you know, they're younger and they don't. They don't like the idea of how the negotiations at a car dealership happen. And they, they feel like it's a sport, but they don't want to play that sport. And I posed this on a panel a couple months ago with, you know, some pretty influential dealers in the automotive industry, and I said, would you rather have Amazon's AI selling cars or your sales staff?

And what do you think?

They said, Amazon's AI?

Yeah. I mean, think about it. Like, Amazon follows up. They're constantly serving up the AI in the way consumers are used to being sold is very soft, but. But very effective. It's like, we know everything about you, but we're just going to put it in front of you and you make the choice. So people perceive that they have a choice in the old school, hey, come in. We're going to appraise your trade. Sit there for two hours while we go, try to find it and know, you know, you know, the four square, and here's the payment. And today only. And all people, they don't want to. They don't want to function that way. Right.

I mean, an interesting thing is if the model does change and they go to lower inventory, where people are more often paying the full ATP, you almost wonder if that changes sort of a lot of the things that people hate about the dealer. I mean, if everyone's. If you're buying a car, just like you would buy toilet paper, where you don't go into a grocery and say, oh, this toilet paper is $10, I'll give you eight. I mean, you don't negotiate, you just pay for it. So, I mean, if cars, if the auto industry switches to that, maybe that. I'm not saying that's necessarily gonna happen, but maybe that erases some of what people dislike about the whole dealer procedure.

Yeah. And then once again, there's another layer of expense that Tesla doesn't have. They don't have all those sales managers and salespeople. They don't have that, you know, that, that expense. So, Stephen, kind of wrapping it up, the big question, and I'm sure you know the answer, but I don't know if you'll tell us or not. Is Apple going to make a car?

So we've reported that they're working on one for as early as 2024. I would say it's at this point, fairly sure thing that, that we said in the story when we wrote it that that that timeline could slip. And so I think it's safe to assume with all the other supply chain things going on that yes, that timeline's probably definitely slipped by now into 2025 or later.

But we know that, we know they're working on it. It's still a little bit tbd exactly how they roll it out. Right. You know, but they have core technology around autonomy and electric vehicle technology. We know they're going to put it to use somewhere. I think the question that's still to be determined is exactly how they bring it to market. Is it the Apple car? So far we still think it is. Who's going to build it for them? That's still tbd and how exactly they will get that to market. Where they do a Tesla like thing, where they leverage their huge network of stores in the United States. You know, listening to you guys talk about the way the car dealerships work, I thought, think about how that compares to when you go into an Apple store, right. If you've got, you don't try to get. There's no. Most people find it a good experience. Right. The Apple retail experience rates pretty high and they actually pay their retail employees pretty high and it's a pretty big expense. But Apple still makes phenomenal money off of it. Right. So there's a way to have that physical retail and make money off it. Whether Apple will leverage it with that, it's still an open question. But to me there's no question they're going to be there with electric vehicles. It's just how are they going to go to market with it? There's way too many chips and stuff and too much technology that goes into these vehicles for them to ignore that market. And frankly, you know, they've just got too much computing expertise and really the thing to think about, and I know this is a funny, you know, funny words and stuff to use on a show oriented and automotive audience. But like the user interface and user experience is really important. Think about, you know, self driving cars and whatnot. People are probably going to be terrified to get into these things. And who can make your grandmother or your mother comfortable getting into a piece of technology like that and letting it take the wheel. Right. I mean that's something that Apple, their whole brand is based on taking complex technology that you know, is not approachable for a lot of people and making it approachable. So they're going to be there, question when, exactly how they get to market.

And no question the industry is scared of those guys. I mean I've seen studies where they ask people, you know, would you, you know, who would you favor for like say a self driving car? And the studies I've seen say, oh, Apple and Google. Yeah, the tech companies. So you know, the auto industry is scared of those guys and Amazon and you know, what, what they do or don't have coming and what that could mean for them and their profit margins.

Yeah. So how, how naive to that do you think they are, Ben? Like when they're scared, are they.

Are they using that to actually get better? Cause it feels like to me we're doing things the same way we've always done them, we're talking about it, but really not much has changed. When you talk about the experience for the consumer.

Yeah, I think it's starting to change because of money. I mean like they see the valuation of Tesla, it's crazy. I mean Tesla's worth more than the industry combined and so they want a piece of that action. Give me some of that. And.

Will they ever be valued at the same way? Because they still have all their ice, their internal combustion engine operations, maybe not, but they're not getting the full value they feel for their electric vehicle and autonomous vehicle efforts. And so they are being more aggressive. We're starting to see them rolling out their vehicles, whether it's the Mustang Mach E or we got the Hummer pickup coming later this year. So they're starting to finally over this and all the startups are coming that are pressing them. So over this next sort of next two years, I think we're going to see a lot more of the next gen technology coming out and I think it's going to be interesting to see how that changes how the consumers perceive the automakers.

And Chris, one thing to add in there is just that, like how Apple will interact with the automakers, it's not at all clear that they'll be in direct competition. Right. I think the one thing that Ben and I and some of our other colleagues at Reuters have been finding out is that the automakers are very, very savvy and that, you know, Apple does need a manufacturing partner who knows how to do this stuff. So they probably do need to work with the big automaker. But the automakers understand that if they don't approach this right, they could just end up stampin metal while, you know, they stamp an Apple logo on it. And all the money goes to Apple. Right. So they, they, they're actually coming into this very savvy. And, and Apple, I would say we, we think of them as almighty in a lot of business situations. But you know, it takes a huge amount of physical infrastructure just to manufacture 200 million of these little things. And this fits in a box, right? A tiny little box and fits $1,000 of value into a tiny box. So if you're talking about maybe cramming $100,000 of sale value into something as big as a car, right. And doing it at the scale that Apple wants to do it at, globally, they need help. They, this is not the same as what they're used to doing. So you know, you know, from their side, they are going to have to understand that they probably can't just go in and steamroll the automakers either.

Yeah. So just out of curiosity, Steven, what do you drive?

I drive a used with 140something miles on it. Little sort of hot hatch Mazda 3 with the 2 1/2 liter engine. I have to confess, I've never bought a new car in my entire life. I've always bought somewhere between clean used and total jalopies and just do all my own wrenching on them.

Yeah, but you're, you know, you're a smart consumer so you work on them yourself.

Yeah, yeah. In fact, you know, you were talking about dealers, so I bought this used Mazda from a dealer and one of the things was like, you're sitting there, the car's one price and they plunked down this thing that's like three or four thousand dollars more because of a warranty or whatever. And I'm like, dude. And you know, and they also have the little shoot where their technicians have gone over it and it's like, oh yeah, the. What was it on this particular one, I think it was a, like a swing or like a sway bar bushing in the back. Right. And they're like, you know, like $250 to fix that mike. Dude, that's a $40 part in like 20 minutes of my time. Right. So you know, they kind of try to spring that stuff on you and you just have to tell them to take it off. And it was just like, yeah, that's why. That's why I don't do this. So the more recent car we bought, which was a used Honda crv, we got it from basically just like a local dude who, like, owns a shop and a little used car dealership where he buys stuff, fixes it, sells it, that kind of stuff. Real cool guy.

So, yeah, so you understand, you understand that the, the experience for the consumers is what has to change. That's Tesla's leverage in the marketplace. More than. More than the actual electric vehicle is the experience. You know, that's what.

And I would pay. You know, the thing is, I would actually rather have a no haggle. Like, go to the website. You like one of the. I mean, there are several vehicles that I just think, look, can I cuss on this show? Is it a cussing show? Anyway, freaking cool. Like, the new Ford Bronco, I think, just looks amazing. And it just like, you know, gives me all kinds of, like, fantasies of driving it around in the woods and stuff like that. And so I'm just like, that's awesome. And I would totally be fine just going to the Ford site and being like, yeah, this is the exact color and stuff I want. I don't care if I'm paying. This, like, the point of buying news, you get exactly what you want, right. You're not just picking up the used lot. So, you know, if you could do that and the dealer's just there to help you more. Like, when you go into other kinds of store, like the Apple Store, you know, they're just going to help you find the phone that you want. Right. If it was more like that experience, I wouldn't even care as much about paying full price. I don't need to chisel them. Like, you know, if you want a chisel, go buy a used car in the private market.

Yeah.

So the same thing is like, so if my screen breaks on my iPhone or on my iPad, I go in and they look at it and they go, okay, you need a screen. It's going to be $200. And I'm like, okay. And I sign the thing and they go, come back tomorrow at 4. Now think about taking your car. You go in, you tell them what's wrong, Then you leave. Nobody calls you. You call them. And then there's this back and forth whole thing. And then they finally call you and they tell you you need a bunch of other stuff. Right? And then, like, just think about the, the EFFICIENCIES in the two different systems and how consumers end up feeling at the end. And that's why I say it hasn't changed in a hundred years. But it could be, it could be the same system, right? Thanks so much for watching this clip of Service Driver Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 Ask SDR and we'll answer your question on the show. That's 8333 Ask SDR. For special deals on our books and training, head over to offers.chriscollinsinc.com now that's offers. Chris Collins, Inc. I'm Chris Collins, and I'll see you in the next video.