By on March 29, 2011

Every state in the union has its own laws regarding a manufacturer’s ability to sell cars, with some states banning the practice outright and others merely preventing OEMs from competing with their own dealer networks. California falls into this latter category, as the California New Motor Vehicle Board bans manufacturers from owning dealerships within ten miles of other same-make independently owned stores. But that apparently did not stop Chrysler from opening a dealership in Los Angeles which, according to a petition filed by the California New Car Dealers Association, is within ten miles of not one, but three independent Chrysler stores.

Automotive News [sub] reports:

The store is Motor Village L.A., which Chrysler established as a prototype to showcase its brands and test new retail concepts. The company said in November that it plans to open more such stores in partnership with dealers.

The fact that Motor Village L.A. (formerly LaBrea Chrysler Jeep) is a partnership with an existing dealer is relevant here because there exists a exemption to this rule that allows OEMs to

own stores near other dealers for one year or in partnership with dealers who have made substantial investments in the operations and agree to buy out the factories.

But, argues the CNDA, Chrysler’s partner in Motor Village has no skin in the game. According to the petition

Chrysler Realty owns the $30 million-plus building that houses Motor Village L.A. and is charging no rent for the first six months. The monthly rent is scheduled to rise gradually from $50,414 in May 2011 to $90,000 in 2015. The market rate for rent is more than $200,000 per month.

The CNDA wants to see Chrysler’s “retail laboratory” either shut down permanently, or have its business license suspended. Meanwhile, with Fiat only just rolling out and Alfa Romeo coming soon to the US, Chrysler’s need to test new retail concepts won’t be going away. And because both of those brands are going to target urban consumers, it will be nearly impossible for Chrysler to set up more of these “dealer labs” without running afoul of restrictions on  OEM-owned dealerships.

Meanwhile, Chrysler is hardly the only manufacturer to struggle with state restrictions on manufacturer-owned dealerships. Tesla has said it has no plans to create a franchised dealer network, and has hired the man behind the Apple Store concept to develop its own in-house retail network, a move that inspired a warning in that firm’s IPO prospectus. And then there’s the issue of factory-direct online sales, a largely uncharted model that Tesla has also said it hopes to pursue. And as attractive as “retail labs,” OEM-owned dealer nets and online sales might be, a state-by-state legal and/or legislative campaign will be ruinously expensive for any one auto manufacturer to pursue. And, as the fallout of the GM-Chrysler dealer culls proved, pissing off your franchisees has major political risks.

Chrysler spokesfolks say they are “looking forward to discussing the matter” of its “retail lab” with the CNMVB, but don’t expect them to convince the dealer group to let this one slide. After all, if even the smallest cracks in state franchise laws start to appear in California, it could unleash a flood that might wash the entire franchise system away. Whether or not that would be good for consumers is open to debate, but the fact that it would be devastating for existing dealers is not.

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34 Comments on ““Prototype” Chrysler Store Under Attack...”


  • avatar
    Educator(of teachers)Dan

    A law at the Federal level needs to be passed NOW that will allow me to order a car after I build it to my specs under the “Build Your Own” tab of every manufactures website.  I don’t care if I would have to wait 6 weeks for delivery and pay a dealer PDI fee.  (But alas with our “Parliament of Whores” it will never happen.)

    • 0 avatar
      psarhjinian

      You will never, ever get a law at the Federal level for this kind of thing.  For one, it’s a state right**.  For another, car dealers are big donors, especially at the state level.  For a third, car dealers (and franchisees in general) are much more likely to be Republican, which means this issue becomes automatically partisan.
       
      ** never mind that both parties will stomp all over states’ rights when it suits them.
       
       
       

    • 0 avatar
      Robert Schwartz

      There is no state’s right concept involved here. The automobile business is an interstate and international business that very clearly falls within the Federal commerce jurisdiction. Allowing interstate sales over the internet is a no-brainer. But, you are right about the politics. Our legislators are whores and the car dealers are their sugar daddies.

    • 0 avatar
      psarhjinian

      Franchise law is a state matter, and that’s what we’re dealing with here.

    • 0 avatar
      Silvy_nonsense

      We don’t need a Federal law because manufacturers selling via the Internet is already legal, even for cars. Auto manufacturers don’t need a Federal law to sell cars via the Internet anymore than a computer manufacturer like Dell needs a federal law to sell computers via the Internet. Auto manufacturers could do it, but choose not to. State franchise laws have nothing to do with direct sales to consumers via the Internet. State franchise laws only apply to ownership of physical dealerships that close transactions within the borders of a state. State laws of any kind can not be enforced if they infringe upon Interstate commerce. Business transacted via the Internet is inherently interstate under exiting Federal law and regulation.
       
       
      Legally bypassing state franchise laws is fairly easy. Ford owns a dealership in Oklahoma. When Ford sells vehicles to Hertz, all Ford vehicles (rental cars and trucks for Hertz Equipment Rental) are “sold” to this dealer, shipped to their Hertz branch destination and prepped for use by mechanics at the RAC or Equipment Rental branches. Ford dealers in the various states are completely bypassed. If Ford chose to do so, it could sell to consumers (or a business) over the Internet, show the Ford-owned Oklahoma dealer as the dealer of record and drop off a fully-prepped car at your house using a “white-gloves” car hauler that can deliver cars without screwing them up.
       
      If dealers went away tomorrow, there would be problems. Who would provide front line customer service? Who would provide “official” warranty and maintenance service? Who would sell accessories? Who would distribute parts (to us at the parts counter but also to professional mechanics and body shops)? If manufactures weaken the dealers too much and the dealers close, the manufacturers will then have to re-create the existing parts and service network. Building that and administering it could easily eat up any extra money the manufacturers would pick up by eliminating the dealer’s slim new car profit.

    • 0 avatar
      Educator(of teachers)Dan

      @Silvynonsense: I want the option.  If I bought a Dell computer on line and lived near a retail store, I would still go there for accessories and (if they performed it) warranty work.  If I bought a Ford online and they shipped it to my dealer, charged me a nominal fee for PDI and set up, and allowed me to bring it there for warranty work, I would do it.  Would everyone do that?  No.  Many Americans would stay fearful of such an experience, and there are always those people who need a car RIGHT NOW.  Do I still need the dealer to go do test drives of say a 5-speed Focus to decide how I like the transmission engine combo?  Of course I do.  But then being able to go home, option it exactly as I please, and purchase.  That’s what I want.  Might my car end up being a slightly “oddball” combination of options with a lower resale value?  Yes but then if I order exactly what I want I’m more likely to drive it for 10 years and not give a rat’s hind end about resale.

    • 0 avatar

      “Yes but then if I order exactly what I want I’m more likely to drive it for 10 years and not give a rat’s hind end about resale.”

      Dan, I think you’ve stumbled on a big reason why both manufacturers and dealers alike resist the notion of applying the Dell model to buying cars. Thanks to planned obsolescence, we have a reason to upgrade our computers every few years; not so much with cars. Warranty work is one thing… but the possibility of signing a repeat customer, who the dealer has at least a chance of selling a new model 3-5 years down the line, is too big a potential revenue source to ignore.

  • avatar
    V572625694

    It’s obviously in car dealers’ interests to keep factory stores out of “their” markets. It’s not at all clear why that’s in the consumer’s interest, though.

    • 0 avatar
      Educator(of teachers)Dan

      It’s not.
       
      I know it horrifies the dealers to think of a world where I would go to four or five dealers, test drive close to the configuration I want (but not necessarily the color or all the options I want) go home to my computer and option things just the way I want… order using my pre-approved loan from my credit union… and wait for delivery.  The thing is I’d still be bringing my car in for warranty work at the dealers who are horrified by the prospect.  They just would miss the opportunity to try to sell me a car with features I don’t want or in a color I don’t particularly care for or to up charge me for “the cost of putting up with me” or what not.

    • 0 avatar
      Silvy_nonsense

      Dan,
       
      To build on your point -
       
       
      The dealers don’t make much of their money selling new cars (or providing warranty work) and see the sale itself as a necessary evil. The real pain for them in your scenario is that they would not be able to provide marked-up financing, sell you accessories at full MSRP and convince you to buy over-priced, high profit but relatively useless things like “polymer paint protection” and extended warranties.
       
      When you get a loan through a dealer, they usually offer an interest rate higher than what you’ve qualified for because it earns them a profit to mark up the loan rate. (Getting pre-approved at your credit union is always a smart move.) Most extended warranties are like casino games – they always favor the house. They are expensive, don’t offer much to the consumer but pay a huge commission to the sales agent (that’s your friendly neighborhood dealer). $500 “Polymer paint protection” is a coat of wax no different from what you could buy and apply yourself or have done more cheaply at a local detailing shop. When you bring the car in for scheduled maintenance, the service adviser likes to say “Our standard 15,000 mile service includes…X” but doesn’t tell you that it includes a bunch of services not required by the maintenance book and is therefore overpriced and performing unnecessary services that your car doesn’t need.
       
      They don’t mind all the test drives, comparison shopping and dickering over the price of the car because the real money is made elsewhere in the transaction. Manufacturers work so hard and spend so much to make excellent products. I’m always astounded that they allow the dealership experience to be so sleazy, frustrating and generally unpleasant.

    • 0 avatar
      SimonAlberta

      The “dealership experience” is pretty unpleasant for the dealers’ sales staff too…there are not too many other businesses where the customer researches “dealer invoice” on the internet then brings his POS trade-in and wants full-retail for it and tells every lie under the sun to justify it…”its’ been babied”…”mostly highway miles” etc. etc..
       
      When I was a dealer sales exec we had a huge notice hung in our sales office….it said “CUSTOMERS TELL LIES”. On many occasions a car appraised in the morning would come in at delivery time with different tires (as in not better ones) a duff battery and other missing items.
       
      Now, my point is not that dealers are all fair and ethical and the customers are all crooks but just to illuminate that the whole vehicle buying/selling process is a seriously flawed model all around. I often wonder how it got to be this way….was the first “crook” a dealer or a customer?

    • 0 avatar
      aircooledTOM

      “buyers are liars”  this is a truism in the car business.  Trust must be earned.  They stop lying when they trust you.

      Customers feel obliged to obfuscate because they think that we (sales folks) will lie our faces off, just to earn a piddling minimum commission on a new car….  Sales associates just want to make the customer happy and send them across the curb in a new (or used) car.

  • avatar
    Zackman

    I want a store where I can build my own 1957 Chevy and not charge me at least $100,000 for the privilege.

  • avatar
    highdesertcat

    Dan, in 1987 I ordered a brand new 1988 Silverado  to my specs, 350, Blue interior, Electric Captain’s chairs, etc.  It took me 9 months to take delivery of it!  I’ll never do that again, since by then I could have bought a new Silverado for 87% of what I paid for mine.

    • 0 avatar
      Educator(of teachers)Dan

      Yeah but depending on the economic circumstances of the time period some dealers don’t even want to talk to you when you want to special order.
       
      One of my father’s friends went to buy a new farm truck a few years after you ordered yours.  He wanted a one ton regular cab dually 4X4 with a 454 and manual trans.  Of course there were none on dealer lots within a 50 mile radius of our little town in Ohio.  He went to 5 different dealers before someone wanted to work with him and not treat him like they were doing him a favor and that he was a PITA for trying to order one.
       
      My fiance’s 2005 Vibe was a special order cause she wanted one in metallic orange with 0 options.  (Manual trans, manual windows, ect…)  The dealer (who has sold cars to her family members for 20 years) kept asking, are you sure you want stick?  Are you sure you want that color?  Finally she told him, “There’s a 1986 Honda Civic sitting in your parking lot with a stick shift and power nothing.  That’s what I got here in, I think I can drive stick!”
       
      My “special order” (if I test drove the basic model and liked it) would be a brand new Ford Focus SE hatchback with 5-speed stick, winter package (heated seats and mirrors), and key-less entry pad.  Can you order one that way without adding thousands of dollars in stuff you don’t want?  Yes you can.  Do I expect to find one set up that way in Kona Blue on a Ford dealers lot within a 1000 miles of me?  HECK NO!  I expect I could find a SEL set up that way with a two tone leather interior for $25,000 dollars, but that’s not what I want.
       
      I want freedom of choice.

    • 0 avatar
      Zackman

      H.D.C: (and, of course, E.Dan!) I did that once, in 1975, when I ordered a 1976 Chevy C-20 Custom DeLuxe 3/4 ton P/U per the following: Bright red w/white cab roof, regular cab, 2WD, 292 cu.in. 6, 3 speed w/1st granny gear (4 spd), no radio, full instrumentation, saddle tan vinyl interior, rubber flooring, step bumper, HD sway bars. It took just about six weeks. paid $ 4200.00. Ordered in October and picked it up the day after Thanksgiving, 1975. Sold it the day after Thanksgiving, 1977 for $3,500! Not bad, I suppose.

    • 0 avatar
      highdesertcat

      Dan, this past January I took delivery of a 2011 Tundra 5.7 SR5 which was a ‘special order of sorts’ I placed with the dealership in El Paso, TX, in November 2010. No money exchanged hands for this special order. My wife and I had bought her 2008 Highlander Limited 4WD there and I’d thought I’d give them another shot at me. True to their word, come January 2011, there was the Tundra.  But it wasn’t a special order of the kind we’re discussing. I didn’t pay them anything. What I did was, I gave the sales manager one of my business cards and on the back I had written “2011 Tundra 5.7 DoubleCab Long Bed, SR5, Tow Package”, and told the sales manager if he managed to get one like that for his floor plan I would feel obliged to give him a crack at me.  He delivered.  I’m happy. He’s happy.  Did I pay too much for it? It was $7500 more than a 2011 Silverado, and $5100 more than a 2011 F150 in the El Paso area. But I got what I wanted, when I wanted it.  And that’s worth something, aside from the fact that ALL Toyota products are way overpriced. I console myself with the truism that you get what you pay for and that my social security retirement check is replenishing my dented credit union share account.

    • 0 avatar
      aircooledTOM

      I see this issue from my perch behind my my desk in a sales department for an “auto-mall” type of place.  For a GM product, we’d love to sell you something from the inventory, because we already own it, and have the obligation to maintain and house it until it’s sold.  If you want something not in inventory, we’d rather order it and get you exactly what you want, than send a driver (who we’d have to pay, etc…) and then you just take delivery of the car when it shows up….  The one caveat is that typically the incentives and special rates which are in force at the time of delivery are the ones that you’ll get, not the ones going on at the time of negotiation. 

      Why is this nice?  The dealer will get all of the hold back, and whatever dealer cash there is.  If he has to get a vehicle from another dealer’s lot, he might lose the hold back and then he’s got to pay a driver to go get the car…   That’s a difference of anywhere from a couple hundred to thousands of dollars…  Bottom line— you can negotiate a better price on a vehicle that you’re ordering, offer invoice they’ll probably take it. 

      Why is this good for me? As a sales consultant, I get to sell you a car that’s “perfect” for you, for cheapola… and I get a surprise deal when your car shows up… It’s like a present for me– you order it, I sorta forget about it, then it shows up on the lot and I call you and it’s like Christmas for both of us….

      For products with fewer variations (Nissans for instance– Murano only has one major options package-nav-, the rest of the content is in the trim levels) it’s probably easier to just have the dealer go get what you want from another dealer or do like “highdesert” did. 

      Ps… If it takes 9 months to get it, something went seriously wrong…..(somebody forgot to order it, etc)…

    • 0 avatar
      krhodes1

      BMW is heavily pushing build-to-order. At my local dealership, more than 50% of thier sales are now BTO, and they have reduced thier inventory considerably. In fact, if you want any but the most blah colors and interior choices, you HAVE to order it,as BMW will not let the dealers order them for stock. Typically, BMW can deliver your car in 4 to 6 weeks from the time of order, which is pretty impressive considering most of them come from Germany, and some from South Africa. It’s even faster for the Made in USA cars. And of course, there is the option of doing factory delivery, which I am doing.

      I have never understood why people make the second largest purchase of thier lives on a whim, and “settle”. And it makes even less sense to me as someone with an accounting background to have MILLIONS of dollars tied up in inventory so that Sally-Sue can have  a chance of finding that red Focus with just the right options on it.

      Ordering a car also puts a lot of negotiating power back into the hands of the buyer. I played off my local BMW dealer against a number of others to get the price I wanted. All they are doing is filling out the paperwork afterall.

    • 0 avatar
      rudiger

      Dealerships used to love build-to-order and the reasons for it were, as one would imagine, generally sinister. When a customer decides to order, the dealership has ‘got them off the market’. IOW, the customer is now essentially held hostage by the dealership and can’t go anywhere else to buy a car, lest they lose their deposit. So the dealership can now do anything they want while the customer sits and waits, up to and including selling the car out from under the customer should it arrive and someone else gives them a better offer.

      However, in this day of internet access to factory builds, it might not be quite as easy to pull such a stunt. Being much easier to catch a dealership selling an ordered car to someone else could go a long way to explaining why most dealerships don’t like BTO, anymore.

    • 0 avatar
      krhodes1

      @rudiger

      That has nothing to do with BTO, that is just sleazy car dealership tactics.

      At the consumer level, there is really NO such thing as a “non-refundable” deposit. I put down a deposit for my BMW when I ordered it. On my Mastercard. Do you think for one split second I would not get that money back if I cancel the order? One 3-minute phone call to the bank is all it would take. Consumer laws for that are entirely on YOUR side, not the dealerships. Now if you were stupid enough to give them cash or a check for the deposit, that is a different story. And if a dealership insisted on a check, well, there are at least 10 BMW dealerships within a couple hour drive of me, one of them would want my business on a $44K sale.

      As for them selling the car that you ordered – seriously? What are the chances that anyone else is going to want the car that you specc’d out? If it was anything common you would have found it on the lot. In my case I am doing Euro-delivery, but if not, the market for a RWD, manual transmission, station wagon in Maine is evidently just me, because it is the ONLY such my local dealer has ever sold since the e91 debuted in ’06.

    • 0 avatar
      wallstreet

      +1 on BTO & European Delivery.
      @ EducatorDan
      BMW did just that. They allow me to order a car after I build it to my specs under their “Build Your Own” website. I’ve the privilege of getting the exact car that I build & even pick it up from its birth place (BMW Welt across the street from Munich factory).
      Here is the link to my European Delivery trip > http://www.bimmerfest.com/forums/showthread.php?t=470072

    • 0 avatar
      rudiger

      I would imagine that ordering a BMW is a considerably different experience from trying to order a Chrysler, Ford, or GM product. While it’s highly unlikely that a BMW dealership would risk losing a sale (not to mention the bad word-of-mouth) by selling an ordered vehicle to someone other than the person who ordered it, I have no doubt that it’s not beyond the capability of a domestic dealer. At least it wouldn’t have been in the past.

      And, yeah, unless it was something totally bizarre, there would be someone who would buy a vehicle spec-d out for someone else, as well as dealerships that won’t order a vehicle without the buyer putting down a good chunk up-front with cash or a check. I know, I tried to order a PT Cruiser when they were a hot product and there were none on the lots. The order was all set, and the dealer said, “We’ll need a check for $500.” I asked, “What happens if I want to bail for some reason, like the vehicle takes a lot longer to get here than I want to wait?”. The reply was, “We keep your money and sell your car to someone else.” Needless to say, I walked.

    • 0 avatar
      wallstreet

      @krhodes
      Are you going to combine PCD with your ED?

  • avatar

    Why does Fiat get a little door

  • avatar
    psarhjinian

    Factory stores will happen anyway.  It’s just a matter of time, and it’ll likely be ushered in by EVs and cheaper cars from China and/or India.
     
    The dealer value-add sales model is an anachronism in an era when the product is increasingly commoditized and the sales experience doesn’t appreciably enhance the experience.  Most dealers are so very corporate-bland now, between mega-dealer owner groups and franchise homogenity, as to make the distinction between a factory store and what we have now moot.

    • 0 avatar
      highdesertcat

      I’d like to see them sell cars out of Big Box stores.  You buy what’s on the floor that day and if it needs warranty work done, you take it to an authorized dealer that bills the manufacturer for reimbursement.  I hope that will happen when the Chinese start selling their disposable cars in the US.  There is a need for cheaper transportation in the US.  Too many people are forced to drive used cars or old cars that they can’t afford to keep up and running.  Cars in the sub-$10K price category would sell very well in the US.

    • 0 avatar
      psarhjinian

      I should clarify: I don’t think that cheap cars made in China but bought in the US is a good and sustainable thing, but I do think it will happen and that EVs will be the leading edge of the wedge.  It’s already happening with electric and small-displacement bikes .
       
      But again, not sustainable.  The reason there is a need for cheap anything is because we’re hollowing out the purchasing power of the middle class by, you guessed it, offshoring what were well-paying jobs.

    • 0 avatar
      highdesertcat

      You won’t get an argument from me there, but reality is what it is. Joe Sixpack doesn’t set national commerce policy and often sees his job being outsourced because it is cheaper for companies or corporations to do so. Those entities have a responsibility first and foremost to their shareholders to make money for them and if they can’t do that in the US they will go where they can. I’ve been told that the sale of cheap foreign cars like the Hyundai Accent, et al, is astronomical in Southern California. My kids live and work there, and they drive an Elantra, a Fit, a Mazda3 and a Yaris, for their daily bread (and the commute). I hope that Wal-Mart, Costco, K-Mart, etc, see the light and get into this ballgame, nationwide.

    • 0 avatar
      Zackman

      “The dealer value-add sales model is an anachronism in an era when the product is increasingly commoditized and the sales experience doesn’t appreciably enhance the experience.”

      I couldn’t agree more, Psar! I bought my Impala on a “supplier discount” – a no-haggle price in addition to a $3000 rebate. The downside was three weeks later the rebate went up to $4000! Should’ve waited!

  • avatar
    philadlj

    1. I walk into the Fiat store with $X set aside in the bank.

    2. The Fiat at the store costs $X.

    3. I write a check out to Fiat for $X.

    4. I get my receipt and drive away in my new Fiat.

    5. I’ll perform basic maintenance; other maintenance will be handled by the store’s service department or a private mechanic I know.

    Doesn’t sound like that bad of a process…although there are certainly issues to deal with (do they have the Fiat I want, do I have the cash up front, etc.)

  • avatar

    Can anyone explain in simple words what benefit does the consumer get from the “independent” dealerships? It’s not like they actually compete with each other. All we get is the haggling.

    • 0 avatar
      Silvy_nonsense

      The benefits for consumers are kind of hard to quantify. You could argue that having independent dealers competing for business helps keep prices low for consumers. If GM owned all three Chevy dealers in your town, it would be harder to negotiate because you couldn’t effectively use “I’ll just go across town” as a negotiating tactic.
       
      The laws originated to ensure fair business dealings, often in reaction to unsavory practices. For example, state franchise laws can prevent a manufacturer from setting up a company owned dealership down the street from a successful franchise dealer, selling cars and service so cheaply that the franchise dealer can’t compete and has to close, allowing the manufacturer to “take over” a lucrative territory without having to buy out the franchisee. This may not benefit consumers in general, but politicians taking campaign contributions year after year from local businessmen would probably be likely to pass laws that ensure the businesses that fund those contributions aren’t stolen away by some out of town corporation.

    • 0 avatar
      aircooledTOM

      Most people reading this site are not terribly much helped by dealerships…  You already know what you’re looking for, what you can get financed for, etc….  The general population doesn’t know that stuff.  Where I work, it’s a clearinghouse for information for the consumer.  John Q. Public has no idea what direct-injection is, and for the most part he doesn’t care.  Without independent dealers (like mine selling 6 brands from one location) the customer gets corporate PR talking points about cars relative merits, etc.  From me (I”d like to think) they get an honest assessment of what car will be the best fit for them…  (hopefully it’s something I sell)…   If I can’t make them happy, I’ll call a buddy across town with a different product and hopefully he can make the customer happy…..

      There are probably other benefits, as well, used cars with warranties, CPOs, access to vast inventories, etc. 

      Also, some of the Aftermarket products are good deals– many of the coatings on the market these days are not just “waxes” and typically they come with warranties against loss of luster, etc…  They are profit centers but, they’re good products.  Same with financing– often customers will tell me a rate from a bank and we’ll match that rate and STILL make money on the back end…  The banks want to make money too.

      Though I must admit to having fantasies of being a Steve Lang type and running a small but respectable used car operation…


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