Jay Leno's Classic Car Law Dies 

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I’ve brought you several stories in this newsletter about automakers wanting to sell new vehicles direct to the public.  Most recently, the California dealers filed suit against Honda, and a little earlier in the year the group sued Volkswagen about direct sales of the new Scout.  Many states, like my home of Texas, explicitly prohibit sales as do twenty or so other states.  Some, like California, have laws on the books prohibiting direct sales but have granted permission to some companies, like Tesla and others.

When you talk to consumers, they always say they wish they could buy cars direct from the factory.  I realize it sounds appealing, but the reality is, if they understood all the elements of this, they would not want that.  There is no doubt some of you reading this disagree and think I am biased because I was a dealership owner for so many years but hear me out.

The same people who want to buy direct are insulted when a dealer wants to charge MSRP for a car.  Or when a dealer takes a lot of poor selling models to get that one “hot” car that will sell for more than MSRP and the buyer is tickled to death to get it. When I was in the Ford business, if I wanted a lot of the red-hot Thunderbirds, I might have to buy from the factory fifty or more Escorts, Contours, and Windstars to get one Thunderbird.  It’s called packaging, and the factory will totally deny it happened, but it did.  A lot.  But I digress.

If you could buy direct from the factory, you would pay MSRP every single time, no matter which model you are looking for.  Why would the automakers need big incentives?  When one stops doing rebates and low interest rates, they all would.  After all, there are no “deals” everything is sticker price.  So, you just pick your brand and model and you have yourself a quick, easy, deal with no hassles and no haggling.  After all, “sticker is quicker” right?  But that SUV you want is affordable BECAUSE of the $4,000 discount you got from a dealership, and that lowered the payments $120 per month.  You won't get that from the factory. 

By the way, this has been tried.  Anybody remember Saturn?  “A different kind of company.  A different kind of car.”  Saturn dealers were explicitly forbidden to take a penny off the sticker price of a Saturn.  They could lose their franchise if they did.  Consumers didn’t understand.  I heard stories from customers who told me they wouldn’t even throw in a set of floor mats.  I was lucky and had a Saturn dealership near my biggest Ford dealership.  People would leave there and come straight to us “for a deal.”

The reason I got on the Ford National Dealer Council was because Ford wanted to sell direct to consumer in the late 1990s.  They went into big towns, offered dealership owners sometimes 10 times more for their dealership than the true value of it, so they could control the prices of new Fords.  It was a disaster that cost Ford billions of dollars and I had a front row seat. I was such an outspoken opponent to the plan that I was elected as Chairman of the National Dealer Council.  If you want more details on all this, read my True Story #27: 

Tesla has done well selling direct to the public, but it took them 15 years to turn a profit.  In fact, it was founded in 2003 and 2020 was the first year they were profitable for an entire fiscal year.  They had a unique product that was hip and cool.  However, the biggest complaint throughout the years and still today is poor quality and poor service after the purchase.  Why do they need to do better taking care of their customers?  They don’t.  Tesla buyers are going to buy them no matter what and they’ll pay MSRP for the car that they get lousy service on.  Ah, the factory mentality.

Cars are expensive, especially the past few years.  What keeps them selling?  Competition from car dealers that compete for your business. You have a choice of what you pay and who you spend your money with.  They compete for your service business, too.  Neither would happen buying from the factory directly.  Why would a factory direct dealership give you top dollar for your trade-in?  They have no motivation to offer you anything but the vehicle at full MSRP.  Let that sink in.

One big factor people forget is dealerships support the communities they serve, and the charities, the schools, and other organizations. They invest in the areas they serve, dealers are the first go-to for your kids' Little League uniforms.  They serve on boards of local charities, the Chamber of Commerce, and most are highly supportive of area churches and their local first responders.  You won’t get that with factory owned dealerships.  I know this to be true, I lived it.  Car dealers put their own money on the line every single day. 

I totally understand there are bad dealerships, and selfishly, I thank goodness for them.  Without them, there would be no Car Pro Radio Show and I’d have been forced to learn to play golf when I got out of the car business.  I know the good ones to send you to, and the bad ones to steer you away from. 

So, the next time I bring you a story in this newsletter telling you that car dealers are suing a factory to stop them from selling direct to the public, it’s to your benefit as well.