"30 percent of the cost of a car is the cost of distribution."

Car dealerships are bad for the consumer

#Driving

Sat, Oct 31st, 2015 11:00 by capnasty NEWS

According to Vox, the most expensive part in the overall price of a car is not the labour, the parts, or the manufacturing, but the cost in distributing the vehicles to dealerships. The article argues to an end of the dealership and a move to direct sales much like Tesla's approach.

But as Gerald Bodish wrote in a 2009 analysis from the US Department of Justice, the most expensive part of the whole process is hiding in plain sight — it's the stockpiles of unsold vehicles sitting around on dealers' lots. He observes that in late 2008, there was a staggering $100 billion worth of unsold dealer inventory, with an annual carrying cost of $890 million.

In other words, it's a huge pile of waste. At any given time there is a vast quantity of newly built cars sitting around unsold, and the price of the cars that are sold needs to be high enough to cover the costs of building and storing the unsold ones. Bodish cites a Goldman Sachs analysis indicating that replacing the current inventory-heavy method with a more efficient build-to-order method could reduce costs by 8.6 percent. Real-world experience from Brazil, where Chevrolet sells Celtas direct to consumers, shows a somewhat more modest savings of 6 percent relative to what's paid at traditional dealerships. Either way, for a product that costs tens of thousands of dollars it's a meaningful saving — over and above the large increase in convenience.

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