Need Education: How do dealerships cost the auto makers money?

As independent businesses or franchises, isn't the burden of cost on the owner?

What am I missing in this arrangement that costs the manufacturers money so that they decide to yank the franchises to save money?

I was wondering myself.

It would help thos of us who aren't familiar with the economics of auto franchises.

They don't get to be dealers for free.

drives down the cost of cars since buyers can bargain with other dealers in the area. Or so says Chrysler.

Basically Chrysler is doing this because the Obama administration has mandated this 40% restructuring as a condition for Chrysler receiving more Fed funds.

Actually my wife did the bargaining. She went back and forth with 2 different dealers on the same car and the price eventually went down about $2000 plus some extra features. I'm sure it would have gone down some without them competing with each other but they eventually got to the exact same "minimum price" then one added some extras. I don't think it would have been quite as good for us if there wasn't an alternative.

As I understand, the dealers are heavily subsidized by the carmaker. Those cars aren't just shipped to the lots...they have to be paid for. Someone has to carry the paper. The carmakers underwrite a lot of that. Then there are all those rebates.

It's the old "we lose money on every sale, but we make it up in volume" joke. 'Cept it isn't a joke. If you halve the number of dealers, you significantly reduce the amount of money you have to have out there every month. If cars aren't selling anyway because of the bad economy, it's not really impacting their sales to have fewer dealers. When cars do begin to sell again, well, people will just have to drive farther to find a dealer. But the dealer won't have to be laying out as much in incentives, spiffs, bonuses, etc.

That's a simplified explanation, and maybe not 100% accurate, but that's pretty much the way it was explained to me.

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Even if it's not 100% accurate, it's close enough to make some kind of sense of what they're doing.

My assumption that the burden of cost was on the dealer was not quite correct.

Which is not a criticism of this thread, but it's difficult to pay attention to one question when seeing a more interesting question.

Far too many people need it pointed out to them that "capitalism" and "socialism" are not singular things, and when conservatives predict doom for various liberal economic measures they need to be reminded that these things have actually been tried beofre, AND THEY WORKED.

or in case there is high traffic and signature lines are turned off when someone is reading this thread in future, I would like to quote your current signature line in this thread:

The smaller dealers usually had to pay a certain amount of money to have the crs on their lote and had to meet sales of certain amounts of units per month and if they could not they could not get any more cars but this really gives money to the corporation.

What does cost the corporation are incentives and tech training and many other plans. They also pay for management training there are always classes to keep up with.

Also techs get paid a time limit set by the manufacturer to do warrenty repairs so part of these repairs are false and this costs.

My take on this it is more to push the smaller dealers out because the large mega dealers buy the cars outright and carry many more units.

This is not new, dealers are in constant competition set upon them by the corporation and they compete is all areas mainly their region . The larger dealers have always tried to push out the small ones and this is part of it , they have the power.

You would think the small dealers who are selling units and repairing and selling parts would be left alone. There has to more to this than presents a rational explaination. Who knows what the grand plan is , it really over all does not make sense.

I do know back as far as 2001 ford was offering many of their field reps less money and a larger area or a buy out and many took the money and went off to do something else. They were also cutting way back on what they would spend to keep a customer happy such as giving them free extended warrenty to prevent the lemon law buy back or to keep a good customer.