A letter asking dealers to avoid describing cars
So Subaru has become the latest in a string of automakers that are warning their dealerships not to play fair with prices. But being Subaru, they did it with love.
Jalopnik obtained a letter from Subaru CEO Thomas Doll to dealers. Eh, retailers. It is the most beautiful message. Dole does his best to explain that “Subaru retailers” are different from other auto dealers.
Dole wrote, “Taking advantage of the current imbalance in the market between supply and demand is something that a ‘car dealer’ would do.” not Something a “Subaru Retailer” might think.
Dole continues to explain that Subaru has received numerous letters and emails “viously complaining about our vehicle sales at prices above MSRP.” Dole writes that such prices violate Subaru’s “Love Promise” (his capital, not ours) and risk the reputation of the brand.
Doll does not threaten merchants with any particular action, but rather asks them to “please stay committed to our brand philosophy”.
Subaru may see itself as a loving company, but it faces the same problems that affect other car brands. The fifth country’s speech makes it at least one company to warn its dealers about car prices.
Can’t car companies control prices?
The problem may seem a little silly. After all, if McDonald’s were worried about the price of a Big Mac, they could change it, right?
Car prices don’t work that way.
The auto industry is unique in that car dealerships abound with brands of car companies, but car companies don’t actually run them. With the exception of a few recent startups like Tesla and Rivian, car companies do not run their own dealerships.
Instead, they sell cars to dealers who sell them to drivers. These agents can set any price they want. Hence, the term MSRP – s manufacturerProposal retail price.
The last year and change fundamentally disrupted the old sales model. Between the COVID-19 pandemic and the shortage of microchips around the world, automakers haven’t been able to build cars as quickly as they used to. This has left demand higher than supply.
Merchants are left dependent on fewer sales but confident that they can get more per sale than ever before.
This has resulted in many adding extra fees and non-standard fees.
Automakers can’t stop them, but they know this practice damages their reputation. When buyers walk away from a deal with a bad taste in their mouths, they tend not to blame only the local dealer. They hold anger towards the company that made the car.
What can they do
Because automakers don’t set their own prices, they have limited tools to lower car prices. They can use public shame, polite requests, and another tool.
Subaru wasn’t specific about what it would do to punish dealers who overcharged. But Ford and General Motors were, too. Both companies say they will send out dealers who ship fewer cars for sale and may keep the more popular models from the worst dealerships.
Both brands have huge selling networks. Most customers live within a reasonable driving distance of more than one Ford or Chevrolet dealer. So companies can probably withhold popular models from some dealerships without losing customers – buyers can go to another Ford dealership in town to buy the same car.
Part of a larger evolution?
The pricing argument may be just one part of a major shift.
Tesla opened Pandora’s fund to industry when it adopted a sales model where the company runs its own stores directly.
The no-broker sales model was illegal in many states when Tesla was first launched. But the company ran a nationwide lobbying effort and won changes to the law in many areas. It now legally owns and operates its own stores in about half of the states. Sells cars directly to online buyers in others.
Older automakers have huge sales networks to rely on, and they can’t easily transition toward Tesla’s direct selling model. But consumers are used to it. Even Ford now sells some of its most popular cars through its online reservation system.
Meanwhile, studies show that car shoppers prefer to take as much of their online buying experience as possible.
All this suggests a future coming out of proxies. It will take many years for this change to appear, and we don’t expect to see it soon.
But the forces shaping the future of car buying are clear. Some dealerships continue to burn their reputations with huge profit margins. Customers continue to take their shopping experience out of the dealership. And automakers continue to quarrel with dealers over pricing.
These forces probably won’t combine in time to control how you buy your next car. But in a decade’s time, it could mean a completely different car shopping experience.