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Some car manufacturers are challenging the conventional dealership model—but it’s not as simple as it sounds
Anyone who has tried buying a car in the past few years knows it’s not an easy process. Between low inventory due to parts shortages and high dealer markups, a trip to the dealership can become a real headache. Instead of haggling with sales managers, is it possible to purchase your next vehicle directly from the manufacturer to avoid a markup?
“You can buy directly from certain automakers, like Tesla, Rivian, and Lucid,” says Steve Elek, program leader for auto data analytics at Consumer Reports. “For the most part, these automakers don’t mark up anything. You buy on their website and then they deliver the car to you when it’s ready.”
The newer companies typically don’t have traditional dealerships. Instead, they call their stores “spaces” or “galleries.” There’s a reason these companies don’t use the term “dealership.” Most states have franchise laws that prohibit auto manufacturers from making sales directly to consumers. The idea behind these decades-old policies is to protect independent dealerships from manufacturers opening their own dealerships and becoming direct competitors.
Some of the newer auto manufacturers have shifted to the direct-to-consumer model to bypass dealerships, but not without resistance from state governments and car dealership lobbyists. The result is that some car companies are finding creative ways to reach their consumers.
For example, states such as New Mexico have more stringent laws prohibiting direct-to-consumer car sales. Tesla’s answer was to enter into an agreement to build a sales store and service center on nearby Native American land in Nambé Pueblo in 2021. Because the land is considered a sovereign nation, it’s not subject to New Mexico’s strict franchise laws.
The direct-to-consumer model generally benefits the consumer by simplifying the buying process, although the lack of competition among same-brand stores can affect prices. But what if you want to buy a vehicle from one of the more traditional car manufacturers and not be subject to an excessive markup?
“The more traditional automakers that have been around for decades have dealer networks,” Elek says. “In terms of markups, it really comes down to the dealership. For example, when I was looking to buy a Ford F-150 Lightning for CR’s test program, I called various dealerships and asked them if they mark up their vehicles. Some said they do mark them up, and others said they didn’t. You can go on ford.com to build and price out that vehicle, but you can’t actually place an order. Initially, you put a deposit for a reservation and enter your preferred dealership. Only months later, you get contacted by the dealer to turn your reservation into an actual dealer order. So there is no circumventing the dealer.”
A good starting point is calling the dealerships like we did and ask if they mark up their prices. Some dealers will even show the markup as a line item when you spec the car you want online. When you are ready to buy, make sure you get a purchase order, not just a deposit receipt. Putting a deposit on a vehicle at a dealer doesn’t necessarily guarantee the price, as CR has reported. But a purchase order is a legally binding contract that the dealership has to honor.
More Car Questions Answered
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• What’s the Fastest Way to Defog Car Windows?
• What Happens If You Turn Off Your Car While Driving?
• Is Age or Mileage More Important When Buying a New Vehicle?
• Can a Dealership Change the Price of a Car You Ordered Before You Pick It Up?
• Will You Void a Car Warranty by Not Having Your Car Serviced at the Dealership?
Editor’s Note: This article has been adapted from an episode of “Talking Cars.”
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