Here is the script for the “Car Dealership Business Models” video:
Alright, so now that we’ve zeroed in on our target car, it’s time to talk about all the different types of car dealership business models there are.
Now many would say that in a perfect world the most satisfying way to buy a car would be to go directly to the manufacturer, simply pay the best price and cut out any middle-men. Unfortunately, direct manufacturer auto sales are prohibited in almost every state by franchise laws that require new cars to be sold through a dealer.
Tesla Cars are the only exception to a franchise model, and it’s very complicated. Every state has a different way of handling Tesla. Some states allow only Tesla to sell directly to consumers, some give them a state-wide gallery limit, while other states ban them entirely from selling to residents. If that’s the type of car you want, check with Tesla to see about the laws in your area.
For the other 99 plus percent of you, though, we’re going to talk about the four other types of car dealership business models.
The most common type of car dealership is the franchise dealer. These are the ones that have the big manufacturer signs like Ford or Toyota. They are held to high branding and customer service standards by the manufacturer. In basically every state, they are also authorized to have service centers with parts departments and body shops dedicated to supporting the brand. These are the only dealers where you can buy a new car. They also buy and sell used cars.
Just so we’re clear on that definition, a used car can have 15 miles on it and still be used where a new car can have 5,000 miles and still be new. How? The difference between a new and used car is whether they’ve ever been titled to an owner. Many franchise dealers will provide demo vehicles to management where around five thousand miles, they will put them on the lot for sale as new. Since it’s never been titled, it’s still new, though usually available at a significant discount.
Next up, we have the “No Haggle” model used by dealers like CarMax or the vending machine style used by Carvana and others. This model is attractive to customers who are terrified about negotiating. For some reason, people think they’re getting a better deal if they’re just told the price, and they pay it? No-haggle is a marketing decision made by the dealer to attract people who, in my opinion, are willing to pay more for a car merely to avoid a stressful situation.
You didn’t enroll in this course to learn how to overpay, though, did you? Besides, there are far more ways for a dealer to take you for a ride even with a low purchase price as you’ll learn when we get into “The Box” in a future lesson.
After the “No Haggles,” you’ll find two types of independent used car dealership business models. Like the no haggles, they don’t have franchise agreements with any manufacturers. The difference between these two other types is one will offer in-house financing, and the others won’t, they’ll always help to match you with a traditional lender. You’ll recognize the in-house financing because they have banners hanging from the front saying “No credit no problem” or “Buy Here Pay Here.” I call them tote-the-note lots because they’ll carry your note. Sometimes they’re the only option for people with horrible credit. That being said, I will teach you how to buy from franchised dealers with bad credit in the next section.
So, you’ll give them a down payment and drive away with the car. You will then make payments directly to that dealer until the note is paid in full, at which point they sign over the title to you. The upside is that if you need a car and have zero other options, you’ll get something there.
Downsides to this model are plentiful. Typically they won’t report your on-time payments to the credit bureaus, so you’re basically forced to stay in that loop with them unless you fix your credit in other ways. They buy the cars that franchised dealers don’t want from auctions. They’ll have someone “kinda” fix and clean them up, and you’ll find minimal sympathy if the engine falls out as soon as you drive off the lot.