• Jan 27, 2009
Dealerships don't make the majority of their money on the sales side. The real case resides in the back of the store, where cars and trucks are serviced. In fact, the best dealers are said to make enough money on service to pay the bills, with vehicle sales providing the profit. Mercedes dealers were pulling in money hand over fist five years ago; not because the German luxury vehicles were flying off the shelf, but because they were breaking down regularly. The strain on Mercedes Benz to pay the massive warranty costs cut into profits, but the dealers were raking in the big bucks.

Customers that buy vehicles that break down regularly don't tend to stay loyal, and the folks at Daimler headquarters know this. Mercedes has been working hard to improve quality, and the proof shows in the form of less traffic at M-B's service centers. While that's great for customers, it's bad news for dealers, as warranty work has gone down by 30% or more in some places. For now, dealers are left scrambling for ways to add revenue to their shifting business model. Fortunately, Mercedes' quality leap will result in more satisfied customers, which means the dealerships will be able to continue to work on their core business: selling vehicles.

[Source: Automotive News - Sub. Req.]


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  • 31 Comments
      • 5 Years Ago
      It doesn't matter. You won't be able to buy these vehicles in a few years anyway with California calling the shots.
        • 5 Years Ago
        @Scorch
        You sound so sure of this... I am equally sure that you are wrong.
        • 5 Years Ago
        I hope you are wrong but I fear the worst.

        Future Autoblog Headline:
        2011 Mercedes-Benz S100 -$125,000 + $10,000 Carbon Tax = Underpowered $135,000 Glorified Tin Can!
        Powered by the newly developed 1.0 Liter Inline 3 producing 60hp and 50lbs/ft of torque... I am going to be really depressed... Only have so much to live for anymore and that is starting to slip away.
      • 5 Years Ago
      The dealers in Sweden seem to have figured this out... all of the parts for the older model years, such as the W140 S-Class (1992-1999) have dramatically gone up in price.

      I used to pay $60 USD for a pair of wiper blades at the MB dealership, now they want close to $400 USD for the same blades.

      Their response to my anger, was to offer me a "good deal" on a new S-Class... No thanks!
      • 5 Years Ago
      Mercedes cars now look like nothing much, and have only average quality. My experience, of friends, is that they won't touch another one with a bargepole, ever. I mean, why? The truth is the days when Mercs represented rock sold bullet proof engineering are long gone.

      In Europe by the way buyers expect to take a test drive and then order their specific car, no matter how humble, and wait, possibly up to two months, for delivery. It's a tradition thing. Cars still constitute a significant and long considered purchase ofr most people, and no dealership would be expected to carry a stock of cars ready for sale immediately. No storage space apart from anything else.

      They sit in fields now though because nobody's buying...
      • 5 Years Ago
      Well that just might have to be the way it has to be. Look at the wealth Toyota had amassed particularly in the last 20 years thanks to its reputation.

      Sales may not bring in the most money, but it will help to retrieve buyers that have shied away from the niggles the German cars have been know for within the last decade or so.
      • 5 Years Ago

      Why else do you think that dealerships are sometimes called stealerships?
        • 5 Years Ago
        It's obvious that none of you understand car dealerships. Without the service departments we would be out of business. There's not enough mark up over invoice to make money any more. In the mid 90s there was a 15% mark up over invoice. 10 years later it's a 7% mark up on new cars. Wheres the profit margin? it's disappeared. You'll be seeing a lot of car dealerships barely staying afloat.
      • 5 Years Ago
      And this is why dealers suck, they aren't in it to help the consumer - just rob us when our pants are down.

      How long til we see more internet sales centers? Why cant a manufacturer open a location that stocks only a handful of demos and loaners or used cars, and keeps the inventory on demand? It would force a lot of the more unscrupulous dealers to step out of the game, and let those comfortable maintaining lasting relationships succeed.
        • 5 Years Ago
        That won't work because Americans are typically or a gotta have it now mentality. I will say that a lot of Mercedes and BMW owners are willing (or are forced to) wait for a specific type of car, but an internet only box with just a few demos wouldn't work for most dealers because some people "have to see it" and sit in it before they buy it and its just too easy to drive 10-15 miles to the next dealership, or even closer if they aren't loyal to one brand.

        Lord help Land Rover if they ever decide to improve their quality.
        • 5 Years Ago
        This sort of store would definitely need some demos on hand for new model test drives, and used cars could be stocked on site since that is a typical practice anyway.

        I just dont think the new-car-when-you-want-it model needs to exist now that the market has scaled back by almost a third. So what if you lose impulse buyers, let those buyers be sated with certified pre-owned or used cars with dealer-backed warranties.

        The pictures of all the docks and parking lots just stacked with unsold inventory drove this idea home from me. A pleasant flip side is that this could make a new car purchase special again - as opposed to a fast food experience where u get the #2, in red, no fries sorta experience that has become the norm.
        • 5 Years Ago
        What would be the main difference between a dealership and what you described above?
        Keeping the inventory "on demand" sounds very easy, but what doesn't...
      • 5 Years Ago
      so that used E Class my eyes are on should be a 2004 and up... brilliant...
      2005 E Class or 2005 5 Series... please help...
      • 5 Years Ago
      MB has a good track record of introducing and bringing to market cutting-edge technology not found in any other cars. However, that seems to have slowed considerably nowadays. Unless that happens again, it's much to easy to consider MB as one of many makes to price-shop since I am not not a MB brand loyalist.
      • 5 Years Ago
      Awww, the poor dears! Their single upstream supplier cut off their primary revenue stream, and they're scrambling to make a profit now?

      Maybe by courting owners of out-of-warranty vehicles of all brands they'd generate some business and -- who knows? -- loyalty.

      The real answer is in legislation (not that legislation should be brought in to satisfy these whiners). In European countries, they have roadworthiness tests. Annual, biennial, or whatever; but there's a series of checks to ensure the cars on the road are actually safe. Over here? You can drive a car until it literally falls apart, so long as the emissions are okay and it looks approximately car-shaped from the outside. The regular maintenance that would come with that would keep service departments working profitably long after the warranties expire.

      And you know what else? It would prevent idiots from putting 76" lifts on their F350s and fitting 70" tyres that stick out 3' from each side of the "vehicle". If you need a tractor, leave it on the farm, boy.
        • 5 Years Ago
        Depending on your state, there are already states with safety checks.
        Of course, depending on inspection site I've had everything from a guy basically check my turn signals (although, at the time my car was 1 year old), to inspections where they actually took the wheels off to check the brakes, etc.
        But it wouldn't really bring dealerships much money anyway. These Mercedes dealerships make money on the service side because they charge people like $150 for an oil change, and any repairs cost like 3x+ what it would for a normal car.
        If they had mandatory safety inspections they wouldn't cost nearly as much as what lets these dealerships make money on the service side.
      • 5 Years Ago
      My uncle owns a 2001 ML430 and he hates it. The sunroof is dead, the engine drinks way too much gas (and oil), and he has had numerous other expensive reliability problems too (and, according to him, the dealer service absolutely sucks). I don't know if this is indicative of general Mercedes-Benz reliability/quality (at that time) or if he just got a lemon, but in any case, I wouldn't buy a Mercedes-Benz without looking at competitors first.
      • 5 Years Ago
      The quality still sucks. Every time my brother has take his two year old E550 into the shop, he's replacing some sort of $1000 computer module.
      • 5 Years Ago
      So how does Lexus do it? their cars never breakdown and yet, they're #1 luxury brand in US.
        • 5 Years Ago
        Have you ever been to a Lexus dealership? I bet that if you go to one there's a service department in the back of it with technicians working on broken Lexus'. People don't bring them there just to drop them off for a while because there's nothing wrong with them. And please don't say all they do back there is oil changes and new wiper blade inserts. Lexus service is a huge profit center for a Lexus dealership, maybe not as big as it is for Mercedes, but profit nonetheless.
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