Paradox: As quality improves, Mercedes-Benz dealerships profits decline
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.]
Reader Comments (Page 1 of 2)
retsel 9:10AM (1/27/2009)
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...
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Scorch 9:16AM (1/27/2009)
It doesn't matter. You won't be able to buy these vehicles in a few years anyway with California calling the shots.
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Rahul 10:44AM (1/27/2009)
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.
McLovin 5:46PM (1/27/2009)
@Scorch
You sound so sure of this... I am equally sure that you are wrong.
firstplace 9:07PM (1/27/2009)
there is always used... make mine a 2009 CTSV when the time comes...
JayP 9:17AM (1/27/2009)
My wife's Mercedes made my truck look like Big Ben.
When the car was of out of warranty, the issues seemed to stack up. Items that were not an issue under warranty were now items that were deemed unsafe.
I wondered how those guys could afford Rolex watches.
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JZeke 9:18AM (1/27/2009)
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.
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Yaroukh 9:26AM (1/27/2009)
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...
Kumar 9:37AM (1/27/2009)
I saw a few dealerships in Germany set up like this. Probably not manufacturer owned, but just a few cars, and you special ordered what you wanted. That's probably one reason for the range of engine choices, since they don't have to stock the whole range.
This biggest hurdle in that concept is the difference in buying habits between the generations. Many people expect to buy a car off the lot, and many many people are roped into impulse car buys (not so much these days) since the wheels were right in front of them. I remember Toyota stumbling for a while because they didn't have a massive pickup truck inventory on hand, as that is what pickup truck buyers expected.
It took a while to convince my boss of this when he replaced his company vehicle. He was used to getting whatever was on the lot, as long as it was close to what he wanted, no matter how hideous the color. Last year he phone the dealer, and had the exact model/color etc trucked over from a neighboring state (dealer trade).
I prefer the 'dunkin donuts' model. Many stores are satellites for a central donut making hub, and resupply from there. Have a storage facilities across the country to make it easier to get the cars within a day and reduce transportation costs a bit.
Tourian 9:50AM (1/27/2009)
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.
JZeke 11:54AM (1/27/2009)
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.
Rich 9:21AM (1/27/2009)
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.
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tekd 5:12AM (1/28/2009)
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.
Avinash machado 9:31AM (1/27/2009)
Why else do you think that dealerships are sometimes called stealerships?
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Duders 12:12PM (1/27/2009)
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.
Smegley 9:41AM (1/27/2009)
So Mercedes is slowly improving their pathetic quality and quickly making their cars into the ugliest bastard children of the automotive world. If I wanted an overpriced ugly car that doesn't break down much I'd just get a Honda or Toyota.
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zamafir 10:07AM (1/27/2009)
Very true, that new E class is utterly dismal, no wonder they stole Hyundai's head designer. It's actually entertaining watching Mercedes slide downwards and give up market share to better products from BMW and Audi. It all started with that little C230 POS and has continued ever onward. If your company can't sell cheap cars and maintain the quality of the more exclusive ones, Don't. But Mercedes didn't get that, now they're struggling to even meet the standards set by the aforementioned BMW and Audi. The more I read stuff like this, the more I'm excited to see Audi continually rewarded for all the effort they've put into their brand the last decade vs resting on their coat tails as Mercedes had been doing for a very long time.
j 10:13AM (1/27/2009)
I don't think Toyota could qualify for being overpriced, ugly probably but definitely not overpriced.
Doaft 9:49AM (1/27/2009)
And we wonder how domestic automakers (with lower quality product) have been able to keep so many dealerships open for so long.....
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Steve 11:45AM (1/27/2009)
Actually Domestic makes are more reliable than European brands according to consumer reports and many other quality surveys...Ford is consistently on the rise in particular