Is this true?
Whenever Elon Musk says a thing, I reflexively mistrust it. So when I saw a video clip of Musk making this assertion, I wanted to think I learned something about the auto industry, but then I considered the source:
“Large incumbent carmakers sell their cars at low to zero true margin. Most of their profit is selling replacement parts to their fleet, of which 70% to 80% are past warranty. Like razors & blades.”
What say you, Bears? Is he correct?
Well, we are a culture of planned obsolescence.
Bear with me: some conspiracies are of such validity that entire cottage industries spring up of conspiracies so wacko as to make all conspiracies, including valid conspiracies, wacko. So too with populism. Pardon the pun but sometimes there’s diamonds in the dust, most populism is so wack it makes the few kernels of truth wack. Musk is a lightening rod for that kind of stuff
He’s just repeating what he heard on tgeevee …
Oh, right, the question ~ in the traditional car market yes, true
Things are changing but in the traditional car market manufacturers don’t sell to consumers, they sell to dealers who volume purchase at low to zero margins
My question: if you’ve waited a list for three or more months does that count as a dealer purchase? Or direct manufacturer to consumer? I bought a car a year ago through a dealer but it came right off the boat …
@Ten,
Thanks. That’s how I figured it, but considering it was Elon, my crap detector was sounding in the background.
One of the reasons the margin can be so low is that the dealers have the full right to return any unsold inventory to the manufacturer at the end of the model year.
There are other ways to run the business at a profit with low to no margins from your “loss leader” sale. But that reduction of risk is part of the formula.
If you buy a car for $40000, you can expect if you operate it for 20 years (highly unusual) to have roughly $80000 in “up keep” and gas/diesel/charging etc to maintain car as built. Most people do not maintain as built, and most do not do maintenance checks and preemptive repairs, but they drive a less safe and reliable vehicle.
Last bad “deal” I made at a dealership [on a certified used vehicle] they tried to sell me a 20% of purchase price “maintenance package”.
Outside of warranty and recall I am sure the auto industry runs profitable repair centers. Dealers likely pass through costs of repairs (subscriptions to repair manuals, testers etc) and retail prices of “parts”.
At my age next deal will be a lease, with entwined maintenance so I do not get big grief and lease end.
One thing showing up on EV, owners cannot sell them as used w/o huge depreciation. One story about a slightly damaged battery, replacement cost so high the vehicle was salvaged. At least it did not burn in this case.
Does he know that traditional vehicle manufacturers have been lengthening service intervals for a long time now? I remember oil changes at 3,000 miles or you were taking a risk. 6, 75, or 10 thousand now. Major work goes longer between too.
I do know that Subaru sells a lot of caps and jackets and all kinds of bling, and have even seen people buying some, but really?
Yes, replacement parts and service and fixing damage are all very very expensive. No matter where you have them done, dealer or good independent. I learned that very well just yesterday, in fact. But fleets tend to know how long to keep cars, and will sell off a problem a lot faster than some individual who loves his car.
Perhaps Elon should look at what he is charging for fixing Tesla’s that get in minor accidents and need work. Or build cars with better fit and finish. Or cars that don’t have parts that fail. When his reliability record matches the better half of the industry, then he can talk. Or preferably not.
I should not be so closed-minded, but Elon is not a reliable source of information about anything, IMO.