Pub. 55 2014-2015 Issue 3

24 Dealers are able to encourage community engagement through the volunteering of time and services, or through charitable giving. Dealer owners themselves are often members of various local boards or engage in philanthropic initiatives focused on local issues. Cost Savings to Drivers It is thought that direct to consumer sales would result in sig- nificant cost savings. It seems logical that, if you sell directly to consumers, then there should be fewer costs and those cost savings would be passed to the consumer. The reality of the situation is not quite so clear. First of all, manufacturers are public companies. Their primary loyalties are not to the consumer but to shareholders. Even if manufacturers were able to create greater efficiencies in the car selling process, it is not likely the associated cost savings would be passed along to the consumer. Rather, any savings would go toward benefitting the bottom line, paying dividends, or distribut- ing executive bonuses. On the other hand, dealerships operate in one of the most competitive environments in the free market. The fierce com- petition requires dealers to provide excellent customer service and low prices. If a dealer’s prices are not competitive, they are not likely to succeed. The cost to dealers has increased from $12,984 in 1988 to $30,562 in 2013, a 135.4% increase. In order to keep costs to the consumer down, gross profits have only increased by $42. Dealers are absorbing more of the increased costs frommanufacturers and taking lower margins. Of the total increased costs to consumers, $17,620 for the aver- age vehicle, manufacturers are adding 99.76% of that cost, while dealers are adding a mere 0.24%. The increase in vehicle costs are being driven by manufacturers. While the dealers may be seen as a “middle man,” they are a constant advocate for the consumer. Dealer networks are en- trenched in the economy and they carry considerable sway. When necessary, they are able to act with a unified voice to achieve a common goal. Consumers are the primary beneficiary of this collective power because a dealer’s loyalties are to the customer. Moreover, dealerships are not – and have not – captured the increased costs over the last few decades. Profit margins for dealers in 2013 were 3.78%.That margin has decreased since 1988, when they stood at 8.19%. The cost to dealers has increased from $12,984 in 1988 to $30,562 in 2013, a 135.4% increase. In order to keep costs to the consumer down, gross profits have only increased by $42. Dealers are absorbing more of the increased costs frommanufacturers and taking lower margins. Of the total increased costs to consumers, $17,620 for the aver- age vehicle, manufacturers are adding 99.76% of that cost, while dealers are adding a mere 0.24%. The increase in vehicle costs are being driven by manufacturers. Savings to Taxpayers Texas dealers operate without incentives, such as tax exemptions or abatements, which are typically offered to businesses relocat- ing to Texas. Dealers are also not compensated for collecting and remitting $3.5 billion in taxes and fees. Shifts away from Franchise Laws are likely to indirectly affect the amount of incentive offerings. As incentive packages increase, so do expenses to taxpayers. Safety More important than monetary benefits, dealers add a level of safety for drivers. Dealerships perform safety recalls, routine maintenance, and service repairs. There is a dealer within minutes of every household in Texas. Consumer access to dealerships is critical to having cars on the road that are in good working condition. While not everyone does routine maintenance through dealerships, they are often the only option for specialized repairs because they carry parts that general mechanics do not. Fewer dealers would result in longer drive times in order to have maintenance and repairs completed. The implication is that consumers will be forced to drive vehicles that are potentially unsafe for longer distances. The same is true of safety recalls. Vehicles with safety issues will have to spend more time on the road before those issues can be resolved. Additionally, dealerships are responsible for safety recalls even if the manufacturer is no longer in business. The alternative to driving the potentially unsafe vehicle is to have it towed. However, this poses significant costs to the consumer. This is especially true since most towing services are designed to service local need – five to 10 miles. Beyond that, towing services may charge a fixed fee per mile and can quickly become very expensive. For some, the limited access and increased costs would prevent them frommaintaining their vehicle. At a minimum, the decision to have repairs completed would be delayed. The increase in unsafe vehicles on the road would lead to greater risks for all drivers.   FRANCHISED DEALER — CONTINUED FROM PAGE 23 sult u sell osts mer. eir eate ot ong rd e The llent are hey carry act ctive er. The cost to dealers has increased from $12,984 in 1988 to $30,562 in 2013, a 135.4% increase. In order to keep costs to the consumer down, gross profits have only increased by $42. Dealers are absorbing more of the increased costs from manufacturers and taking lower margins. Of the total increased costs to consumers, $17,620 for the average vehicle, manufacturers are adding 99.76% of that cost, w ile dealers are adding a mere 0.24%.The in rease in v hicl costs are being driven by manufacturers. Savings toTaxpayers Texas dealers operate without incentives, such as tax exemptions or abatements, which are typically offered to Increase in Average New Vehicle Cost Cost to Dealer Gross Profit Cost to Customer 1988 $12,984 $1,158 $14,142 2013 $30,562 $1,200 $31,762 Increase $17,578 $42 $17,620 Where Profits are Going From Mfg From Dealer Increased Cost $17,578 $42 % of Total Increase 99.76% 0.24% Source: TADA