Here's How the Dealer Is Set up to Shaft You on Your Car Service
Sparesbox has been running for a little over 2 years now, and in that time, we’ve supplied thousands of people nationwide with millions of dollars worth of car parts. Being able to truly service the people of Australia while filling a glaring market hole is something we’re incredibly proud of, but we’ve realised that most people probably won’t know exactly what part of the game we’re setting out to change.
Heading just about anywhere to get your car service, you generally don’t really leave with a sense of total ease at what you’ve paid for. That’s not to say there aren’t good, genuine mechanics out there. There definitely are, and in fact, we employ them ourselves. Nonetheless, unless you’re in the know, you don’t quite realise exactly what you’ve paid for. Why was that factory oil change $80 when a bottle would cost $50 down at your local Auto store?
Well, in the first part of a little series we thought we’d do on the general pitfalls of the auto service industry, that’s what we want to answer. We don’t want to sell to you, nor do we want to brag anymore about what it is we do. We think we do that well enough already! Our goal here is to let you know, with the help of the industry insiders that make up our team, exactly how the game is set up to make sure the house always ends up winning.
The Printer & Ink Model
Anyone who’s ever taken a trip to an office supplies store will attest to the utter ridiculousness of buying printer ink. Most of the time, it’s cheaper to buy a printer with ink cartridges (even if they are half-full) than it is to buy the full cartridges themselves. A trip to the dealer is set up to hit your wallet in exactly the same way. Here’s how.
By the way, it’s important to note that dealers are separate entities from the manufacturers themselves, and buy cars at somewhere around cost price from whatever manufacturer they’re dealing with. Most of the time, this car has been sold to the dealership for a price that’s eye-wateringly cheap, and sometimes even at a loss. For every car a manfuacturer sells to*a dealership, they make either a marginal gain or take a hit to the bank balance altogether. Whatever profits have been made selling it on to you go straight to the dealer. So, if*you’ve ever wondered why car dealerships remain open despite the fact that the car company itself is in complete crisis, there’s your answer.
Often, the manufacturers can make some of this back by selling premium models for more money, but when it comes to buying cars, most people aren’t going to be persuaded to pay an extra 10 or 20k on additional luxuries unless they really want to. They’ll go for the value option. This naturally leaves the manufacturer in a bit of a tight spot when it comes to squeezing profits out of their cars. So how do they do it?
The answer lies in the components that make it up. Speaking to Leon, our managing director who once worked as a parts buyer for two of Australia’s biggest car brands, he sums it up pretty well.
“Similar to how you buy your printer, car companies rely heavily on the aftermarket sales and service of vehicles to generate long term recurring profits, simply because they don’t make money on a car. When I started the job I was surprised to see just how low the price of components are at the original equipment level when they’re put into the car for the first time. It really is mindbogglingly low.
“There’s a few reasons for this. They make them at high volume, they make them at large scale, they make one part all day long and they don’t make 10 or 20 different parts in a run, so they can just get them out at really cost effective prices. Once a spare finally gets to a dealer, there could be up to a 1000% markup, making it 10 times more expensive than what the manufacturer paid to put the part into the car at the factory.
You would have seen probably many examples where people have made a car up from spare parts and they’re three, four, five, six times more expensive than the car would cost.”
Ultimately, this filters down into your dealership service quote. Your labour costs may go towards actually paying the mechanics servicing your car, but we’d estimate that at least 70% of the amount you pay for parts are going towards inflating the bank balance of your car’s manufacturer.*Keep in mind as well, manufacturers don’t actually make the parts going into their car. Why risk making their own braking systems when they could get experts to develop, test and manufacture them for less money?
Within this though, lies the opportunity for not only us, but for you. Most of the manufacturers who make OE parts for the world’s biggest manufacturers also sell directly to the aftermarket. They’re still selling the same parts, just in a different box, and often for far less, and there’s nothing stopping you from buying them at anywhere up to half the price of what you’d pay at the dealer.
Ultimately, it’s a heck of a murky industry, and above all, that’s what we think needs to be changed. It’s the product of old-fashioned thinking and a desire to stick to the status quo that’s outlasted just about every other industry across the decades.*If the auto industry was more adaptable, it wouldn’t have to overcharge people to make a profit, and we want to show that these days, you don’t.