Friday, October 28, 2016

Servicing Moat?

I was sitting comfortably on the white plush couches at my local car dealership, enjoying a beverage and a playoff baseball game on the huge-screen tv when my "service advisor" called me with some troubling news. Apparently the routine servicing had uncovered something troubling: my car's gobbledygook thingamajig could use an aardvarking. At least, that's what it sounded like to me, someone who knows nothing about cars.

And this is a routine occurrence for me whenever I take my car in for servicing. What starts out as a couple hundred bucks worth of work morphs into half a K of an under-the-hood, incomprehensible operation. Maybe I have sucker written all over my face, but I'm probably not the only one. Car dealerships have some of us over a barrel when it comes to servicing, so it's no surprise that this is the area in which they make all their money.

But does this translate into a competitive advantage? I don't think it does, because to get customers to this over-the-barrel point, they first have to sell you the car. And knowing how valuable the service customer is, they are willing to sell cars at a loss in a highly competitive bid to land the service suckerscustomers.

So is there something a customer can do to protect himself? I suspect only owning/leasing cars that are under warranty could help: this way you only transact with the dealership in areas where they have the least (or sometimes even negative) gross margin. But the flip side of this is that you're owning the car during its highest years of depreciation, so in a way you're paying for that warranty unless you really value newness.

It's time I got a new car. Any advice from the car guys out there who are also value guys on how to get the most for the least?


Karl Hungus said...

How about don't get your car serviced at the dealership. Find a reputable, trustworthy independent mechanic. Search costs are higher, but you will save a ton of money over the life of your car.

Michael Wu said...

Ha!Ha! I can't help laughing when reading this. Very funny writing! It was said that auto dealer is one of the two groups of people that are the most untrusted( don't remember what the other group is, maybe politicians). It will always be a pain for a value investor to buy a new car simply because there is no bargain. If you like it, I would say tesla's car offers quite a good value for its price, especially the next model 3.

BTW, AutoCanada is quite a good stock and worths looking into.

Unknown said...

Get a 2 year old Lexus. This will be your best combination of minimizing depreciation and repairs. Or go 100% electric with a tesla. The latter is only worth it if you drive a lot! If you have to drive a German car getting a certified pre owned vehicle which is 1 year old will usually save you money and give you an extra year of warranty vs the same car new. Avoid German v8s if you can and try and Find a low mileage non turbo car assuming you don't need speed! My $0.02

Dean said...

buy something a 2-3 years old and be patient when you purchase.
potentially just use ride sharing (Uber)

Sachin said...

I bought a used Tesla Model S and it has been the best car I have ever owned with literally no service costs. I bought it directly from Tesla Motors so I got a 4 year warranty that basically covers everything except for tires.

Mine was 2 years old and had about 25K miles and I saved over $30K from the sticker price. I feel like I got a great deal that saved me from bearing the brunt of the depreciation. It's been a year and I'm pretty sure I can sell it for just $5k less than what I bought it for.

Last, electricity is so cheap compared to gas (in my state of Texas). My cost is equivalent to about $.50 per gallon, and the quality, speed, and experience with the car has been amazing. They even pick up the car and drop it off when I have any issue!