By on October 8, 2012

Tesla’s sales model, with factory-run outlets selling directly to customers, is coming under fire while dealer groups such as NADA are citing the apparent illegality of factory-owned sales outlets.

Dealers are worried that Tesla’s method, which allows for online reservations of vehicles in addition to the shopping mall showrooms, will marginalize their way of selling vehicles. This fear was articulated by Bob O’Koniweski, executive VP of the Massachusetts State Automobile Dealers Association, who told Automotive News

“If a manufacturer sees that Tesla is successful with this kind of business model, who’s to say they don’t break out their own EV product lines and create a separate system that bypasses dealers?…It’s extremely problematic.”

Tesla has apparently bypassed existing dealer franchise laws by offering online reservations if sales cannot be conducted on site. Dealers have asked four states to conduct investigations into the legality of Tesla’s sales model. Meanwhile, the chairman of NADA issued this rather ominous statement

“Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sales increase, NADA is confident it will re-examine its business model…Other companies such as Daewoo did. All companies should be complying with existing laws in the same way dealers are required to.”

Tesla has denied that it is trying to reboot the existing sales model, with George Blankenship, their VP of Sales, telling AN “That’s the last thing on our agenda.”

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166 Comments on “Tesla Factory Stores Under Fire From Dealer Groups...”


  • avatar
    npaladin2000

    At Tesla’s current sales volume, independent dealer franchises probably don’t provide enough of a value-add. That may change later on, but right now this sounds like dealers not being happy about being cut out of the loop.

    • 0 avatar
      jmo

      “independent dealer franchises probably don’t provide enough of a value-add.”

      What value add do they provide Toyota or Ford?

      • 0 avatar
        CJinSD

        Ford exists because Henry was able to force his dealers to buy 30,000 unwanted cars when he had a capital shortage in 1920. He didn’t have Obama’s Department of Energy in his pocket like Elon Musk does.

      • 0 avatar
        Pch101

        When you buy your packaged meat, you don’t buy it at the Oscar Mayer Meat Emporium. When you buy your frozen vegetables, you don’t get them from the Green Giant Vegetable Store. When you buy your soap, you don’t purchase it from the Proctor and Gamble Soap Shoppe. Instead, you get all of them at your local supermarket.

        Retailers usually aren’t good at production, and vice versa. The skills involved are different, as are the associated risks. It’s not unusual for the producer and retailer to be separate entities. The Apples of the world are more of an exception than the rule.

      • 0 avatar
        CJinSD

        I know people that bought their houses from the home builders. Cars are closer to houses that they are to bars of soap for the most part, but I used to love going to the Hostess store when I was a kid. I’ve also bought meet from butchers, bread from bakers, beer from brewers, produce from farmers, etc… It was all pretty much better than what you get from large supermarket franchises too. Hmm….

      • 0 avatar
        Pch101

        For every loaf of bread sold by your local baker, there are dozens sold at area supermarkets.

        And the baker probably doesn’t grow his own grain. If he does, he’d be an exception among bakers.

        Every role that a company tries to serve within the supply chain is another role that it can potentially screw up. There are enough risks associated with manufacturing to limit car makers from getting too heavily involved in the retail side of the business. Tesla has no choice, since it’s small, but a larger company is probably better off leaving most of the retailing to somebody else.

      • 0 avatar
        jmo

        Pch101,

        “When you buy your packaged meat, you don’t buy it at the Oscar Mayer Meat Emporium. When you buy your frozen vegetables, you don’t get them from the Green Giant Vegetable Store.”

        When I went car shopping I went to a stand alone Volvo dealer, a stand along Subaru dealer and a stand along VW dealer. That seems pretty common, at least in my area. They were all part of a larger dealer group, sure. But, each brand had it’s own store.

        That being the case, where is the value add?

        If I could go to Bob’s car warehouse and they sold everything from Aston Martin to Zonda under one giant roof, that would be one thing. But, that doesn’t seem to be the way it works in most places.

      • 0 avatar
        Pch101

        “That being the case, where is the value add?”

        I just explained it. Retailing and production are separate skills. Many businesses that are good at one of them will not be good at the other. You wouldn’t expect your local Ford dealer to start building Mustangs, would you?

      • 0 avatar
        redav

        pch, that doesn’t explain any value added.

        It shows where there may be value added, but if a producer is also a good seller, then your point is moot.

      • 0 avatar
        Pch101

        Of course, it explains the value added.

        The manufacturer would get little to no benefit from being in the retail side. Yet to get that lack of benefit, it would acquire downside risk.

        The margins on new car sales are slim. It’s already challenging enough to make money on the production side. Why assume the risk at something at which you have no experience and that you may not be good at, when the returns are not promising?

        By having franchised dealers, the producers get to avoid the retail side of the business. The benefit comes from being able to focus on what you’re good at.

      • 0 avatar
        cugrad

        If I were the manufacturers, I would fight for the right to build my own service centers under the auspices of quality control and fraud prevention (see video). Take the rug out from under the dealers financially. When they fold, you can cry to Congress about those corrupt states putting you out of business with incompetent dealers and maybe get somewhere.

      • 0 avatar
        jmo

        “You wouldn’t expect your local Ford dealer to start building Mustangs, would you?”

        I don’t know as that would currently be illegal in all(?) states?

        I recall Bill Boeing merged Boeing Aircraft, Pratt & Whitney and United Airlines to form a vertically integrated air transport company. IIRC that was broken up on antitrust grounds. I believe antitrust was also a justification for state franchise laws.

        If it was so self evident that vertical integration was a bad idea, the market would reflect that and legal prohibitions wouldn’t be required. The fact that we have laws to prevent such things would tend to indicate there is value in vertical integration.

      • 0 avatar
        Pch101

        “The fact that we have laws to prevent such things would tend to indicate there is value in vertical integration.”

        Vertical integration was all the rage a century ago. The business model proved to be flawed.

        You are assuming that manufacturers would be good at retail or that they can do it profitably. There’s no reason to assume either of those positions, and plenty of reasons to presume the contrary.

      • 0 avatar
        jmo

        “The business model proved to be flawed.”

        It wasn’t so much flawed as legislated out of existence. With the internet and other developments I don’t know that the original justification for the prohibition still makes sense.

      • 0 avatar
        Pch101

        You have made several comments on the subject, but you have to make even one that explains why a producer should want to get into retail. It seems to appeal to you personally, yet you can’t articulate a single benefit that the producer gets out of it or even one reason to believe that they’d be any good at it.

        Most businesses in most industries limit their place in the supply chain because they have certain talents while lacking others. Producers often avoid retail because they are adept at producing stuff, but not particularly good at putting it into the hands of the end user. It is normal for producers not to retail their own goods.

      • 0 avatar
        DeadWeight

        I’ve long advocated direct selling to consumers from manufacturers.

        It would cut transaction prices by 7% to 10% EASILY.

        Manufacturers could place sales and service kiosks that could be 1/5th the footprint of a traditional dealer (since there wouldn’t have to be 300 vehicles on the lot), customers could go and test drive the vehicle they are thinking about buying & if they like what they see, order the vehicle at the kiosk.

        There’d be a separate kiosk, maybe adjacent to the sales kiosk, for service & repair.

        Customers would be dealing directly with the manufacturer, so the manufacturer would have even more incentive to compete harder in terms of customer satisfaction, with no cumbersome dealer to screw things up, complicate communications, frustrate customers, and act in terms of their own best interests, at the expense of the customer.

        Wahh Wahhh Wahhhhh Auto Dealers. They’d lose their franchises, which were granted to them by divine right.

        Dealer franchises would have to learn and invest in a new business or maybe even apply for jobs at the manufacturer kiosks. Such is the competitive nature of the business world.

      • 0 avatar
        jmo

        You have made several comments on the subject, but you have to make even one that explains why a producer should want to get into retail.

        To better control the customer retail experience. Take VW for example, poor experience with dealers is one of their biggest issues. I think could also be said for Toyota dealers, the cars sell in spite of them, not because of them.

      • 0 avatar
        Pch101

        “To better control the customer retail experience”

        Again, why do you simply assume that they’d be any better at it? If anything, I would expect it to be the opposite, since they have no experience with it and would see every concession made to the customer as an erosion of their margins.

        Vertical integration would be sure to bring only one thing: Higher prices.

      • 0 avatar
        th009

        @Pch101, “Retailers usually aren’t good at production, and vice versa. (…) The Apples of the world are more of an exception than the rule.”

        Apple doesn’t do manufacturing, that’s all outsourced to the far east. Apple does design, marketing and retailing, that’s it.

      • 0 avatar
        jmo

        “I would expect it to be the opposite, since they have no experience with it”

        I would assume they would hire people with experience. No law says they have to have retail run by the VP of Transmissions.

      • 0 avatar
        Pch101

        “I would assume they would hire people with experience.”

        And that guarantees success, now does it? If only everyone who ran companies knew how simple it all was!

        Your approach to this is quite naive. Most companies that are good at something still aren’t good at everything. They specialize in one or two levels of the supply chain because those suit their core competencies.

      • 0 avatar
        jmo

        And that guarantees success, now does it?

        At least in terms of the retail experience, the current franchised dealers system is an epic fail.

        Also, if you’re so right why do we have laws against manufacturer owned dealerships? If it was such a bad idea it would have failed on its own merits.

      • 0 avatar
        Pch101

        “At least in terms of the retail experience, the current franchised dealers system is an epic fail.”

        For the producers, it’s a good model because they don’t have to deal with the day-to-day grind of B2C sales. Just as Bird’s Eye doesn’t want to interact with you to sell corn, Ford doesn’t need to get into the polyester suit business to sell Mustangs, or worry about managing used car inventories, or make sure that the mechanics report for duty on Monday morning after a heavy round of drinking. They can focus on designing and building cars, which is what they know how to do best.

      • 0 avatar
        jmo

        Pch101,

        Again, if you are as right as you think you are we wouldn’t need laws to prohibit manufacturer owned dealerships, would we?

      • 0 avatar
        Pch101

        Vertical integration leads to higher prices. The laws outlawing vertical integration exist because of the chilling effect that vertical integration has on competition.

        In a free enterprise system, the goal is to encourage competition. There was once a tine about a century ago when businesses tried to vertically integrate everything, which is why these laws exist. But we have mostly gotten past that, since we have come to realize that vertical integration isn’t necessary good for most businesses, either.

      • 0 avatar
        jmo

        “Vertical integration leads to higher prices. The laws outlawing vertical integration exist because of the chilling effect that vertical integration has on competition.”

        So, your theory is that prices would be higher without the franchised dealers? I think that’s patently ridiculous.

        In order for your theory to hold water, we’d have to assume dealers aren’t frantically attempting to preserve their legal protections so they can continue to extract rents from consumers and manufacturers, they are doing it out of the kindness of their hearts.

      • 0 avatar
        Dan

        Vertical integration is a failure? Tell AAPL.

      • 0 avatar
        campocaceres

        What about, for example, BMW’s European delivery program? Seems to me like you save money precisely because you take the dealer out of some of the equation (as much as possible anyway, as is my understanding).

        http://www.bimmerfest.com/wiki/index.php/ED_Summary

        I’m still not buying this whole dealer value-add argument. The necessity of the dealer from the customer standpoint is largely unnecessary in this information age. Local marketing may be done by dealers, but global marketing still comes from the manufacturer. Maybe on the non-customer side, I know nothing about that. But I’ve yet to see anything beyond “X company from Y industry does this, so it applies to auto sales too.”

      • 0 avatar
        Pch101

        “your theory is that prices would be higher without the franchised dealers?”

        When I studied economics, I learned that competition usually results in lower prices. I’m pretty sure that the basic theory of supply and demand hasn’t changed since then.

        “Tell AAPL.”

        Dan, go to the chalkboard and write this 100 times:

        The exception does not disprove the rule.

        The exception does not disprove the rule.

        The exception does not disprove the rule…

        “What about, for example, BMW’s European delivery program?”

        If you know how to negotiate, then you will pay less to the dealer to take delivery here than you would pay for European delivery. The benefit of European delivery is an excuse to take a vacation to Europe, not a better price.

        In any case, European delivery proves a point that you weren’t trying to prove, namely that it’s not a very good way to move a high volume of product. If BMW tried to sell cars exclusively through that method, then it would have failed a long time ago.

      • 0 avatar
        Sutures

        I actually agree with DeadWeight for once… I feel so dirty.

      • 0 avatar
        stuart

        AAPL isn’t vertically integrated.

        AAPL doesn’t *make* anything beyond software. All their hardware is produced by other firms: Foxconn, Pegatron, Samsung, Intel, &etc.

        AAPL didn’t open their stores to make money via retail. Jobs explained it when he opened the first store: then-existing AAPL retailers did a lousy job of showcasing and selling AAPL products. The stores were created strictly as a marketing device; think of them as a “consumer education” effort.

        AAPL gets lots of notice on Wall Street because their stores have amazing $/sq-ft ratios, but those numbers ignore what AAPL spends renting and staffing those prestigious locations. I suspect that the APPL stores are profitable overall, but that’s only gravy for AAPL; the big win of those stores is how many customers they convert to AAPL.

        Likewise the iTunes Music Store. AAPL doesn’t own any music, TV shows, movies, podcasts… nothing. The ITMS exists solely to make it easy for AAPL customers to enjoy their iDevices. Yes, the ITMS makes money, but that’s not the point: the point is that the ease of buying stuff for your iDevice is a feature. The ITMS makes iDevices more valuable to iCustomers.

        AAPL still makes most of their money selling iDevices.

        stuart

      • 0 avatar
        jmo

        “When I studied economics”

        You must have be out the day they discussed rent seeking.

        http://en.wikipedia.org/wiki/Rent-seeking

      • 0 avatar
        Pch101

        “Rent seeking” is completely irrelevant to this discussion. You may as well have provided links to pages about cinnamon rolls or Labradoodles, since they’re both equally as relevant.

      • 0 avatar
        jmo

        ““Rent seeking” is completely irrelevant to this discussion. ”

        Just because you say it doesn’t make it so. Auto dealers and state franchise laws are a perfect example of rent seeking.

      • 0 avatar
        Pch101

        If you owned a Burger King franchise and the parent company wanted to open a store next to yours and temporarily cut pricing in an effort to put you out of business, then you’d also want protection from the parent company.

        “Rent seeking” in the context that you’re using it isn’t an economic term, but an insult that disciples (and in this case, former disciples) of Ayn Rand use to describe people who they dislike, i.e. welfare queens and other dole collectors. It may seem clever, but it isn’t helpful to use terminology out of context.

        You’re confusing a bunch of concepts. I get it — you don’t like car dealers. (Who does?) You’d like to get better service.

        But you ignore all of the reasons why the current model suits the producers of the cars. And the alternative that you are suggesting would increase their bureaucratic overhead and risk, which necessarily requires higher pricing to cover the added cost and risk.

        Maybe you want to pay Apple Store prices for cars, but a lot of us won’t like it very much if we actually have to pay for those markups. Americans have some of the lowest new car prices in the world, and the lack of vertical integration and intensity of the competition at the retail level are two of the reasons why that is.

      • 0 avatar
        jmo

        “If you owned a Burger King franchise and the parent company wanted to open a store next to yours and temporarily cut pricing in an effort to put you out of business, then you’d also want protection from the parent company.”

        And you do, your franchise agreement with Burger King. I’m not objecting to private contractual agreements. What I’m objecting to is the state prohibiting willing manufacturers from selling cars directly to willing buyers.

        If it’s as bad an idea as you seem to think it is, it will fail on its own merits. I can’t see what you think the state needs to decide these things.

      • 0 avatar
        Pch101

        The point remains that the desire to protect the value of one’s franchise is not an example of rent seeking. The method used to protect it is beside the point.

        Franchises are unique businesses because they require some element of exclusivity on the part of the retailer. The retailer assumes certain risks in providing that exclusivity to the producer. It is understandable that a franchisee who has incurred such risks would want to be protected in consideration for assuming those risks.

        You described franchise laws as “rent seeking” not because that’s what they are (since they aren’t), but because you dislike the car dealers who want such laws. I am not a fan of car dealers myself, but I don’t feel the need to improperly label their actions in the process.

      • 0 avatar
        jmo

        “The point remains that the desire to protect the value of one’s franchise is not an example of rent seeking.”

        It is when you use cause to be passed laws that unfairly protect your franchise.

        “The method used to protect it is beside the point.”

        It’s exactly the point.

      • 0 avatar
        Pch101

        As I noted, “rent seeking” in this context is a hollow pejorative that is used by conservatives to criticize people who they dislike. You might as well say that the dealers are mean and lazy and rude and unkind to puppies and wear ugly suits.

        It’s useless jargon because it doesn’t really tell us anything about the issue at hand, except for the fact that you’re upset about the individuals in question. And because we already knew that you were upset, the jargon didn’t add any value at all.

      • 0 avatar
        CJinSD

        So basically the manufacturers want to control retailing to protect their brand and retain customers. The customers want to be freed from the dealer franchise system, as dealer treatment of customers is almost universally reviled. Do people tell twenty year old horror stories about service received at the grocery store or Baby Gap? That’s why car dealers need laws to protect their racket, and that is why they are no more than rent seekers when they deploy their corrupt politicians.

        Does it matter that you think dealers have unique expertise? It is to laugh. Many dealers turn over staff faster than they do inventory. They hire by the classroom full biweekly and never add head count. The only token efforts in customer service are to appease manufacturer conducted customer satisfaction polls. Being considered an unnecessary misery by supplier and customer alike doesn’t point to any intrinsic value.

      • 0 avatar
        kezeka

        I agree with jmo. I don’t see any value added from most dealerships. In fact, most young adults (such as myself) would rather not have to deal with some sleezy salesman and just purchase the car. When it has troubles, we just want to bring it in and get charged the same price for repairs regardless of where we go. Much in the same way Apple does business. There is no bartering, there is no change in price from region to region, and there is very little variation in the amount of customer service you get at any given region because they are all trained to the same corporate dialog.

        Additionally, Apple doesn’t just “design, market, and retail” their products. They also do the overwhelming amount of mid level engineering on most of their devices. The new iPhone A6 processor was developed ENTIRELY in house and from scratch. The design was painstakingly hand laid by engineer for maximal efficiency. Their laptops may run on a few standard parts manufactured by other companies, but the drivers are entirely re-written by apple in order to conserve as much energy as possible. The daughter boards are also laid out painstakingly by hand in many instances. In order to develop “retina” or high resolution displays they invested a substantial amount of money into LG and (I think) Sharp or maybe toshiba (correct me if I am wrong) in order to pay for the retooling of their factories to build the display that they had engineered in conjunction with the manufacturers.

        My points are these
        1) Manufacturers (Apple, or in this case Tesla) should be allowed to sell directly to customers if they think that that is preferrable. I know MANY consumers in my generation who prefer this to big box retail (just look at how best buy/circuit city/etc. are doing).
        2) Apple is not just a design company. I would suggest reading more on the topic before commenting on whatever you read in your local paper or some tech blog.

      • 0 avatar
        th009

        @kezeka, I included Apple’s hardware design under “design”. The point is, they have farmed out their manufacturing to low-rent companies and countries. They are not a manufacturing company.

      • 0 avatar
        mike978

        I agree with CJ, staff turnover is usually so great you have to question what value they are adding.
        I accept the point that Manufacturers get something out of this arrangement. But why not let manufacturers choose rather than have laws saying they have to have independent dealers.
        Someone like VW who needs to improve customer service would have a greater ability to do that if they owned the showroom. If I had a complaint all they could do is write to the dealer and slap them on the wrist. They are not going to do much more, whereas if they owned the showroom they could make changes as necessary. Talking of bureaucratic overhead, there is overhead involved in getting hundreds of independent dealers all on the same page with regards showroom appearance, incentives and other corporate policies.
        So in the end neither option is 100% perfect, but at least allow companies to make the choice.

    • 0 avatar
      indi500fan

      My buddies’ daughter just put down 5 grand on a Tesla SUV that won’t even be mfg until 2014. They must have some AWESOME salespersons….

      • 0 avatar
        28-Cars-Later

        Not to impune, but a fool and her money…

      • 0 avatar
        jmo

        “Not to impune, but a fool and her money…”

        Irrational haters gotta hate irrationally.

      • 0 avatar
        28-Cars-Later

        “Irrational haters gotta hate irrationally.”

        +1

      • 0 avatar
        DeadWeight

        Here’s a decent summary & analysis of these laws barring manufacturer direct sales & their consequences. Its conclusion pretty much lines up with the majority consensus in the comments section here, which is that the legal bar against direct manufacturer sales raises transaction prices needlessly, and that manufacturers would compete aggressively in selling vehicles directly to the public if they were allowed to do os.

        Economic Effects of State Bans on Direct
        Manufacturer Sales to Car Buyers

        by Gerald R. Bodisch*
        EAG 09-1 CA May 2009

        http://www.justice.gov/atr/public/eag/246374.htm

  • avatar
    CJinSD

    http://www.camaro5.com/forums/showthread.php?t=254111&highlight=easley

    Without franchised dealers, how are you ever going to get service like this Camaro owner received from two Chevrolet dealers? Actually, I’m kidding. GM didn’t care that their franchisee trashed their customer’s car and committed fraud against the customer and GM’s warranty department. They told the Camaro owner to go pound wood, it was a dealer issue and no concern of theirs. People that still buy GM cars are paying the nitwit tax as ever.

    • 0 avatar

      In other words, if Tesla do not mistreat, abuse, and defraud their customers, they do not need the useful isolation that notionally independent dealers provide. Okay, I can see that. But what about the state laws that establish dealers in the same way Wagner establishes unions? Useful or not, adding value or not, the dealers are there and they have lawers.

    • 0 avatar
      Wheeljack

      Apparently no one has ever been treated poorly at an import dealer – yeah right. Get a clue.

      • 0 avatar
        CJinSD

        Did you catch the part where he appealed to GM and was told that the dealer trashing his car and committing fraud was his problem? I have never heard of that occurring with an import brand. Maybe every brand is capable of telling someone with a broken car that they’re without recourse, but only GM has been caught telling a customer that criminal behavior is their dealers’ business. Get a clue? Get a GM car.

      • 0 avatar
        Wheeljack

        The manufacturer cannot do anything about dealership employees – it’s just that simple. Nor is a manufacturer going to buy back a vehicle because a dealer did some hooning in a customer car. I’m not sure why that is so hard to understand – the dealer is an independent business and the very franchise laws you all are bemoaning establish that fact, regardless of manufacturer affiliation.

        As far as the “fraud” accusation, at this point, it’s just that – an accusation. I wouldn’t be surprised though if GM has their regional office keeping a closer eye on this guys claims though, and if they can make an viable excuse (that will stand up in court) to audit their records, they may just do that.

      • 0 avatar
        CJinSD

        It is an accusation with an audio tape of dealer employees stating how they defraud customers and GM’s warranty and stating intent to do it again. Don’t worry though. I’m not sympathetic of anyone that would still buy a GM car, so it doesn’t bother me.

      • 0 avatar
        Wheeljack

        And again, it’s just an employee making a statement which may or may not be B.S. It’s up to GM to find a solid reason to go in and do a warranty audit. I know you can’t understand this, but a heresay statement on a tape from a person who doesn’t actually file the warranty claims for the dealership isn’t a legally defensable reason to waltz in and do an audit.

      • 0 avatar
        CJinSD

        GM doing nothing for their customer in this instance isn’t defensible either.

      • 0 avatar
        Wheeljack

        Sure it is, because the dealer is 100% at fault for what happened. If GM intervened, it would send a message to other dealers that “hey, we can do whatever we want because GM will clean up our mess.” And what would you have GM do anyway? Nothing would make you happy since you have such a seething hate for all things GM, but the reality is that since GM cannot punish the dealer LEGALLY for hooning the customer’s car, there’s really nothing they can do. Buying the car back or giving the customer another car is not a reasonable solution. Beyond that, GM probably will be watching this dealer’s warranty claims now with a bit more of an eagle eye.

        As much as you want to believe an import brand would have given the customer a new car, an all-expenses paid vacation for 4 to Fiji and a new house in an upscale, gated community for the offense, it still doesn’t make it so. They would have handled it in much the same manner thanks to franchise laws and the minimal control they allow a manufacturer to exert over dealership staff. Also, have you ever considered that this customer is one of those types who cannot be satisfied no matter what, and read into the most innocuous of statements from a GM customer service phone agent some sort of affront? We’re only hearing one side of the story here – the guy could have been a total jerk on the phone, cursing and making ridiculous demands. But you go on and belive what you want to believe because it serves your agenda of bashing GM at all costs.

        In this case, the customer needs to either get an attorney or approach the dealer principal with the tape and drop the hint that they may go to the local news with it. That’s the easiest way to get what they want and perhaps drive some behavioral change at the dealer.

  • avatar
    cwallace

    So, wait, NADA is encouraging Tesla to handle their sales the way Daewoo did? A defunct-in-the-US brand is the best analogue NADA can come up with? Good stuff, boys, Tesla has only to look back on the glimmering example of Daewoo to see things our way. Off to the pub.

  • avatar
    el scotto

    In these enlightened times you can buy just about anything off the internet except a new car. Yes, there are DEALERS who advertise on E-bay. Expect car dealers to fight to keep their state’s franchise laws completely and totally intact. Direct sales is a slap in the face to them and most importantly would hurt their wallets.

  • avatar
    axual

    Memo to Bob O’Koniweski:

    It’s the 21st century. Deal with it.

    I can tell you that the dealer model is broken. I know far more than the sales rep on any dealer showroom. Time for a change, wouldn’t you think Bob?

    • 0 avatar
      jkross22

      This whole ‘internet’ thing is a fad.

      • 0 avatar
        DeadWeight

        Two fantastic (/sarc) predictions from way-back-when of Dr. Paul Krugman, Ph.D., Nobel Laureate in Economics, main proponent of Mass Scale Broken Windows Stimulus Program, main proponent of 20 trillion USD “incite hostile extraterrestrials to invade planet earth,” and all around douchebag.

        * “The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law”–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”

        * “As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.”

        http://freethoughtblogs.com/dispatches/2012/07/16/krugmans-predictive-power/

        http://web.archive.org/web/19980610100009/www.redherring.com/mag/issue55/economics.html

  • avatar
    Felix Hoenikker

    Do the state laws require a new manufacturer to sell through a francise even if he doesn’t want to? If so, how does Apple manage to keep the NADA or similar organizaition at bay?

    • 0 avatar
      jmo

      I believe the law only applies to auto manufactures.

    • 0 avatar
      el scotto

      No “Steve” hybrid or “Woz” practical people carrier. No electronics cartel like NADA.

    • 0 avatar
      ranwhenparked

      The laws are carefully tailored so as only to apply to those retailers with the strongest lobbyist groups. Right now, basically car dealers and funeral homes.

      Buying a coffin (which is just a fancy upholstered box, after all) from anyone other than a licensed funeral director is currently illegal in most states. You can’t buy one online, you can’t buy from the manufacturer, you can’t by from a discounter, only from a funeral home at outrageous markups. It’s really no different from what they do with cars – why shouldn’t you have the option of ordering straight from the factory at a quoted sticker price optioned exactly the way you want?

  • avatar
    tikki50

    Honestly, I would expect a corporate run dealership would have better customer service because your directly dealing with a company GM/Toyota/Ford could measure this, right now they are told this. A dealer, well, I think we’ve all been bit by a dealer at somepoint. I for one welcome internet sales. Yes cutting the middle man out here sounds great! Just think of the recall fees corporations wouldnt have to pay. Or customers dealing with price fixing, which in the end reflects poorly on the brand. I mean the dealer is quick to have a huge Ford badge on their lot sign, with some local name under it. I read Ford, and stop about there. We dont see walmarts with a local name under it, and they’ve made car buying much easier, heck yoiu cuild order a car up through a drive through now its so easy. The issue is financing, yep money. Argh……

  • avatar
    Nostrathomas

    I won’t be satisfied till I can buy a car from the comfort of my computer. Pick colors, options, etc etc online….perhaps even give them my final price….and then wait for it to show up at my door (I still have to pay for freight anyway).

    Dealers (or company run stores) can still be there for test-drives/warranty/service work. Chances are cars would be cheaper this way as manufacturers get to cut out the middle man in terms of sales.

  • avatar
    jkross22

    Dealer laws are designed to benefit dealers, not consumers or manufacturers.

  • avatar
    ranwhenparked

    So, the dealers are all afraid that if Tesla’s model works well for them, it might inspire other automakers to follow suit and junk franchises.

    I would say that the fact that they are so worked up about this actually hurts their case.

    If selling through a network of franchised dealers really does return the most value to manufacturers and customers, then they shouldn’t have anything to worry about – just sit back and wait for Tesla to fail and change course – not running to their legislators for protection.

    There are basically two ways to go about selling consumer goods, such as a car. Either the manufacturer sells it direct to the customer themselves, or they sell through a middleman. Tesla has chosen the former, all other automakers have chosen the latter, why is it anyone’s business, other than Tesla shareholders, how they chose to run their company?

    What’s next? Independent vacuum cleaner store owners ganging up and suing Oreck?

    • 0 avatar
      el scotto

      Car dealers have a franchise and a “lock” on selling new cars. Dealers with truckloads of cash will fight this tooth and nail. States have franchisee laws, especially for new car dealerships. Wanna sell new cars? you have to have a franchise. That’s why all this matters.
      Is it silly in these internet times? Yes. Well maybe, if you remember the dot-com boom and bust. Dealer service and quality care? Please bitch.
      I’d like to hear from any former dealers or salesmen on here and get their opinions.

  • avatar
    icemilkcoffee

    Car dealers= useless middlemen. Why would anyone put up with the games the car dealers play, when they can order their own cars online and buy through the manuf. directly?

  • avatar
    Mullholland

    THE GOOD
    Where is the value-add for the auto manufacturer in getting rid of the legally mandated retail car dealer?
    1.) As someone mentioned in the comments above, greater control over the customer’s satisfaction with regard to the shopping/buying/owning experience.
    2.) Fewer filters with their own narrow agendas and more direct consumer data/input from the local marketplace.
    3.) And this is the most important benefit of all, greater control over the marketplace’s perception of the brand from product development to retail sales and ultimately the customer’s experience of the brand.
    THE BAD
    What would manufacturers be giving up in saying goodbye to the current dealer mandated retail model?
    1.) The ability to stuff the sales channel with production that is not supported by current levels of demand. And thereby hide company mismanagement from financial markets or sentient boards of directors.
    2.) The opportunity to strong arm dealers into taking lots of unwanted products to get a few higher desirable (profitable) models.
    3.) The sometimes crucial resource of having a local presence to deal with product recalls, faulty vehicle design or production and “handle” warranty claims. And if the dealer has any spare time, work on badgering/bribing customers to give them high marks for customer satisfaction.

  • avatar
    rushn

    To pch101′s points above:

    - Most manufacturers out there sell their products both direct and through some sort of distribution network. That is true for grain, semiconductor chips or software. The reason is twofold: there are different benefits from both channels and they are legally allowed to do so. Seriously, do I have to bring Apple as example?
    - Vertical integration in itself does not lead to higher prices and is not a “flawed” system. You are playing loose with concepts here. Every company to a certain extent has vertical integration, if they didn’t, you’d have a different company in every janitorial closet. Vertical integration is an issue once it starts getting close to vertical monopoly, a rather grey area for many industries. Again, look at Apple as example.
    - Arguments that car manufacturers might not be good at selling stuff direct are just as good as arguments saying that dealers are going to be better at selling the cars. You have no proof by the virtue of there being no reasonable comparison in this market.

    • 0 avatar
      Pch101

      “Seriously, do I have to bring Apple as example?”

      When I said, “The Apples of the world are more of an exception than the rule”, when I meant by that was that the Apples of the world are more of an exception than the rule.

      Even though you don’t realize it, Apple proves my point, not yours. The fact that the Apple model is not commonly used is a good indication of how rarely it works. The vertically integrated model only works on occasion; it typically doesn’t work.

      The exception does not prove the rule. The exception does not prove the rule. The exception does not prove the rule…

      • 0 avatar
        rushn

        Sorry, Apple is not an exception, it is just a company that is far more noticeable in how much of a control they have. They still do not sell everything direct AND somehow no one says it’s illegal, flying in the face of your earlier comment about vertical integration being illegal.

        Many companies sell both direct and through retail. Let’s go with just a small sampling.

        - Craftsman!
        - Microsoft
        - Logitech
        - Dairy farms (heck, most type of farms! You should know)
        - Wineries
        - Lego
        - Crayola
        - Dell
        - Canon
        - K&N
        - Square Enix

      • 0 avatar
        Pch101

        You just provided a list of companies that sell most of their products primarily through third-party retail channels.

        Again, I know that you won’t realize this, but you’ve actually just proven yourself wrong. If you think that Crayola is going to cut out the middleman by bypassing Toys R Us or Logitech is going to stay out of Office Depot in order to control the channel, then you’re kidding yourself.

      • 0 avatar
        rushn

        It appears that you are being dense on purpose. I specifically mentioned that they do both direct and through retail. So I did not prove anything except that you are unwilling to read beyond whatever you make up in your mind to make it easier to argue.

        The point being made here (read slowly!) is that there is no reason why an auto manufacturer cannot do both, direct and channel sales like a vast number of other companies. Boom! Still with me?

        Saying that they will automatically suck at it, as you have, where there are many companies that succeed both in direct sales and in selling through retailers is just denying reality. Which, I guess explains a lot.

      • 0 avatar
        Pch101

        “The point being made here (read slowly!) is that there is no reason why an auto manufacturer cannot do both, direct and channel sales like a vast number of other companies.”

        It was a bad point the first that you made it. Repeating it won’t help.

        Dealerships are expensive to build and operate. They are solely dedicated to selling one producer’s line of vehicles; they cannot easily switch out of that relationship.

        The last thing that the owner of such a store is going to want is to lose sales to his own supplier. The dealers will understandably balk at such a suggestion, given their dependency upon the supplier and the associated switching costs.

        If the choice is between completely owning the channel and acting as a producer/ wholesaler, then it’s obvious which one makes the most sense for most of the producers. The dealers can move more volume, and every producer who isn’t tiny (such as Tesla) has enough need for economies of scale to care about that volume.

        Read that slowly, several times.

      • 0 avatar
        ihatetrees

        @rushn
        Dairy farms, with their price supports/controls/subsidies, are a poor example for/against integration. They exist within a wonderland legal construct that would give Stalin’s corpse a 10′ woody.

        Legally, Perdue Chicken exists because it’s allowed. Pepsico does not have a Mega-Milk division because it’s verboten.

      • 0 avatar
        rushn

        Speaking of bad points

        “Dealerships are expensive to build and operate. They are solely dedicated to selling one producer’s line of vehicles; they cannot easily switch out of that relationship.”

        How is that relevant? This is about consumer interests, isn’t it? Or it was, until you decided to change the tune. Slick.

        “The last thing that the owner of such a store is going to want is to lose sales to his own supplier. The dealers will understandably balk at such a suggestion, given their dependency upon the supplier and the associated switching costs.”

        I am in an industry where roughly 50% of sales go direct and 50% go through distribution. Everyone complains about everyone else and yet they do just fine. It might have something to do with distribution not having been spoiled by legal protection for many decades.

        And now, off to the biggest whopper you provided, so far ;)

        “If the choice is between completely owning the channel and acting as a producer/ wholesaler, then it’s obvious which one makes the most sense for most of the producers.”

        But that’s not the choice. The choice is either to allow direct sales in ADDITION to selling through the channel or legislate for the channel to be the only way to buy. You are making up a choice that is not consistent with reality, but sure makes it easy to argue.

      • 0 avatar
        Pch101

        “‘Dealerships are expensive to build and operate. They are solely dedicated to selling one producer’s line of vehicles; they cannot easily switch out of that relationship.’ How is that relevant?”

        Well, if you’re an auto manufacturer, then you probably don’t want to spend, oh, let’s say half a billion dollars or so, setting up stores across the country. You’d prefer to spend your time and money doing something else that you are actually good at and have some experience with doing.

        And since no franchisee wants to spend $1-2 million to open a store, only to be gutted by the supplier, then you don’t have the luxury of having both direct sales and a retail network. You have to choose either one or the other.

      • 0 avatar
        Wheeljack

        Craftsman is a brand created by Sears – you cannot buy directly from “Craftsman” because it doesn’t exist except as a brand available through Sears and Kmart stores, as well as a few others. The Craftsman website is owned and run by Sears. Sears does not manufacture any of the Craftsman tools – they are bid out to manufacurers who make them to Sears’ specifications. Danaher Tool Group makes most of the wrenches, ratchets and sockets, Western Forge makes the screwdrivers and pliers, and the power tools are a hodge-podge including Skil, among others.

      • 0 avatar
        CJinSD

        Replace Craftsman with Snap-On. They market directly and persist.

      • 0 avatar
        DeadWeight

        @Pch101 -

        Speaking of your “repeating it doesn’t make it true,” why do you keep claiming manufacturers would fare poorly (or even more poorly than franchise dealers) in retail?

        There’s a massive spread between an assumption and a fact, and you’ve provided absolutely no proof nor evidence for your oft-repeated claim that manufacturers would do more poorly retailing their own vehicles than independent franchise dealers would (let alone provide proof or evidence that manufacturers would NOT do far better in terms of satisfying consumers by selling directly to them).

      • 0 avatar
        Pch101

        “why do you keep claiming manufacturers would fare poorly (or even more poorly than franchise dealers) in retail?”

        I’ve already explained it with a fair bit of detail. I realize that the answer doesn’t appeal to your gut instincts, but I’ve provided numerous reasons why producers are wise to avoid it.

        Ironically enough, Bertel Schmitt wrote an article along these lines about his experience with Volkswagen and its failure to build a network of aftermarket repair shops in Germany: http://www.thetruthaboutcars.com/2011/07/the-autobiography-of-bs%C2%A9-how-i-failed-to-make-volkswagen-lots-of-money/

        What Mr. Schmitt didn’t explain is why it didn’t work. It’s easy to guess why — because VAG is primarily a manufacturing, design and distribution company, not a retailer. It gets excited about designing Golfs and building factories in Mexico and China and Portugal, and it knows how to do those things.

        In contrast, VAG finds Dieter in Dusseldorf and his need for an oil change to be quite boring, and they didn’t want to waste time and resources worrying about such trivialities. Instead of reinventing the wheel, it would have probably been wiser for VAG to have invested some marketing effort in its dealer network in order to earn that aftermarket business, and used the resulting relationship in order to sell more parts and new cars to those customers.

        Starting an entire new business that was far outside of their core competencies was a poor use of that particular company’s limited resources. Dealers probably shouldn’t build cars, and producers probably shouldn’t sell them, at least not in a market like the United States.

      • 0 avatar
        Les

        -Dealerships are expensive to build and operate. <>; they cannot easily switch out of that relationship.-

        Emphasis mine.

        I’m sorry but I have to call you out on this, because this is just a straight-up lie. I know it is, the Nissan/Toyota Dealership tells me so.. as does the Chrysler/Hyundai dealership, the Ford/Kia dealership, the Dodge/Honda dealership and numerous other multi-manufacturer dealerships within driving distance of where I live.

    • 0 avatar
      DeadWeight

      Your VW controlled repair facility example in Germany is a strawman argument, since it’s not an example of retail sales, it deals with another nation where vast differences in laws and culture exist compared with the U.S., and I’m not even willing to concede that it’s relevant or analogous in the least to what’s being discussed here (I happen to think direct sales would work equally as well in most places, including Germany, as it would in the U.S., for many of the same reasons).

      Manufacturers haven’t cut out dealer franchises in the U.S. in large part because of archaic yet quite robust laws interfering with their ability to do so.

      The world of commerce has changed radically since manufacturers began selling mass produced vehicles to the public in the United States. The current structure of highly fragmented, scattershot franchise dealers is a relic of an era where consumers had a literal small fraction of the information compared they do today, and nowhere near the ability (enabled by technology) to research large ticket purchases as quickly and efficiently as they now can.

      • 0 avatar
        Pch101

        “Your VW controlled repair facility example in Germany is a strawman argument.”

        It’s totally on point. (I apologize if this example proves quite plainly how poor your arguments have been.) However, your knowledge of business is based upon theories that you cooked up in your head, so I’m not surprised that you don’t get it.

        VAG is good at building cars. If I want a car, I might consider getting one.

        But if I want a hamburger, then VAG isn’t on my list of people to call. They have no track record with making burgers. They may be smart people and they may even know the difference between a good burger and a bad one, but making burgers just isn’t what they do. There are other guys who know how to do that sort of thing, and the burger guys probably aren’t who you’d call when you need to design and distribute a sporty hatchback.

        Retail and production are different functions. Many companies that are good at one are not good at the other.

        You are naive at best and a buffoon at worst to simply assume that a producer would make a good, or willing, retailer. It’s ridiculous to believe that a company that can’t sell tuneups to retail customers would be any better at selling a car to those same people.

      • 0 avatar
        DeadWeight

        LOL. When all else fails, resort to unsubstantiated, ad hominem attacks…the ultimate tactic of those who can’t formulate a rational & factually driven rebuttal.

        Just as others have stated, I’ve yet to see a single, credible counterpoint made by you responsive to the Apple Store example many have mentioned as a current successful model of manufacturer controlled retail establishments (and yes, regardless of where individual components of Apple’s products are actually produced, Apple is the manufacturer; the average General Motors vehicle has parts sourced from more nations that the iPad does).

      • 0 avatar

        Please refrain from name calling.

        As for the European examples, car companies have quietly or not so quietly bought many large dealer chains in Europe.

        This is the other side of the coin of a very liberal European market when it come to selling and repairing cars. Pretty much ANYBODY can sell a car these days in Europe – including the manufacturer.

      • 0 avatar
        Pch101

        The linked article provides a rather clear example of a producer that failed at a retail business. If you can’t see the connection, then you’re covering your eyes and trying very, very hard not to see it.

        Companies need to have some combination of talent, commitment and capital if they are to be successful at both production and retail. Not everyone has those. In the case of VAG, they clearly didn’t have the necessary level of commitment in that example.

        The problem with Mr. Schmitt’s idea was that he pitched it to the wrong people. They would have preferred to be doing something else. Perhaps an independent repair chain was a good business concept for somebody else, but not for VAG.

  • avatar
    ihatetrees

    While most car dealers are solid businessmen, the slimeball percentage is higher due to explicit state law protection. Manufacturers face a nearly impossible task pulling the plug on a cancer dealers or performing any sort of quality control regarding service.

    Does Average-Camry-Buyer, in the internet era, need a dealer? Maybe a dealer serves a purpose when optioning a 911, but let the market decide. I’d trust the market more than the losers in my state legislature.

    • 0 avatar
      leeboo1211

      I second that sentiment. With the internet, we don’t really need the “expert” knowledge that the dealers are supposed to provide. I would greatly appreciate any sort of direct-sales channel that allows me to bypass the “dealer experience”. Heck, that is the main reason I’ve avoided buying a new car of any sort; I’ve gone online to private sellers exclusively, people who know their cars. I don’t need their supposed expertise and shouldn’t be forced to deal with it.

      The best scenario? Option everything online, just like you do on the online configurators and have it shipped to you at a specific date/time. No hassle, just like ordering a BTO computer from Apple. Or HP or Dell, what have you. I can deal with having to wait for the production time it takes to outfit/build the car. People who need a car RIGHT AWAY can go to the dealerships.

      On another note though, anyone know what the major technical hurdles would be for having just-in-time manufacturing systems in place for automotive manufacturing? I’m assuming it is mainly in the lead time for materials etc…and not necessarily the assembly time.

      • 0 avatar
        joeveto3

        @leebo I imagine there are few technological hurdles to just-in-time automotive mfg, it’s the cost of labor, or more precisely not having the flexibility to quickly adjust labor to market demands. That’s why there’s channel stuffing.

      • 0 avatar
        Micah

        I just toured the Harley-Davidson factory in Kansas City a few weeks ago. They use just-in-time manufacturing, allegedly. No Harley is produced until it is ordered… no channel-stuffing. I don’t see why auto manufacturers couldn’t do the same thing; in fact, it should be easy…

        …except that they couldn’t overproduce and exaggerate the bottom line as they do now.

  • avatar
    stevelovescars

    Having worked for automotive OEMs and dealers in the past, I think this dealer group argument has no legs. Dealer franchise laws are there to protect existing franchisees. For example, if Chevy has a dealer franchise in one town they can’t open a factory owned store 5 miles away and put them out of business… similar to how Subway shouldn’t be competing with their own sandwich franchisees.

    However, if a manufacturer doesn’t have and has never had any franchisees, then there is nobody to protect. There isn’t a law to my knowledge that forces a manufacturer of anything to sell through a franchised dealer but once you sell franchises it’s very difficult to get rid of them.

    I think the biggest reason OEMs went with an independent dealer model in the first place was simply capital. Ford or GM didn’t have the cash to open stores in every town in the U.S. but independent business people were willing to make those investments. Tesla either thinks they have the capital to do this or simply don’t feel the need to expand to every metropolitan area due to their smaller size and focus.

    The way I look at it is that as long as dealers are profitable, the OEMs are leaving money on the table. However, the capital issue is still a big one. Also, not all dealerships make a profit and those that do often make more of it through the sale of used cars than new… creating an obvious conflict for a factory-owned store. In any case, it would be nearly impossible or impractical for an existing OEM to get rid of the franchised dealer networks they have but a startup like Tesla has every right to avoid it if they can.

    • 0 avatar
      TonyJZX

      this is pretty much it

      Tesla is the most ‘successful’ of the EV startups (such as it is)… you can’t be expecting Fisker and this like to embrace the dealer model on what are boutique automobiles slash appliances. Its a new world, new car, new sales model.

      At the same time, this NADA group sounds like the equivalent of the UAW with their tired ideas.

      I think this discourse shows what’s typically wrong… all of us are consumers so we can all see when the emperor has no clothes and this model is CLEARLY so 20th century.

      And yet there’s always ONE person who comes on as some kind of white knight who obviously has some kind of agenda who will defend it as if his life depended on it.

      How come 99 people are against it and yet ONE person has to defend it?

      Surely it can’t be that this one person is right and everyone else is wrong…

      • 0 avatar
        Pch101

        Most of the ideas expressed in this comments thread are about as logical as are the arguments for the (infamous) manual transmission diesel station wagon. Which is to say that they aren’t.

        In a country such as the United States, some variation of this model is usually the best model for the producer, since it offloads a fair bit of the retail risk to a third party (the dealer.) Risk reduction matters if you are in a capital-intensive, low margin business like the car industry (although a company such as Tesla does need to control its own sales channel.)

        Manufacturers have other tools that can be used to improve the customer service experience, such as linking holdback payments to CSI scores. But ironically, the TTAC “best and brightest” moan and groan about that idea, too, even though it is one of the best ways to get dealers to improve their behavior.

      • 0 avatar
        Mullholland

        Everybody knows CSI scores are gamed to the point of making them B.S.

      • 0 avatar
        Pch101

        “Everybody knows CSI scores are gamed to the point of making them B.S.”

        You’re missing the point.

        The CSI score is linked to the dealer getting more money from the parent company. The dealer really wants that money — in fact, they count on it, since it’s a substitute for the traditional holdback.

        As a customer, you have the leverage to get the dealership to lose that money. The dealer knows that. This gives you tremendous leverage with the dealer, who will suck up to you in order to ensure that he gets paid.

        The net result is better service than you’d otherwise get. The exact CSI score itself is irrelevant; it’s the resulting effort that the dealer has to make to get the CSI score that benefits the customer.

  • avatar
    jeffzekas

    Anyone who thinks that the current dealer franchise system is better than the direct buy system has obviously never been to a BMW dealer!

    • 0 avatar

      I’ve had only good interaction with my BMW shop. My Acura shop, on the other hand, is horrible on six different levels. A local Toyota dealer tried to “re negotiate” the deal on my mom’s car. The local Ford dealer is decent. The local Caddy dealer tried to sell me a flood car. I guess it all depends.

  • avatar
    Dimwit

    What’s being obfuscated through these arguments is that Tesla is barely a “manufacturer”. They are a craft vehicle builder writ large. There isn’t enough market to justify the expense of a dealer network and the benefits of not having one are far bigger than having one.
    Tesla lives and dies on its customer base. It needs direct access to it and feedback from it on a personal basis to make sure that it responds to the market as fast as possible. It doesn’t have the resources to ignore issues while still making the same mistake because “it’s in the system”.

    BTW, there are 10′s of 1,000′s of businesses that do not operate with either a retail market or a distributor and yet survive just fine. Generally it’s a b2b field but so what? Companies have a tendency of “buying direct” and it doesn’t seem to be hurting the marketplace at all.

  • avatar
    Type57SC

    ”That’s the last thing on our agenda.”

    So you’re saying it’s on the agenda then?

  • avatar

    Splitting the two functions protects the manufacturer. If UpSell Motors plays games with the sale, the manufacturer has a level of deniability. If UpSell gets sued, the manufacturer is insulated.

    If the car turns out to be junk, UpSell is NOT responsible. The Warranty is the only recourse for the buyer. He cannot return the car to UpSell in the same way he could stuff it back to a manufacturer. The financed vehicle, bought from UpSell and financed by CarCo, is not the same as if it was bought from CarCo and financed by CarCo if you sued or tried to return it.

    The buffer between buyer and maker is important to protect the maker.

  • avatar
    cdnsfan27

    I would like to address some of the many points brought up in the comments.
    1. Any one who thinks getting rid of the dealers would lower prices is fooling themselves. I work for a major MB dealership and we have 7 competitors within an 11/2 drive. Competition is fierce and we often sell below invoice. If MB controlled prices they would go up. European delivery saves 7%, you can get a better discount from the dealer.
    2. Ford tried company owned stores in Canada, it reduced competition and raised price for parts and service, not just cars. CSI was slightly better but within statistical error. Believe me we have MB looking over our shoulder all the time, bonus plans include 950+ CSI for sales people.
    3. I would rather work for MB than for a large dealership group that includes a wide variety of brands…you can’t run an MB franchise like your Toyota or Ford franchise but corporate doesn’t get that. We are the only MB store open on Sunday so customers come in, drive our cars and get our price then shop us with competitors on Monday. I can beat any price by $500 and so can they.
    4. MB has spent a lot of money training dealership staff on “customer one”. Its is short-term pain for long-term gain but again the folks at corporate only see quarterly results and they cut us off at the knees when we want to do the right thing.
    5. As a professional salesperson I want to build my business steadily with repeats and referrals that will pay me a decent commission for outstanding service. Unfortunately corporate wants us to be a “volume” dealership, pay plan is based on selling a lot of cars minimizing time with each customer, they feel less special and buy their next car at a boutique dealership where they will pay more but get treated like they feel MB customers should.

  • avatar
    Eric 0

    Pch101,

    Can you name a durable consumer good, not a foodstuff or diaper, that is not currently available directly from the company that makes it? Other than cars? A random look at my credit card statements shows that almost all of the money I have spent on non consumable or entertainment items this year has been directly from the companies that make them. Here is a partial list:
    Apple
    Adobe
    Autodesk
    Georgio Armani
    Ikea
    Jack Spade
    Levis
    Modernica
    Moog Music
    Nike
    Muji
    Puma
    Steelcase
    Steinway Pianos
    Tiffany & Co.
    Wacom

    I can barely find anything in my house that wasn’t purchased either online through the manufacturers website, or at a retail location owned and controlled by the manufacturer. Apple gets a lot of attention, but they were actually quite late to the party. Tiffany had them beat by 150 years. Nike by 15 or so. When Apple opened their first store in SOHO NYC, it was seen as a bold move, but that’s only because computers were still being sold like toasters for some reason, and the ipod was becoming a fashion accessory. The fact that it gave many people their first interaction with a Mac was almost a happy accident. Apple may be the exception that proves the rule, but they are the market leader. I challenge anyone to name one market leader in any consumer sector other than cars that does not have a wholly owned B&M and/or online retail presence.

    • 0 avatar
      Pch101

      If you think that a company such as Levis would stay in business if it didn’t have third party retail channels, then you’re kidding yourself.

      • 0 avatar
        Eric 0

        The point is that they also have branded stores, and that’s where I buy MY jeans. These stores work in much the same way as the Apple stores once did, or any Armani store. As a big ad. Where the customer experience can be optimized, and the brand reinforced. Apple moves a ton of stuff through Best Buy and AT&T. Apple could not survive selling only through the Apple stores either, but the best customer experience will almost always be had at one. Nike is sold at footlocker, and Nike could not survive without footlocker, but NikeTown is a far more rewarding customer experience. Here’s the challenge: Name ONE market leader, either in quality or volume, that doesn’t have a retail presence that they control.

        Rolex Building
        50 St. Clair Avenue West
        Toronto Ont.

      • 0 avatar
        sunridge place

        ‘Name ONE market leader, either in quality or volume, that doesn’t have a retail presence that they control.’

        Rolex watches… to name one.

    • 0 avatar
      sunridge place

      Rolex Building
      50 St. Clair Avenue West
      Toronto Ont.

      Uhh…no. That’s not the Swiss watch company. That’s Rolex Canada Ltd.

  • avatar
    PrincipalDan

    “Tesla may not yet recognize the value of the independent, franchised dealer system,

    As other posters have argued, a vaule of exactally NIL. Everytime I get to the end of a “build-your-own” configuator and look at the lame “this many cars in your area” which inevitably match the car I built in 0 ways other than the badge I want to scream; “Why the f*&^ can’t I just place an order for this exact car?” I’ll wait – months if I have too. I would wait 6 months for the factory to build the exact car I wanted and I would pay full retail price. Hell make me put down a %20 downpayment for the privilage.

    • 0 avatar
      scrappy17

      I want amazon.com to start selling cars!

      Give me a 90 day warranty/ return policy with a 5% restocking fee, pass on the cost savings of a hugely reduced warranty.

      I will just keep the vehicle serviced by myself and through independent mechanics.

      • 0 avatar
        DeadWeight

        This is a great model, and I predict auto dealers as intermediaries will face a good prospect of becoming obsolete within a decade.

        It would be a Amazon+ type model, though.

        Rather than having independent franchisors with 8,000-30,000 square foot buildings on 3 to 15 acres, manufacturers could stock several of each model they sell at a modern, clean, technologically advanced “store,” maybe 1,500 to 2,500 square feet in size. There could be touchscreen stations for customers to select the options, color and other customizations to the vehicle they wish to order. There would be merely a few professionally trained people working directly for the manufacturer who could assist these customers in test driving vehicles and in ordering vehicles.

        The customers could even choose to have the vehicle delivered to their residence/business or pick up the vehicle at the store.

        It would be a no hassle, far less intimidating (especially for women – sorry, but I believe the stereotype carries weight) ordering process, in a relaxed atmosphere.

        These “stores” could even be located within malls and attached to other retail venues, in addition to being free standing.

        Independent dealers are vestigial relics of the past. They no longer serve a useful purpose, and merely add a great deal of expense and frustration to the buying process and interfere with the ability of manufacturers to implement more precise, efficient and customer-oriented processes in the vehicle purchasing process.

      • 0 avatar
        sunridge place

        @Deadweight

        In your fantasy world where building cars is like making a salad at a salad bar….are these cars ordered from a kiosk already built or are they built on demand? Do the OEM’s have to have massive holding lots scattered around the country to meet the fickle customer who wants (or needs) to buy now?

        When is this person going to PAY for the car? Before they see it? Non-refundable deposits? How big will that non-refundable deposit be?

        What financial institution is going to transact without an actual vehicle? Will this person have a trade in? When will that trade in be valued? At the kiosk? Then, they will drive it around until their new car appears in their driveway 6 to 8 weeks later?

      • 0 avatar
        DeadWeight

        Every issue you raise as an ostensible obstacle to eliminating the “middle man” dealership-franchise network can be more effectively, efficiently & smoothly handled by manufacturer trained personnel, using manufacturer designated techniques & within the business model that I set forth above.

        To specifically answer your “question,” most people would place their orders and a pre-built vehicle matching their description would be retrieved from a central facility and delivered to the kiosk station (or delivered to the customer’s residence/business).

        For those wanting very specialized vehicles, the vehicle could be an as-built, with a short delivery time (why are you presuming such a long lead time to build and deliver heavily customized vehicles, hmmm?).

        The buyer places a deposit down at the time of order entry, and pays for the vehicle at the time/point of delivery. Who cares how big the deposit is; let the manufacturer decide that based on their business model.

        Many financial institutions will provide financing given that you have a manufacturer of automobiles contractually agreeing to deliver a specific motor vehicle, most with an existing VIN Number already, to the customer.

        If the customer has a trade in, the manufacturer can choose to have a separate kiosk station to handle that, as well, which they probably will (they can resell the trade-in vehicles wholesale or run their own used vehicle resale kiosks if they so choose).

        I guarantee that both the manufacturer and customer will realize cost savings at each step of the process, with no “middle man” getting a cut of each step of the transactional process by necessarily inflating costs in order to ensure their “cut.”

        This could all be done seamlessly and using far smaller physical locations, with fewer personnel, and in a much more relaxed environment, than with a completely unnecessary re-seller in the form of an independent automotive franchise.

        What’s so complicated about it? It’s retail 101. If manufacturers can meet the safety, emissions, CAFE and other standards their engineers and bean counter currently must meet, this is CAKE.

      • 0 avatar
        sunridge place

        Ok…I’m the OEM…Under your plan, I would need to:

        1. Buy/rent thousands of different retail spaces around the country. BTW, 2000 sq feet will NOT be enough to have several examples of each model I sell.

        2. Invest in the hiring/management of many thousands of employees across these retail spaces.

        3. Create regional holding lots to keep inventory nearby major markets….inventory that I still haven’t been paid for btw.

        4. Create a network to handle warranty service as well. I guess I might make some money eventually on customer pay service outside of warranty.

        How have I (the OEM) saved any money? Sure, I can get rid of a few field employees who call on my former independantly owned dealerships…but where are my other savings?

        How does this help me run my factories more efficiently? And, how the heck does this save customers any money?

      • 0 avatar
        DeadWeight

        1) 2000 sq ft is more than enough, actually.

        The test drive vehicles are kept outside, maybe even under a canopy or in a bay. Technology has advanced to the point where customers could view photographs of the vehicles they wish to choose from on large HD monitors at kiosk stations, and they could even view to-be-built vehicles as they would appear according to the customers preferences/options selected.

        Manufacturers could, with a bare minimum of intelligent planning (using things such as maps, demographic information, household income data, etc.), have 50% fewer kiosk locations than the current number of dealership locations, and not restrict ease of access or convenience for their customer base. In fact, by doing away with the need for large tracts of land and larger buildings, destination retail facilities such as malls could be central to eliminating what’s currently still a large oversupply of franchised dealerships.

        2) Again, this is retail 101. There’d be fewer kiosk locations, but far more more centrally and intelligently located (and more efficiently “spaced,” so you don’t have 5 Chevy, Ford or Toyota dealers in a 15 mile radius, cannibalizing each other; remember, these are all manufacturer controlled facilities, so it doesn’t matter to which one the customer prefers to travel), and a ample surplus of employees who would be ready, willing and able to take on the training necessary to man these kiosks. In fact, there’s already a trained base of employees, from which the manufacturers could select the best, brightest and most ethical, should they wish to allow ex-franchise dealer personnel to transition into manufacturer run kiosks.

        3) What’s so difficult in terms of the manufacturer maintaining bulk lots of new vehicles, ready to be delivered to customers at kiosks or their residences? Automakers have TONS of land banked as it is, they have manufacturing facilities spread far and wide across the country and within shouting distance of many major (and minor) cities, rail & truck transit is cheap and fast, and the manufacturers could even lease/buy large tracts of land (assuming they don’t already own tracts in strategic locations, adjacent to existing facilities) for a song and a dance.

        The inventory isn’t paid for? Sure it is. The manufacturer has paid for it, and owns it free and clear, until customers take delivery in exchange for the contract purchase price. This is no ‘floor plan’ business model depending on franchise dealer financing…there is no franchise dealer.

        4) The manufacturers already are the ones who provide the warranties. They would establish repair/service kiosks in the same manner they established retail kiosks (maybe in close proximity to each other or adjacent) based on the same intelligent site selection criteria used to establish the retail site selection. Npw the customer has interaction with actual manufacturer employees in terms of service, warranty claims/repairs, etc. There is no additional “layer” between the customer and the manufacturer.

        You ask “how this would save money?” Count the ways. The current franchise dealer network is set up based on old business models and technology. It’s fragmented and scattershot, developed over many, many decades, and the demographic and population changes since many of those still operating dealers is dramatically different today than it was back then.

        There are so many ways that direct retailing by the manufacturer would cut out transactional costs and bring efficiencies to the table that I literally could write a thesis on the subject.

      • 0 avatar
        sunridge place

        @Deadweight

        You have not showed a single way this saves an OEM money. You act like a 50% reduction from the # of dealerships today to the number of kiosks represents a 50% saving to the OEM.

        It doesn’t. THE OEM today doesn’t own the land/facility etc for a dealership today. You are proposing a massive cost for these retail facilities that does not exist today.

        Where are the savings for the OEM? By having this magical sales experience, will SAAR soar to 18 million per year? Are there millions of people choosing not to buy new cars because of the pain of buying a car at an independently owned dealership?

      • 0 avatar
        DeadWeight

        The manufacturer can lower the cost of the product to the consumer AND increase its revenue on a per unit basis by eliminating the middle player that are currently independent automotive dealer franchises.

        It wouldn’t shock me whatsoever if manufacturers could implement a retail distribution network that’s extremely more efficient, cost effective & far more successful in satisfying the end consumer for 15% to 20% of the cost structure of the existing independent franchise dealer mode.

        Take the largest 10 manufacturers for example. On a hypothetical basis (to demonstrate the general point), let’s assume that the current system produces an outcome whereby the average (or use median, if you choose) transaction causes $1,900 to flow to parties other than the manufacturer (e.g. franchise dealers cut, transport companies cut- as the system is very fragmented-, advertisers’ cuts- you wouldn’t have a zillion ads for specific dealers on or in cable/print ads, etc.). I think $1,900 is very conservative, and the current structure probably adds close to $3,000 to the average transaction cost, that doesn’t flow to the manufacturer, but let’s use the $1,900 figure since this is a hypothetical.

        If they are able to sell a vehicle to the end consumer for even $900 less than what consumers currently pay for equivalency, under this hypothetical manufacturers have $1,000 per transaction by which they can fund their efficient retail network, and also receive higher revenue per vehicle (despite the consumer paying less).

        Do the math under this hypothetical. The potential for a win-win is massive because the existing franchise-dealer model of distribution and retail is woefully cost inefficient. It also happens to be incredibly painful for the average consumer.

      • 0 avatar
        sunridge place

        If its such a great retail idea, why aren’t independently owned dealerships open up kiosks in malls and selling their motor mile acres?

        What is stopping them from doing that?

      • 0 avatar
        Pch101

        For a couple of years during the 50s, Sears tried to sell rebadged Kaisers. Despite Sears’ strength as a retailer at that time, that effort was a flop.

        Maybe this car sales business thing is tougher than it looks. Having a bad suit isn’t the only requirement for success, apparently.

      • 0 avatar
        Mullholland

        Sears failure at selling cars in the 1950′s. Really? Thats the best example you can give for your support of the current out-of-date dealer based retail model. The retail environment, competitive landscape and explosion of information available to shoppers has changed so much in the ensuing 50 plus years to make this example ridiculous. You’re just messing with people now. Or perhaps you’ve just made a joke?

      • 0 avatar
        DeadWeight

        @mullholland:

        Great observation. That’s the only specific example of a historical failure that Pch101 has cited so far, and it’s beyond weak for many reasons, including that which you refer to.

        Moreover, Pch101 & Sunridge keep conveniently ignoring the fact that auto manufacturers are forbidden from operating their own dealer network, which was one of the main points of this article, yet they’ve somehow managed to not only ignore it, but imply in many of their statements that this isn’t the case.

        Here’s a decent summary & analysis of these laws barring manufacturer direct sales & their consequences:

        Economic Effects of State Bans on Direct
        Manufacturer Sales to Car Buyers

        by Gerald R. Bodisch*
        EAG 09-1 CA May 2009

        http://www.justice.gov/atr/public/eag/246374.htm

      • 0 avatar
        sunridge place

        @deadweight

        I never argued the laws don’t exist.

        I’m arguing that:

        A. I don’t think the OEM’s would want to run their own retail networks for a variety of reasons

        and

        B. I see the dealerships point on defending their turf given the investment they make to start and operate a dealership.

        I’m still waiting for a good reason why a well-run successful independently owned dealership group today doesn’t run with the idea of closing his Motor Mile dealership and opening up kiosks in malls if its such a good idea?

        He could keep his inventory in a much cheaper holding area far away from the city and run his dealership in the way you have suggested. Think of the costs he could save by just having 2000 sq ft of well-placed retail space in the mall and a much smaller parts/service dept (or two) placed around town. He wouldn’t need a large sales staff…just a few people in the mall and perhaps his finance dept there as well.

        I’m not being sarcastic…just wondering why no one has tried this.

  • avatar

    A few people mention having direct and third party sales channels. This is very common among many different goods but in my experince buying direct is almost never the cheapest method if anything at all it would be even with the OEM (IE Apple) The OEM keeps their price high or even with the competition. This is for two reasons 1) not to start price wars cutting in on their own profits 2) to not upset their dealers who sell way more product then they do. I had a friend who worked at HP for a while, you can build and buy a PC online or walk down to Best buy and buy one pricing will be similar and even among PC buyers 3 years ago he stated more the 50% of HP pc’s were purchased at storefronts. So at some point it may be OK to purchase a car online and have it dropped at your house but likely it won’t be any cheaper then going to joes auto mall.

    As another example look at the marine industry (most states don’t have dealer laws for boats). I can’t think of any boat manf that has done well with out a dealer net work the ones that try direct sales never have much luck. The closest thing here would be Tracker which is owned by Bass Pro shops but even they use a independent dealer net work ontop of their direct sales and they have fixed selling prices to avoid causing competition with those dealers.

  • avatar
    el scotto

    You want a new car? You have to go to a dealer who has a protected, exclusive franchise to sell new cars. Not E-bay, not a website, not a classified ad, not an ad in the back of a magazine. You have to buy a new car from an exclusive franchised dealer, got it? The rest of the stuff you buy is not from an exclusively franchised dealer/seller. I think Tesla should partner with Mercedes or Lexus to get around dealership issues. A low volume expensive car would fit in at either dealership.

    • 0 avatar
      Eyeflyistheeye

      “You have to buy a new car from an exclusive franchised dealer, got it?”

      Great reasoning, old chap. I imagine you sounding like Paulie Walnuts saying that.

      • 0 avatar
        el scotto

        For better or worse, it’s the law in the US. I just thought way too many people didn’t understand that or were making the usual alternative universe comments on here. I’ve also spent lots of time in dealer hospitality tents at the Indy 500/Brickyard P)

  • avatar
    Eric 0

    Rolex has a few wholly owned retail locations, (I serviced a Tudor at Rolex Toronto) and a wider network of Rolex service centers, but they are probably a great example of a company that has been successful working through through a dealer network. However… they exert spectacular control over the behavior and quality of their dealers. Rolex will pull an AD’s license in a hot second if they determine the AD isn’t delivering service consistent with the Rolex brand, and they don’t have to go to court to do it.
    Rolex IS a good example though. Any others?

    • 0 avatar
      sunridge place

      ‘Any others?’

      Hey, you said ONE! I’m sure there are a couple of other luxury goods that are similar…but they are rare.

      I’m late to the debate here and I see both sides. I think the truth is that the OEM’s might want to open a few cool showrooms in select areas to draw interest to their brands and make some sales. Who is going to service the warranty on a truck sold to a customer in Broken Bow, Oklahoma?

      Comparing the retail experience of Niketown or a 5th Avenue/Times Square brand showcase store to the reality of the car business is not a fair comparison.

      A dealership is an multi-million dollar investment in real estate, facility, equipment etc. Having a Levis corporate store a few blocks from a Macy’s that also sells Levis is not the same. Macy’s doesn’t invest millions in shelf space to stock Levis jeans and on equipment to service the jeans after the sale.

      If I made that sort of investment, it would not make me happy to see sales go directly to the parent company of the product I invested in.

      As far as online sales, are there many examples of products being sold for around $28,000 online? That’s the average transaction price these days for new cars. Can PayPal handle that?

      Would the general public be willing to put down a non-refundable deposit to place an order with the OEM? How about pay for it in full before receiving it? What financial institution would cut a check to pay the OEM on the spot for the order?

      If not, what happens if the customer bails out after the order and before delivery? That happens fairly often in the current franchised dealership arrangement. Who buys that car?

      • 0 avatar
        Eric 0

        I didn’t think there wouldn’t be any. I just couldn’t think of one. Rolex is closer to Apple than any other watch maker precisely because of the obsessive control they exert over their dealers, whether or not they own them. Macy’s actually does invest millions in shelf space. (They’re undergoing a major renovation.) And the flagship stores support Macy’s by increasing the value of the Levi’s brand.
        Let’s say you invested millions of dollars in a Packard dealership. You really go all out. People who walk into your dealership are blown away by the place and the way the cars are presented. Now it’s 15 years later and your showroom and equipment are in serious need of updating, but you don’t have the capital to invest in updating. Every person who walks into your store are being told that Packard is a little tired and a little old. Your once shining star of a dealership is now doing negative marketing for Packard. If Packard opens a new super store in the same town. It will ultimately help you because it will breathe new life into a dying brand. Tekserve probably wasn’t happy when Apple opened their store in lower Manhattan, but I doubt they’re complaining now. They just did a huge remodel.
        As to your other questions, I bought a $30,000 camera online this year from a company with no dealer network. It was a MUCH better experience than shopping for a new car. Much easier too. Paypal handled it with ease.
        Ultimately, no retailer should be entitled to protection from “competition” from their suppliers, other than whatever exclusivity they have negotiated and contracted for. It just should never have been legislated in the first place.

      • 0 avatar
        sunridge place

        I know Macy’s spends millions on shelf space…they just don’t spend millions on shelf space exclusively for Levi’s jeans….that’s what I wrote….don’t try to change my words to further your point.

        And, please don’t compare you buying a $30k camara thru PayPal with the 10 million plus retail vehicle sales each year in this country. The truth is that the majority of those sales are financed and you know that.

        Your Packard example does not compute. In your example, the original Packard dealership after some years of success wasn’t properly capitalized to fund a remodel/refresh of his store. You’re telling me that a new corporate owned store will magically increase his sales to the point that he can now upgrade his store thanks to the magic of a new branded retail store across town now competing against him?

  • avatar
    oldyak

    awful lot of posts for a car maker that sells 100 cars a year.
    No relevance here to the real world..or Rolex.

    • 0 avatar
      DeadWeight

      It’d be even more advantageous for both manufacturer and customer to do business directly the larger the manufacturer is, due to economies of scale.

      On top of that, far more manufacturers (the kind that will be here today and next decade) are of the high volume type than the manufacturers of the Tesla niche type, and the manufacturer now has far more control over the processes and channels of improving customer satisfaction from the point of sale onward, which is becoming an increasingly critical selling point for consumers in a very competitive, brand saturated industry.

  • avatar
    daveainchina

    Pch101 The laws and agreements protecting dealer franchises from competition with factory owned stores is just stupid.

    Even Microsoft is recognizing the value of Branded stores. This fall/winter you will see Microsoft Branded stores in many malls around the USA to promote the new Windows experience. They learned the value of the Apple stores are looking to do something similar, the fact that Microsoft doesn’t have the cult following of Apple will certainly make a difference and these will probably not be that successful, but Microsoft sure as heck is trying and they aren’t prevented from even trying because of a bunch of dealers that have stupid laws protecting them. Given enough time and enough attempts Microsoft will most likely find a winning formula and once they do, everyone will benefit.

    There is absolutely NO reason for these laws to exist this way other than to create an artificial safe zone for dealers to compete. Dealers should be able to create their own value-add that makes them different from factory stores. But we’ll never know this because of these outdated and ridiculous laws. You can’t even really buy a vehicle over the internet, so you don’t get innovation in the experience that you should be getting, these laws are just bad for everyone except the dealers. (regional protected areas etc?? stupid just stupid)

    Liking dealers or not liking dealers isn’t my problem here, it’s the fact that auto manufacturers are not allowed to set up any retail space. That is a problem, look what happened when Chrysler tried to set up a store in California to test out different ways of running a dealership to then promote those techniques to their dealers. The dealers cried foul and now they don’t really have that store.

    This is stifling competition, maybe the manufacturers would be bad at it, then again maybe they would be good at it. I bet you don’t believe is that they most likely will be average at it, and will set a basic standard of service etc that as a consumer you KNOW what you will get there. This alone creates a value-add on the behalf of the manufacturer because right now it’s like playing russian roulette if the dealer you are dealing with is any good.

    And I’ve never been to a Mitsubishi dealer without feeling like I’ve walked through a bucket of slime. I’m pretty sure Mitsubishi doesn’t want that to be the experience of their customers.

    Consistency of experience is one hell of a brand builder and the fact that you cannot get that is a detriment to EVERY SINGLE manufacturer.

    You can defend all you want but in the end it is just hurting innovation, competition, and the customer experience. I’m sure others can think of more to add to that list.

    • 0 avatar
      Pch101

      “The laws and agreements protecting dealer franchises from competition with factory owned stores is just stupid.”

      If it cost you a million or two million bucks to set up a store that was dedicated exclusively to selling one company’s product, and your anticipated unit sales were relatively low (meaning that every sale lost due to competition from your producer would do significant damage to your own bottom line, eroding the value of your $1+ million investment), then you’d change your tune in a heartbeat.

      • 0 avatar
        daveainchina

        Sure but why would I set up a company that relies on artificially restricted markets in the first place?

        To me that just seems like asking for problems as the laws of a country change to reflect the changing attitudes of people

        Again, I call these laws stupid and setting up a company that relies on those laws rather than creating good value-add is also stupid. So why would I set up such a company?

        Some dealers are good, some only stay in business because of their reliance on these laws. In the end I think it hurts the consumer more than anyone.

      • 0 avatar
        Pch101

        “Sure but why would I set up a company that relies on artificially restricted markets in the first place?”

        You can’t be seriously asking a question like that. You’re actually asking me why people start businesses?

        And the car market is not “artificially restricted.” Dealers do not have monopoly power. A franchise agreement is not a monopoly; a Ford dealer can’t keep a Toyota or Honda or Chevy or VW dealer from competing against them. The franchise laws protect the franchisee from his own franchisor, not from competition from other automakers and their dealers.

  • avatar
    krhodes1

    As European Delivery has been mentioned here a couple times, I’d like to clarify a couple points as someone who has done it with BMW.

    1. You are not buying the car directly from BMW, you are still buying it from a franchised BMW dealer, and the car is delivered to that dealer just like any other new BMW after your trip. All it really amounts to is a pause in the delivery process so you can drive the car over there for a while.

    2. The pricing is in no way fixed. BMW has a ~7% lower MSRP on the car, and a corresponding ~7% lower invoice price that the DEALERSHIP will pay, less holdbacks etc. It is a lower MSRP, not a discount, which saves me a few bucks in Excise Tax every year in here in Maine. So you negotiate the price just like on any other Build-To-Order sale, you just start 7% lower. In my case, I ended up at ~$500 over Euro Delivery Invoice, which was ~$5K under US MSRP. I did not try THAT hard to get that last $500 or more, my time is not worth it on a $40K transaction.

    3. Lest you think BMW dealers are getting rich selling 3-series, the spread between invoice and MSRP in my car was in the $2500 range. And the dealers get almost nothing on added options. Now you know why they are so bloody expensive in the service department – there sure is no money in selling new cars! And also why the smaller dealers absolutely LOVE BMWs BTO program – sucks to sit on inventory for months and make so little on it.

    Count me as one who would have infinitely prefered to just order the car directly from BMW – even if it had cost me more. My salesguy was CLUELESS.

    • 0 avatar
      onyxtape

      More pros:
      - You also save around $900 in the destination fee IIRC.
      - With Mercedes, they pay for a night of 4-star hotel, plus taxi & food.
      - With Volvo, you get airfare thrown in too.
      - Full insurance coverage while in Europe, even in places like Romania!

      Cons:
      - You have to wait a while for the car to scoot across the pond. This is especially bad if your lease payments have already started.

      • 0 avatar
        krhodes1

        With BMW, you still pay the same destination fee – only makes sense, they still have to ship the car. What IS lame is you still pay the destination fee if you do “Performance Center Delivery” in the US, on a car made at that facility!

        They did have a “buy-one-get-one-free” deal with Lufthansa, but I had enough airline miles for a free First-class ticket for me and a steerage ticket for my buddy who went with me. BMW also gives you free museum tickets, and a very nice lunch buffet at BMW Welt.

        BMW gives you 14 days free insurance, and one kind of cool thing is that if you ding the car or curb a wheel they fix that at the port, just like all the other minor shipping damage that happens to new cars.

        Six weeks to the East coast for delivery. I had to make the first payment about the same time I left to go get the car. You sign the papers on the car 30 days before delivery. My credit union would have had no issue financing the car, but they could not come close to BMWs .9% rate, so it stayed in-house.

  • avatar
    healthy skeptic

    If the dealership interests are so sure that their approach is the way to go, and that the free market will bear them out…then why the need to enforce their approach with laws of state?

    They act like they’re protecting Tesla for it’s own good. If that’s really the case, why not stand back and let Tesla find out the hard way?

    • 0 avatar
      PrincipalDan

      Right +1. If dealerships are so obviously advantageous then why do the dealers have to fight to try to hold onto an out of date sales model at all? Shouldn’t they be rooting for Tesla’s failure and let the company fall flat on its own face?

    • 0 avatar
      DeadWeight

      It’s clearly because of the reasons cited by the majority here: The automobile dealership lobby has a good racket going in terms of an oligopoly, and true competition would expose the dealer franchisees for what they are- outdated, inefficient, dinosaurs that actively work stifle competition, that wouldn’t survive for very long if they weren’t protected by significant, robust legislation that shelters them.

  • avatar

    It would be interesting to see how automobile franchise laws compare to those, if they exist, that protect other kinds of franchised businesses from having to compete with the parent company. The McDonalds corporation owns and operates about 15% of McDonalds franchises.

    I can’t really see how having a factory owned dealership would give them an unfair competitive edge. The costs of running that dealership would be the same as for independent operators. Remember that a nice percentage of existing dealers are parts of business groups that own a number of stores. Sure, not every group is Penske or Hendricks but I’d be surprised if a majority of US dealers were single store operations. So the manufacturers wouldn’t necessarily have any advantages in terms of economies of scale.

    To be honest, I’m not even sure if the Apple stores are the best comparison to the Tesla factory stores. It seems to me that there is some similarity to the “studio” approach that Mercedes tried with Maybach. I can’t remember any other specific brands offhand but I’m pretty sure that some other luxury brands have that kind of concierge service in terms of ordering and buying your car. Also, considering how the car companies jerk dealers around with mandatory investments in signage and store design it’s not like the dealers are completely independent agents.

    I’d appreciate it if someone could explain to me what possible harm to existing franchises would be caused by factory stores as long as existing geographic and demographic restrictions are followed (Starbucks doesn’t put a coffee shop on every corner). Otherwise it just appears to be legislation that favors a special interest, not unlike the state of taxicab regulation. Large companies and cartels of smaller companies rarely like competition and often have no problem with regulations as long as those regulations raise barriers to new competitors. Not all businesspeople are free market advocates, by a long shot. It’s kind of hard for a small business to get some kind of crony deal.

    Sometimes it’s amusing to watch selfish interests collide.

    • 0 avatar
      DeadWeight

      Ronnie, there’s an even more essential point; why shouldn’t manufacturers be able to decide whether they even want to sell their vehicles via a network of separate, franchisor dealers, rather than directly sell their wares to the public via a retail network that they finance and control?

      Private equity firms buy companies that previously existed in the form of independent franchises all the time, and then sometimes/often consolidate their operations, get rid of franchise operations, and run, control and do the business of selling direct to the public.

      Why shouldn’t manufacturers be given the same opportunity if they so choose to do so?

  • avatar
    denster2u

    In a free market economy, you can design, manufacture, and sell your own widgets. You might design the widget, manufacture it in your own garage or factory, and sell it online or in your own store. Or, you might take your widget design, have a company manufacture it for you, and sell it yourself. Or you might manufacture the widget in your own factory, and have other companies sell it for you. There are hundreds of examples of any one of these scenarios, and it usually comes down to economies of scale and the nature of the product you are selling. If I start a bakery and people really like my goods, I might open and operate another location in a nearby town. However, if there is demand and I’m already up to four stores, I may want to look at franchising as a way to rapidly expand my business to a larger geographical area. Or, maybe I only have one bakery, and I decide to mass produce my baked goods in my own factory and distribute then for sale in supermarkets around the country. Obviously, there is a lot of grey area in the case for Tesla. It’s a small startup company that serves a niche market and doesn’t pose a threat to any major car manufacturers or dealers. They should have the right to manufacture and sell there own products. Dealer franchise laws are a joke. I worked for a dealer for 17 years and can say that state laws protect dealers rights to be lame and incompetent. If you took away these laws – half the dealers would be out of business in short order. Its a life support system for an archaic business model that is not self-sustainable. If a small car company like Tesla can sell theirbown product in there own stores and offer unprecedented levels of both employee and customer satisfaction, then maybe the existing dinosaur network of dealers will be forced to up their game.

  • avatar
    danio3834

    OEMs contract out many parts of their operations (not just retail) because in many cases it’s cheaper to operate that way with less strings attached.

    Sales are down in your area Mr. Dealer? Oh that’s tough. Here’s your your allotment anyway.

    Having less people and operations directly working for you means less fixed costs and more flexibility. Sales and service agreements generally keep customer service up to a predetermined level.

    If Tesla thinks they can make their sales model work, more power to them. However if, and that’s a big IF, their volume increases, they may find that creating sales and service agreements will be far more cost effective than managing it themselves.

  • avatar

    http://www.theonion.com/audio/us-middlemen-demand-protection-from-being-cut-out,18848/

    U.S. Middlemen Demand Protection From Being Cut Out

    WASHINGTON, DC—Some 20,000 members of the Association of American Middlemen marched on the National Mall Monday, demanding protection from such out-cutting shopping options as online purchasing, factory-direct catalogs, and outlet malls. “Each year in this country, thousands of hard-working middlemen are cut out,” said Pete Hume, a Euclid, OH, waterbed retailer. “No one seems to care that our livelihood is being taken away from us.” Hume said the AAM is eager to work with legislators to find alternate means of passing the savings on to you.

  • avatar
    krhodes1

    I think a point is very much being lost here, particularly by PCH101 – it is not that franchises or direct sales are any better, it is that the states have passed laws MANDATING how it must be done.

    Let the market decide.

    I look at it this way – ALL competition is ultimately healthy. I can buy an Apple laptop directly from Apple over the Internet. Or I can buy one from Apple in their own retail store. Or I can buy one from Best Buy. Or I can buy one from some other Internet Apple Reseller. Or a local VAR. All have their plusses and minuses. Best Buy might be offering no interest no payments for 36 months. Apple might be having a sale. Or maybe I just really want to talk to the geniuses. Or maybe I am buying a package deal of a whole office full of them with installation and support of custom software from a VAR. Each sales channel has its place, Apple would be FAR worse off if they only had ONE way of selling computers.

    I think the auto industry would be well served by a similar model. Buy direct if you want. Or buy from the local franchised Ford store if you need it TODAY. Or from CarMax. Whatever. No one method is going to replace all the rest. But the competition keeps EVERYONE on their toes.

    • 0 avatar
      Pch101

      “Let the market decide.”

      That’s a nice cliche, but it doesn’t mean anything.

      A franchise agreement is between the franchisor and franchisee. If those parties wish to include elements of exclusivity, then they are free to do that.

      If you want to open up a Baskin Robbins or Taco Bell franchise, you don’t just get to hang their logos on a pickup truck and sell stuff from the bed. You have to have a contract.

      If the franchisee of a KFC store has an agreement with the franchisor that nobody else can open another KFC within a mile of his store, then that’s his deal and it isn’t any of your business. If you don’t like that arrangement for whatever reason, then your choice as a consumer is to take your fried chicken business elsewhere.

      • 0 avatar
        daveainchina

        It’s fine if you want to make an agreement about exclusivity, but why is it mandated by state law?

        What possible reason should it be mandated by law? If you write a contract that way fine, then as a manufacturer you’re probably an idiot but hey it’s your choice.

        But to be required to write it that way by law? That again is just plain stupid.

        It stifles competition and innovation and ultimately we as the consumer lose.

      • 0 avatar
        Pch101

        “What possible reason should it be mandated by law?”

        Dealers of the 1930s wanted to be protected from the GM-Ford corporate duopoly, and the power that Detroit had to capriciously shut them down.

        Again, if you shelled out gobs of money to start a dealer franchise, then you’d want to be protected, too.

    • 0 avatar
      leeboo1211

      While we are on the topic of Apple, this is an excerpt from Autoblog on the same story:

      “Tesla says the way that its stores are run are unique to each location. According to George Blankenship, Tesla’s VP of sales, “If we can’t be a dealer in a mall, we won’t do reservations on-site. We tell people where to go on our website to make a reservation.” Blankenship is the former Apple retail guru and the mind behind the Apple Stores – an experience Tesla hopes to recreate in its own sales network.”

      So apparently they ARE using Apple as a model, as far as the retail experience. Remember when all the experts in the IT industry panned the Apple stores, and predicted they would close within 2 years? Well, as of August 2012 they have 393 worldwide (according to Wikipedia). That obviously doesn’t mean they won’t still use all the other channels available to them to sell their products(Bestbuy etc…), but if I want a corporate standardized quality Apple experience I know where to go, even if it may be slightly more expensive. Which is not usually the case, price parity on most Apple products is pretty even wherever you go. And yes, I find the Apple store a truly pleasurable retail experience. Nobody trying to “assist” me with “expert advice” and push a sale on me. I just wish I had a similar option when it comes to automobiles: price transparency, quality guarantee of both retail experience and product. In the end I wish I had the freedom, the choice, to make my purchase from the channel I want, even if I have to drive 3 states to get there, and not have that possibility blocked by some law that enforces the status quo more than anything else.

      Here’s to hoping Tesla reinvents the automobile retail business, even if its only in their tiny little niche.

      • 0 avatar
        Pch101

        “Here’s to hoping Tesla reinvents the automobile retail business.”

        A company that sells almost no product is not going to reinvent the sales model.

        Tesla is probably grooming itself for an acquisition. They need to get some larger car company to buy them (presumably for the energy CAFE credits) before they run out of money.

      • 0 avatar
        el scotto

        @Pch101 Have Ford buy Tesla and call them Lincolns, many problems solved.

      • 0 avatar
        Mr Nosy

        The iPhone,which if I’m not mistaken is now over 40% of Apple’s product sales,is a product that is traded in every 17-23 months.Comparing a mobile electrical device with a two-year(Or three if you’re,gasp, unhip.)lifespan to that of a product expected to last many more years before the scrap-heap,is truly one of Apple’s greatest achievements.

  • avatar
    Eric 0

    “but if I want a corporate standardized quality Apple experience I know where to go, even if it may be slightly more expensive. Which is not usually the case, price parity on most Apple products is pretty even wherever you go.”

    In fact, universal price parity is one of Apple’s greatest achievements. They ruthlessly enforce it to the point that an Apple product costs exactly the same, to the penny, no matter where you buy it. This predictability in pricing is one of the most significant value adds that comes from either cutting out the middle man, or making him your bitch. A customer does not have to search around to look for the best price. There is only one. They don’t have to worry that the price will drop suddenly as part of some promotion. It won’t. This predictability removes any anxiety over whether the price the customer is paying is the right one. Car companies have tried for decades to establish “no haggle pricing” because customers prefer it. They never succeed for long, because unlike Apple or Rolex, they can’t pull a dealers license without literally going to federal court. I predict Tesla will see a lot of success if they can keep their pricing absolutely consistent and predictable.

    • 0 avatar
      daveainchina

      yay and yet another reason for these laws to be overturned.

      I cannot see how anyone can defend the laws governing this.

      It’s about being forced and not being given a choice and in general with the exception of utilities (which is an altogether different animal) choice is what makes everyone better.

  • avatar
    Mr Nosy

    What can I add that hasn’t already been said? To begin with,my experience has shown that you’ll find products cheaper elsewhere than from the manufacturer of said product. As for Apple,besides their computers,it’s a telecommunication device/surrogate love object that differs from cars in that they’re usually replaced every 18-24 months.Tesla is not really a bellwether for the rest of the car industry,only for those who cash out their facebook stock(Quickly,before news gets out that tweeners consider it passe.). I realize some people will need to replace a car more urgently than others,requiring car lots for immediate purchase and test drives.However,I still foresee some change in the dealership v. manufacturer sales mix, based primarily on land use issues for urban areas.Drive-in movies are gone here in So Cal(Land ain’t cheap,and the planet ain’t gettin’ bigger.). Additionally,why wouldn’t manufacturers want in on a cash cow/downturn hedge that makes a car dealership profitable-service,repair,and resale? Traditional dealers can survive by taking a lesson from Saturn.Not the car,don’t be retarded,but their buying and service experience.I rented cars to a Saturn dealership.My God,they took ass-kissing to a whole ‘nother level-I called it “theralingus”. I’ve personally never needed such fawning treatment,as I have friends,am loved by my mother,and wasn’t raised by wolves. As for Ayn Rand,that old hackster eventually proved that even she was incapable in living up to her own cold,soulless,and barren ideals.

  • avatar
    Mickeypups

    I have a question…

    I have to wonder why any independent franchisee would want to sell Teslas.. First, volume is, and is likely to stay very low for quite some time (a result of the time it will take to ramp up production and demand is low). Secondly, I was under the impression dealers made very little from the sale of new cars, and really floated their entire business on vehicle service… what sort of long term service is a Tesla going to need, and will its service needs/costs be enough to provide requisite revenue for a dealer?


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