By on September 27, 2013

 

 Red Tesla courtesy teslamotosclub.com

Tesla founder Elon Musk recently announced that it was feasible to build a giant vacuum tube from Los Angeles to San Francisco and transport people the 400 miles between the two cities in 35 minutes. There is a better chance of this so-called “Hyperloop” ever happening than Musk being allowed to sell his electric vehicles directly to the public through his own stores in more than a handful of states. Musk must face reality and stop trying to change franchise dealer laws if he wants Tesla to sell cars through a dealer network that has a true presence in the marketplace. He must embrace the current system and start signing up existing stores.

Let us be clear: we are rooting for Tesla to succeed. The $70,000 to $100,000 Model S electric car is a ground-breaking automobile and has won about every award extant today. Musk is the darling of the analysts and the media, and who wouldn’t root for a man who is a combination of P.T. Barnum, Soichiro Honda and Bill Gates, producing the most politically correct green machine ever, and hates car dealers? What’s not to love?

I am also not shilling for automobile dealers, I simply do not see an alternative. Musk is trying to overturns state laws that prohibit manufacturers from selling cars directly to customers. Other carmakers, including Porsche and Ford, have tried and failed at this mission in the United States. Say what you will about American car dealers, but they have lobbied for and won state laws that will be nearly impossible to change. Musk has other pressing problems to occupy his time - possible battery shortages, and a nationwide charging network to establish – and even if he could build a dealer body, it would cost a half a billion dollars to construct and staff 100 dealerships.

 

Musk Courtesy usatoday.com

 

Musk wants to sell 40,000 cars a year worldwide by 2015. We say he can sell 80,000 annually in the US alone through established dealers, particularly with the lower priced X Model arriving in 2014. As Tesla’s units in operation grow, customers will start to have problems that the salaried kid in the Tesla kiosk at the mall and his service center down the street and a voice on the phone from Fremont will not be able to solve. Transaction prices will certainly drop and the fickle public may move on to other brands. Crises will occur, like this week’s possible first sudden-acceleration claim against the company. What if Tesla’s bold promise of a guaranteed future value of their cars start costing them $10,000 a unit? You need experienced car dealers to help take care of these problems, nurture the customers and move the iron.

Tesla vehicles need to be on sold on showrooms alongside other luxury makes. The company could choose to hook up with select dealers of the same brand, preferably Lexus, BMW or Mercedes-Benz, or simply choose the best dealership in each market in terms of having genuine long-term success in customer satisfaction. Being a new car company, they could write a dealer agreement with teeth, as Lexus did back in 1989, mandating facility and client handling standards. Musk will certainly have to share some of his 25% markup with the chosen stores which will be painful at first, but better than a factory parking lot full of unsold Teslas.

Used Tesla courtesy autotrader.com

Word came this week that Tesla has been quietly selling vehicles to rental car companies Hertz and Enterprise, indicating their retail sales may be softening and thus the need for dealerships to be established sooner rather than later.

Elon Musk must concentrate on what he does best and let car dealers do what they do best. Without a dealer network, Tesla is setting themselves up to fall short in important areas like after-sales service and distribution. While Musk currently has the tech-obsessed media wrapped around his pinky with talk of “disruption” and emissions-free motoring, few have examined the downsides of forgoing the traditional franchise dealer model. It’s one worth exploring.

 



			
    	    


        
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549 Comments on “Editorial: Why Tesla Needs To Sell Cars Through The Franchised Dealer Network...”


  • avatar
    Robert Mark

    “You need experienced car dealers to help take care of these problems, nurture the customers and move the iron.”

    No.

    Look at what Apple did in retail. They operate over 400 stores. Every one owned by Apple. No dealers. They have the highest customer satisfaction ever recorded in retail. They are more profitable per square foot than Tiffany Jewelers. They dealt with numerous customer recalls for their various computers and gadgets without alienating their customer base. And they don’t have to share their profits with a rebellious group of dealers who by and large deliver a far worse customer experience.

    When Tesla introduces the $50,000 Model X, it will cost — $50,000, direct from Tesla. If they sold through dealers, you can bet there is not one dealer who would sell it for that price. The price would be $65,000 and that would include $600 for pin striping, $1500 for paint protectant, $900 for door edge guards, and $12000 for “market adjustment”.

    Tesla will do just fine staying away from dealers. And customers in states with restrictive dealer franchise laws will figure out ways to buy from adjoining states.

    • 0 avatar
      tced2

      One can purchase Apple products at other places…Best Buy…MacMall…etc. Apple sales are higher by being sold through dealers. Apple has 400 stores. Beast Buy has several thousand stores. Exposure to more people is more sales.

      • 0 avatar
        Vulpine

        An Apple computer is sold and carried out of a typical Apple store about once every ten minutes. The typical Best Buy might sell one Apple computer in a day. Yes, the Best Buy store does offer exposure, but buyers tend to go to the Apple Store itself for the actual purchase because the customer service people at the Apple store simply know what they’re talking about while the Best Buy people are more concerned with selling service contracts on whatever they sell and could care less WHAT they’re selling otherwise.

        • 0 avatar
          28-Cars-Later

          I’m sure there have been studies done, but Apple marketing should be held up as the gold standard convincing you to buy junk you don’t need.

          • 0 avatar
            Robert Mark

            No one can compel you to buy an iPhone. Anyone can stick with their landline or buy a voicecall-only Jitterbug.

            Your point about gold standard is well taken, though. Apple is proving that a superior level of satisfaction can be delivered when they control the user experience from manufacturing, through software, and retail delivery. There’s no reason why buying a car cannot be as satisfying.

          • 0 avatar
            Vulpine

            Only if you want to assume Apple’s hardware is “junk”. It is pretty well proven by customer satisfaction polls that nearly every other brand is junk by comparison–especially devices that cost significantly less than Apple’s.

          • 0 avatar
            28-Cars-Later

            @Robert Mark

            I’m glad we agree on that point.

            @Vulpine

            Ah but its all crap, Apple simply has the superior marketing model. From the computer standpoint, Apple used to build superior hardware and then sold out to build restyled PCs.

          • 0 avatar
            toxicroach

            28-cars-later?

            Whaaaat? When did they sell out?

            Are you talking about when they switched to Intel processors? Cause the old computers WERE underpowered garbage, scraping the bottom of the bargain bin when it came to hardware. Which is why their market share was minuscule, and then started shooting up once they could provide solid hardware.

            Now it’s just really expensive instead of a total ripoff. And I say that as a Mac user.

          • 0 avatar
            28-Cars-Later

            I’m not Apple expert by any means, but from I remember the switch from PowerPC was necessitated by the discontinuation of the chip line Apple used by its manufacturer, IBM. Wikipedia claims Apple switched due to the direction IBM took PowerPC development, which may also be true I can’t say (although the three major game consoles use some derivative of POWER today). Whether x86 is truly better or worse than PowerPC is up for debate, although I’d point out IBM still offers POWER architecture in its server line for workhorse level use so its not as if the technology isn’t up to the challenge. The main attraction to x86 by Apple was its significantly lower costs, period. In my mind when Macs were using a more exotic hardware architecture one could argue they were superior to the PC, when they ARE the PCs they compete against whats the real difference other than O/S platform, window dressing, and the price tag?

            In so far as Apple has gained market share this is surely true, but I would argue this was mostly at the expense of Microsoft’s unending missteps and to a lesser extent issues with prominent PC makers such as the Dell battery fire scandal.

            “The PowerPC program was the one success that came out of the AIM alliance; Apple started using PowerPC chips in their Macintosh line starting in 1994. Almost every Mac featured a PowerPC processor from then until 2006, when they transitioned all their models to Intel processors, due to disappointment with the direction and performance of PowerPC development. The chips have also had success in the embedded market, and all three major seventh-generation video game consoles feature chipsets derived from the PowerPC architecture at their core.”

            http://en.wikipedia.org/wiki/AIM_alliance

          • 0 avatar
            bunkie

            I’m a long-time Windows/Intel guy. For a good portion of my life, I’ve made my living off the platform as a developer and consultant.

            Having said that (and to quote certain prominent members of the NRA) you’ll get my Macbook Air out of my cold, dead fingers, it’s that good. I have a pile of old, dead Wintel laptops that have, in one way or another, frustrated me over the years. All are abandoned in favor of my lovely, utterly reliable, beautifully made Air.

            And when I’m flying, my iPad running ForeFlight is a joy to use. For a very small fraction of what a glass panel would cost I get GPS navigation, electronic charts, runway diagrams, airport directories and up-to-date weather.

            Then there’s my iPhone which unlike my previous Android wonder-of-the-day Samsung phone, doesn’t piss me off every time I answer a call.

            Hey, other companies make good stuff. I would never tell anyone else that what they chose wasn’t right for them. But don’t tell me I don’t need what I’ve chosen because it works best for me in my life and fits my needs.

            Apple products may be many things but calling them “junk” is just plain ignorant.

          • 0 avatar
            azmtbkr81

            Indeed. No other company is able to compel customers (fans?) to camp out in front of their stores in anticipation of forking over many hundreds of dollars for a new product that is very nearly identical to its predecessor.

            I have a company issued iPhone and find it to be fragile and buggy. After only 8 months it looks like crawled out of the battle of Stalingrad whereas my older Motorola Android phone looks new aside from a few minor scratches.

          • 0 avatar
            28-Cars-Later

            I love how since the demise of Jobs, the phone development has slowed and now they release lettered sub-versions that I’m supposed to give a frack about, such as 4S and now 5C instead of brand new phones. I think it reflects how screwed up the company is without Jobs, while I was no fan that SOB always seemed to call a spade a spade and I don’t think subversions in place of new product would fly with him still alive and being 100% “there” so to speak. Personally I’m waiting for Iphone 5.4.1 Fanboy Edition, Service Pack K.

            +1 on the Stalingrad reference, btw.

          • 0 avatar
            Vulpine

            @28Cars: It’s obvious you have never owned an Apple product. Marketing alone is NOT what sells Apple’s products. Apple’s products sell because they are durable, reliable and have the best available customer service of any electronics brand. Apple’s computers tend to last longer on less maintenance than any other computer. Apples mobility devices hold up longer than any other brand on average due to superior construction. That’s not “marketing”, that’s good engineering.

            @azmtbkr81: Show us proof that your company issued iPhone is in as bad a shape as you claim. Unless it has been deliberately misused or been involved in a major accident odds are it still performs as well as it did new, though like any battery powered device probably doesn’t get quite the same charge life that it did. Any other device treated exactly the same way is very likely destroyed long before a two-year contract has expired. I have yet to see any Android device hold up as well unless it was literally babied and never used in real-world conditions.

            But the point of this article is the simple fact that Tesla is selling cars differently from anybody else and just like the iPhone itself vs Blackberry and Microsoft (even before Android), the dealer network is crying foul because Tesla is doing it successfully.

          • 0 avatar
            Kyree S. Williams

            @Vulpine

            That’s not to mention the support Apple gives customers. I have an iPhone 4, which was released in 2010 and which is technically ancient in the smartphone world. Still, it runs the latest software and is fully supported. Likewise my June 2009 MacBook Pro effortlessly runs the latest software. If you were to have either an Android smartphone or a Windows-based PC from those eras, respectively, they would probably be far less useful. True, Apple devices have some silly fail points and repairs are expensive. But I look at purchasing Apple products as making investments in equipment that will be relevant that much longer. What I don’t understand, though, are people that trade in their Apple products every year.

          • 0 avatar
            azmtbkr81

            @Vulpine
            You are just going to have take my word for it since pics can’t be posted here. My iPhone goes from my pocket to desk at work to countertop at home and that’s it. It is covered in scratches, the paint is worn from the edges, and the aluminum frame is dented from being dropped just a few times. It still works fine but the quality of materials used in its construction are cheap and it shows.

            My Motorola is often thrown in a Camelback or jersey pocket for long bike rides, I’ve taken it camping, off-roading, and dropped it many times. It has been covered in dust, sweat, and grime yet it still looks presentable. Granted not all Android phones are constructed the same so maybe you’ve had bad luck with other models or perhaps I have an exceptionally durable example.

            But back to the original point, I am in agreement with you, Apple has been able to achieve almost unbelievable success with it’s marketing and sales practices all while selling a mediocre product. Imagine what Tesla could do with a truly superior product using similar methods.

          • 0 avatar
            Vulpine

            @Kyree S.: I, too, still have an iPhone 4 that I’m currently using as an iPod Touch. I also have a much older ’07 iMac that’s still fully functional and running Mountain Lion. I don’t ‘trade in’ every year and neither do the vast majority of Apple users. With the iPhones they usually work out their two-year contract then upgrade–though admittedly some always go for the ‘latest and greatest’.

            You are right, buying an Apple product is an investment in a product you KNOW will work, work right and require minimal maintenance–if any. Sure, there will always be a few lemons, but unlike most other brands, they acknowledge it and try to do something about it BEFORE it becomes a protracted issue. That is, as long as the device isn’t abused.

            As Steve Jobs was one of Elan Musk’s advisors and specifically mentored Musk during the creation of Tesla, we’re seeing much of Jobs’ influence in how Musk is progressing–flat-out ignoring the traditional methods and succeeding.

          • 0 avatar
            Vulpine

            No, azmtbkr81, you are NOT in agreement with me. You insist that Apple’s successes are strictly due to marketing and I flat-out disagree with that statement. If it were marketing alone, Apple would have died long ago. The quality of the product is what keeps people coming back to Apple again and again. That is why Apple is able to keep higher profits on their products, though not as high as most people think.

            I used to work for one of Apple’s suppliers. I happen to know from personal experience WHY Apple’s products are better. They demand high quality components and have been known to return entire shipments if a certain percentage of any delivery fails acceptance tests. They pay more to ensure quality parts and that cost is forwarded on to the buyer–along with the assurance that Apple will do their best to make sure that product survives longer than its limited warranties. Much longer.

          • 0 avatar
            28-Cars-Later

            Sorry to come late to the party, duty called earlier.

            @Vulpine

            Not true, I have a Powerbook G3 Lombard running Linux and an Gen 2 Ipod Nano running Rockbox, however it is true I’ve never purchased a NEW Apple product. I was attracted to the G3 because when I first got out of school my primary experience was network design and system administration. I figured it wouldn’t hurt to be a little familiar with OSX and the G3 Lombard and Pismo could both support up to OSX 10.3, so for less than a hundred bucks I bought one used off Craiglist. I learned a little about OSX but in truth I wasn’t sold on it and I eventually looked for ways to continue to use such old hardware in some manner, and eventually installed PPC Linux (which is no longer supported AFAIK). I bought two reconditioned Ipod Nanos off Woot after a commentator mentioned third party firmware was available to it. I bought two because I figured eventually the battery will wear out two for the price of one new Generic MP3 player seemed a good deal. I put the firmware on because I don’t feel like playing Itunes games, I want to rip my old ass 90s music to MP3 and just go.

            From an engineering perspective I was impressed with the Powerbook G3, it was definitely ahead of its time in 1999 and PowerPC then was a superior chip architecture to Pentium II/III. Earlier I suggested Apple sold out and switched to Intel, which they essentially did for business reasons. Not to say the Powerbook of today may not have any superior engineering quality or details, but the fact is from the chipset and hardware perspective its just a cousin of Dell or HP. I personally run a series of Thinkpads on NT 5.1 and/or Linux for my personal use, which I believe to be the superior laptop choice (at least until 2009). I honestly never had a need for an MP3 player prior to the Nano so I can’t compare or contrast, however I will remind everyone of the Gen 1 Ipod battery scandal.
            The only thing I can further say about phones since you mentioned mobility devices is I purchased a Motorola VE465 in 2009 with supposedly military grade construction and I still have it and use it everyday, although it looks like hell. I suppose an Iphone could endure similar abuse but it seems to be the Apple model is to coerce you to “upgrade” every two generations I would say. Whether they continue to support their hardware after X generations I really can’t say, but I would not surprise me if they did not in order to make a new sale.

            If you truly appreciate fine machinery and engineering then I think we have much in common. I have three cars counting my winter beater, the one I’ve been driving most often the past few months is my ’93 Volvo 240 sedan. Say what you will about it but it is a marvel of engineering vs much of what I see on the road today (and have owned in the past). Apple and a company like Volvo have something in common, and that is for business aims they sold out on whatever “engineering” cred they had long ago and chased volume. Apple has surely succeeded while Volvo, well, really has not. I stand by my earlier comments on marketing, marketing sells ice cubes to Eskimos and high margin Apple products to the masses.

            http://www.ipodsdirtysecret.com/message.html

            Additional: The other disadvantage a “smart” phone has vs one that is not is you’re essentially carrying a small computer complete with O/S platform and application capability. People may desire this, what I think they miss out on is the fact its supposed to be a *phone*, not a computer with Skype capabilities. Again, people might say “I want this” and “its the next wave” and they might be right, but me personally I have enough computers I want an actual phone for a phone. Simple, quick, functional… if I literally want to reach out and touch someone (ha a pun!), I have computers for this purpose.

          • 0 avatar
            Vulpine

            @28-cars-later: Nice long comment, but you managed to prove my point for me. Ok, you have a G3 Powerbook–running Linux. Why? Because you didn’t even give OS X a reasonable chance to show you its capabilities. Maybe you don’t like the GUI, but you have a full-powered UNIX under the hood that’s readily accessible and significantly more powerful than Linux.

            As for your “iTunes games”, I’d like to point out that there is absolutely NOTHING stopping you from ripping your “old ass 90x music to MP3 and just go.” I have over 15,000 audio tracks in iTunes on my own machine, dating to a lot farther back than merely the ’90s. I’ve ripped from vinyl, 8-track, compact cassette, CD and even ceramic. I’ve got tunes dating back to the ’40s that I’ve ripped, not downloaded. Many of those albums aren’t even available today for download. Don’t try to tell me what you can do and can’t do with an Apple device.

            You still don’t know what Apple really puts out because you simply don’t WANT to know, do you? You WANT to believe Apple has sold out without ever putting it to a real test of capability. Try using a Mac Mini in place of your Dell desktop for three months straight–then try using your Dell again. Sure, there’s a bit of a learning curve, but once you get used to it, you begin to wonder why you ever did it any other way.

          • 0 avatar
            28-Cars-Later

            From the computer perspective I am well aware of what happened, with other products yes my knowledge and understanding is much less than that of fanboy or regular user. The Lombard Powerbook will not support OSX beyond 10.3 from what I read in the past, and this quick search revealed this spec:

            PowerBook G3 400 (Firewire/Pismo) X 10.4.11

            So maybe the Pismo is up a version vs Lombard or maybe I was incorrect on the 10.3, in any event PPC versions of OSX are long dead. If I want to keep using my hardware, I turn to the open source community. Apple much like Microsoft is interested in selling you a new piece of software on a schedule, and after some initial problems with I believe OSX 10.1, Apple been pretty successful with there platform, kudos. I don’t want to get on the upgrade treadmill, I like stuff that works and I don’t mess with it for years. I’m pretty pissed at MSFT for wrecking Windows and I’ll be damned if I have to learn an entirely new corporate platform… ok rant off. You strike me as an informed consumer and that’s great. I’m the guy hanging out in the junkyard, looking to extend or reinvent exiting products both for personal gain or challenge as well as meet my cheap beliefs. New is not always better and old is not always bad, if I can purchase a well engineered product new or used and “run it” for as long as I like I’m a happy camperm but this generally runs against the principles of planned obsolence thrust upon us. I look at all sophisticated consumer electronics and I know its designed for a finite lifespan, and I’ll be happy to take it off your hands for peanuts after you buy it for high margin get your use out of it, and go wait in line for the next iteration… because I’ll extend its lifespan, I’ll hack the hell out of it if I’m interested and I’ll get good use out of it. Gotta go, been nice chatting.

            http://www.everymac.com/systems/by_capability/maximum-macos-supported.html

          • 0 avatar
            azmtbkr81

            @Vulpine

            Sorry if I misunderstood.

            I think it’s great that you’ve had such good luck with Apple products but claiming their commodity hardware to be vastly superior and expressing disbelief that someone had a less than positive experience with an Apple product makes you come across as defensive and biased (aka a fanboy).

            I’ve really tried to like Apple products but between a white MacBook that I could never remove smudges from, an iPod Nano with an LCD that went bad after a year, an iPod Touch that lost its ability to hold a charge after a year, and most recently my work iPhone I’ve come to the conclusion that their quality does not live up to the hype.

          • 0 avatar
            Vulpine

            @azmtbkr81: Have you ever thought it might be how you take care of them, too?

            First off, your argument about “… MacBook that I could never remove smudges from” is purely aesthetic; I highly doubt that had any effect on the operation of the device. I’ve seen machines covered in ‘grunge’ that worked as well. Sure, it’s nice to keep them clean and clean certainly helps machines last longer, but that complaint has nothing to do with the quality of the hardware.
            Secondly, while the components in an Apple computer LOOK like “commodity hardware”, as I stated before Apple demands very tight specifications on that hardware and refuses delivery if a given percentage of acceptance inspected parts fail tests. Apple has also been known to fire one manufacturer of components and go to a competitor if that company fails too many inspections.
            In over 30 years of using and owning desktop computers, I have had only ONE Apple product suffer “catastrophic” failure and that device was replaced free of charge and cross-shipped so that I received the replacement and was satisfied before returning the defective one. LCD that went bad? What happened? Water? Sun? Did it ‘frizz out’ or just go black? And what about that battery? Were you charging it every day, whether it needed it or not? Or maybe you simply let it run out of charge and waited a few months to try and recharge it?
            Believe it or not, electronic devices do need a certain level of care and regular use is one of those things it needs. Remember VCRs? How many times did you have to take the machine in for repairs because it stopped working or ate tapes? Exactly how often did you use it? As a repair technician, I had many of them come back on an almost monthly basis and in almost every case had to replace the belts. Why? They were only used once a month or so and usually sat on or under a TV which made it get very warm… causing the belts to soften and loosen. If it had been used even once a week the belts would have lasted far longer. I DO know how electronics work and I DO know that used regularly and properly they will last far longer than when unused or misused.

          • 0 avatar
            uofsc93

            Wish I was amish like you – unfortunately I need technology, even more so technology that’s user friendly and lasts. Even better, technology that has a nice aesthetic.

          • 0 avatar
            28-Cars-Later

            @uofsc93

            I’ll share this with you and make of it what you will. In September 2001 I was in my third semester of junior college, and I had just started a course in project management as part of my major.

            My instructor was a quiet little man, at best in his early thirties and oddly even for a part timer this was the only class he taught (and it was an Wednesday only evening class at that) but at first I made nothing of it. Our first class took place the week prior to the events of the second week of September and naturally our classes were cancelled the second, but he cancelled classes on the third, we had class the last week of September, and then he cancelled them again the first week of October. Students complained since accreditation was tied to class time, and we resumed classes the second week of October. He then explained his absences were tied to his primary job and were related to the previous events in New York and Washington. He didn’t go to much into it beyond to say he worked at C.E.R.T., which is a DoD funded computer security think tank at Carnegie Mellon University, and a condition of his employment at the university was he teach at least 3 credits (at any accredited college) a semester in order to maintain his job. Given the context of the time, everyone was quite intrigued and to be honest it was from this point on a boring class got interesting.
            While I’d love to tell you he divulged some kind of juicy tidbits, he didn’t. However what did start to happen was despite the dry material of the course the classes became very lively and philosophical as this gentlemen shared some of the things he’d learned from his education and unique work environment (none of which had any bearing on the class material). The philosophy that has stuck with me since then was of a theory a professor he knew had published, which stated technology would keep advancing at an every quickening rate until one day an event would occur and all technology would simultaneously fail (something to do with Chaos theory). I remember questioning this in class, and comparing it to the doomsday predictions we had all heard about Y2K as recently as 20 months prior. He chuckled and stated it was always known (to I suppose his colleagues) Y2K was a basic fraud, and this event would be something far more cataclysmic. Another classmate attempted to debunk the proposal and threw out Cold War scenarios (EMP etc), which the professor agreed were possible but considered them improbable. My professor believed this tech failing scenario would eventually occur to Man, and he believed when it did it would be by something we could not guard against… that perhaps the technology itself was the problem, too many layers of it on top of each other were doomed to fail.

            Personally I like technology to an extent, but I’ll never let it rule over me as I see so many other people do. Technology promised so many things which could “never happen” but did from the “unsinkable” Titanic to the “nuclear power is completely safe” Fukushima meltdown. This isn’t to say we should all live in the stone age, but to always take things with a grain of salt.

      • 0 avatar
        pragmatist

        That’s really the point. There is no law forcing people to buy through dealers. It works fine for the market to settle this out.

        The ONLY thing this article established is that the author felt it would work to Tesla ‘s benefit. Maybe so, maybe not. It DOES NOT justify a law forcing that business model.

        • 0 avatar
          Vulpine

          Actually? In a way, there is. Car manufacturers who already sell cars through dealers may NOT direct sell to the customer in most states. Laws are on the books and we have seen both here and elsewhere how many states’ dealers associations are suing Tesla in order to force the company to sell through a conventional dealership. Tesla’s advantage for the moment is that they simply don’t use a dealership and what sales locations they have now are little more than what you’d see at a travel agency with maybe (MAYBE!) One example of the Model S on the floor for a customer to look over and sit in. The dealers associations are trying to claim that such agencies qualify as a dealership.

      • 0 avatar
        Weapon

        Musk is open to letting others sell his cars. But through a retailer model, not a franchise model. If Best Buy came to Apple and told them we will sell your phone if you close down all your stores. Apple would tell them no too.

    • 0 avatar
      Pch101

      If you know anything about Apple, then you know that it charges substantially higher prices than its competition. So much for the benefits of vertical integration.

      “If they sold through dealers, you can bet there is not one dealer who would sell it for that price. The price would be $65,000 and that would include $600 for pin striping, $1500 for paint protectant, $900 for door edge guards, and $12000 for “market adjustment”.”

      The Tesla dealership would have a dealer mark-up ADM on the window, which I would ignore. After a half-hour or so of drama, I’d end up paying something under MSRP (hopefully, invoice) and put the savings in my pocket.

      Just like the Apple store, Tesla’s model prevents you from haggling. In other words, you get to overpay. Perhaps it comforts some people to be overpaying in the same amounts as everyone else, but I’d rather get a lower price, thanks.

      • 0 avatar
        piggybox

        That would be a different MSRP if Tesla were going to live with dealer networks. “After a half-hour or so of drama” you feel you saved some money but remember #1 rule of business: nobody is doing business for a loss.

      • 0 avatar
        Signal11

        Actually, if you knew anything about Apple, you’d know that they don’t charge significantly higher that it’s competition.

        There is a slight markup, but the reason that you perceive Apple merchandise as charging substantially more is that A.) Apple doesn’t sell on the low end and B.) Apple uses higher quality components.

        Once you match a computer spec-for-spec, inclusive of component quality such as view angles of displays, quality of keyboards, hinges that last more than a couple of years, glass trackpads that aren’t crap, etc, there is very price differential between Apples and other laptop manufacturers.

        • 0 avatar
          E46M3_333

          Bingo.

          Some people here should stick to commenting about cars…
          .
          .

        • 0 avatar

          Since many are not going to believe an assertion, let’s pick a good example.

          Apple’s iPhone 5S competes directly with the Samsung Galaxy S4. Both phones are $200 on contract.

          No currently available iPhone competes with the LG Optimus Logic, an Android phone selling for as little as $29 at Walmart last Christmas. There are excellent reasons why: The Logic is an absolutely terrible phone.

          People want an iPhone for the price of an Optimus Logic, and who can blame them? But one look at the Logic’s ghastly quality screen and other components indicates pretty strongly that it just can’t be done.

          Of course this is why “Android” as a group outsells Apple as a group – most of the Android phones are much closer to Optimus Logic than the iPhone, and can therefore be sold for a lot less.

          D

        • 0 avatar
          Pch101

          For the price of one Mac laptop, I can get two Windows laptops with larger screens and more storage space.

          The reason that Apple can produce 27 cents in net income for every dollar in revenues, while Dell makes less than a nickel, is because of the high prices that Apple charges for its products.

          You’re free to like them if you wish, but don’t kid yourself into believing that Apple’s markup isn’t high compared to the rest of the industry. And I can assure you that if car companies charged the sort of prices that produced 27 cents worth of earnings on every dollar taken in, then you’d be screaming bloody murder about it.

          • 0 avatar
            marman

            Dells markup would be just as high if they did not have to send a huge check to Microsoft for their crap OS and other Microsoft software. Apple makes the hardware and the OS, and the bundled applications. So there are no leeches sucking out the money, kind of like Tesla not wanting the leeching dealerships sucking out their blood

            The PC Cloners fight over the crumbs their “partner” leaves them. That is their business model and as Microsoft continues pushing into hardware and stabbing the likes of DEll, HP, Lenovo, etc.. in the back. They made their bed, and they can lay in it.

            Since we started by Macs here at home, we can not be happier. I just got a Mac at work finally and wow….i can actually do work since I dont have all the crippleware the crap Windows cloner machines come with to be somewhat usable.

          • 0 avatar
            danio3834

            “And I can assure you that if car companies charged the sort of prices that produced 27 cents worth of earnings on every dollar taken in, then you’d be screaming bloody murder about it.”

            Perhaps not if in this case it was an iCar sold at a factory owned “studio” where every customer equally pays the same exorbitant price.

          • 0 avatar
            Pch101

            “Dells markup would be just as high if they did not have to send a huge check to Microsoft for their crap OS and other Microsoft software.”

            The fact that I can buy two Windows laptops for the price of one Mac with a smaller screen and less storage is a strong indication that this isn’t true.

            Apple has done a fine job of cultivating a cult of buyers who will not only pay top dollar and then some, but who will also shout down anyone who is unwilling to pay those prices. I am very, very glad that cars aren’t sold with those same high margins.

          • 0 avatar
            marman

            sure you can buy two low spec, virus infested, crappy windows machines for the price of a far better mac with a far better OS, far higher quality, far higher everything. Just like you can buy two crappy Fords for the price of one Mercedes. Does not make the Ford better than the Mercedes.

          • 0 avatar
            marman

            don’t think you really know what those two words mean when used together.

            You stated you “saved money from a dealer” which i LOLd beacuse that is a fantasy…no one saves money at a dealership. I then pointed out direct you pay x, via a middleman you pay x+y so you in fact pay more. So that shot your next statment down.

            Based on these statements, you say you want the haggle dealership model over the direct pay like Apple stores have so you dont “overpay”. To this I ask why do you like government control over the auto sales business to which you are now saying is a strawman rather than simply saying why you want governmnet involvement.

            The only logical assumption based on your statements are you are either misinformed or work for a car dealership.

          • 0 avatar
            Pch101

            “no one saves money at a dealership.”

            Speak for yourself. Perhaps you don’t, but there are those of us who do know how to negotiate and who understand the dealer’s model well enough to avoid providing a 27% return to the dealership.

            “I then pointed out direct you pay x, via a middleman you pay x+y so you in fact pay more.”

            For some reason, you are under the misguided impression that factory-owned stores don’t produce any costs that have to be accounted for in the pricing. If you insist on believing that, then I can’t really help you.

            “To this I ask why do you like government control over the auto sales business”

            Then I guess you suffer from poor reading comprehension, since I never said that.

          • 0 avatar
            krhodes1

            @Marman

            Dell does not pay very much per Windows license, that is a bit of a red herring. Afterall, they also do not incur the TREMENDOUS costs associated with developing, maintaining, and supporting their own operating system. If anything Apple would likely be MORE profitable if they just sold Macs with Windows on them – assuming they could keep the same volume of course.

            Your hardware analogy is rather flawed. A Mac is not two crappy Fords vs. a Mercedes. It is more like a Ford with a custom body and interior. Same guts as everyone else. A Mac is an intel-based PC in a shiny case these days. And not a particularly high-spec one either.

            That said, my self-chosen work machine is a 2012 MacBook Air. Which runs Windows 8 very happily indeed. MacOS is not capable of running the software that I need to do my job other than through running a windows VM, and I can’t be bothered. Which is neither here nor there, as I do not think either OS is superior to the other, just different strengths and weaknesses. If anything, Microsoft is to be commended because Windows will run quite well on just about any combination of hardware under the sun, and Apple can only manage to achieve, at best, slightly better stability on the mere handful of hardware combinations that they have to support with MacOS. I am running Windows 8 very nicely on a 10yo machine – there ARE no 10yo machines that can run the latest version of MacOS.

            I chose the Air because at the time, there was no other laptop as thin and light with comparable specs for the price. The various non-Apple options were notably more expensive. This does show that Apples much vaunted supply-chain and production expertise DOES play a large role in how profitable they are. But also part of it is simply that the Air is a very low-spec stripped down machine. As you go up the Apple line, the value proposition goes out the window, especially on the desktop side of things. The latest iMacs and Pros are just silly, in both price and features.

            Ultimately, the crap-ware is part of the reason the Dell is so cheap. Those companies PAY Dell to pre-install that software. If you don’t like it, a clean install of Windows is quite painless, and you still reap the benefit of cheaper hardware. Or you can pay more and buy from the Dell business lines which do not include it.

          • 0 avatar
            Vulpine

            @krhodes1: “A Mac is not two crappy Fords vs. a Mercedes.”

            Sorry, that’s where you’re wrong. You say, “It is more like a Ford with a custom body and interior. Same guts as everyone else,” but if you really look at it, so is the Mercedes–by YOUR analogy. However, Mercedes tends to buy the best “same old crappy parts” they can and add a few custom designed parts of their own. Believe it or not, so does Apple. They don’t buy junk 5% tolerance parts, they pay a premium price for 1% tolerance or even tighter AND they test those components themselves to ensure they ARE in tolerance–or reject the entire shipment. How do I know? I’ve been there. I’ve had to re-calibrate testing equipment for a 100% QA verification of some million-plus inductors that are used in Apple’s products. Don’t even try to tell me otherwise. We simply added the rejects to Dell’s order–which was accepted without question.

            “There are no 10-year-old machines that can run the latest version of MacOS.” That should tell you something about what OS X is capable of. For one thing, it is capable of far more security than Windows 8–as it doesn’t have the legacy vulnerabilities that keep having to be patched. And that, too, is part of the point: legacy methods of automobile sales are stuck with the legacy drawbacks which include costs and risks. Remember that hail storm in Denver that totaled thousands of fresh-off-the-transporter cars. The dealerships took a HUGE hit which was only partially paid off by insurance–which also raised their insurance premiums for years, costing them even more up front. For almost five years, cars sold in Denver averaged about $1000 more than anyplace else in the country as those dealerships recouped their losses.

            Oh, and I’ve never laid hands on a Dell that I liked. Every one of them was built cheap, using cheap components and only rarely (maybe 10%) survived their 90-day warranty without service. If it did survive that warranty period, it usually lasted a couple of years. If it didn’t, it was a lemon for life. Conversely, I have NEVER had warranty issues with an Apple product except for ONE time–at which point Apple replaced the machine and cross-shipped it free of charge

          • 0 avatar
            28-Cars-Later

            @Vulpine

            “hey don’t buy junk 5% tolerance parts, they pay a premium price for 1% tolerance or even tighter AND they test those components themselves to ensure they ARE in tolerance–or reject the entire shipment. ”

            So what I’m hearing is a used Mac will be a nice pickup since it uses a superior hardware spec/tolerance, is this correct? Honestly I may have to look into this for a used buy, assuming swapping in new parts and/or batteries isn’t going to be, for lack of a better word, retarded.

            “Oh, and I’ve never laid hands on a Dell that I liked.”

            The only Dells I didn’t hate in the past ten years were the Precision series (CAD grade) laptops. I had an M90 and an M6500 at McKesson, the M90 was awesome I had it for three years and took it to hell and back (great Ebay buy for the right money folks). My current job provided me with a Latitude for the past two years which I hate, although supposedly I’m getting a new Precision in this year’s budget.

            “That should tell you something about what OS X is capable of. For one thing, it is capable of far more security than Windows 8–as it doesn’t have the legacy vulnerabilities that keep having to be patched.”

            That’s not a fair comparison because OSX was build on Darwin BSD and is now in its 9th iteration. Even if the whole thing was redone when they moved from PPC to the Intel version (10.5 maybe?) that’s still three to four versions under its belt each adding stability. Windows 8 is a tablet GUI built on Vista, which was garbage from the word go. I’m truly shocked they were able to patch it enough to get Win7 working. I actually read Vista was so horrible it was thought it actually increased Apple’s laptop market share in I believe 2007 from something like 3% in 2006 to 18%.

            If Microsoft had abandoned NT architecture after NT4 and built Windows 2000 on some variant of say System V or even partnered with Sun Microsystems and shared a Solaris codebase, and then kept up with improving each version, you might have a fair contest. Windows despite lame attempts will never offer the features or functionality of OSX and vice versa, hence the need to VM for business applications on Macs krhodes1 referred too. Apple was always about proprietary hardware and software sales (which was the traditional computer model), DOS/Windows were the exact opposite meant to run on any IBM and compatible of the day.

          • 0 avatar
            Vulpine

            In other words, 28-cars-later, you have to pay Apple’s price or higher for a quality machine. Yes, used Macs hold their value for years as hardware and they have proven faster and more stable running Windows than the majority of the ‘cheaper’ Windows-only PCs built at the same time. Yes, I will grant that 10-year-old PCs can run Windows 8 while 10-year-old Macs cannot run Mountain lion, but my 7 year old iMac is running Mountain Lion AND Windows 7. Obviously if it can run Win7, it can run Win8; I’m just not willing to pay $120 for Win8 when I only paid $50 for Win7.

            And I think the comparison between Win8 and OS X with legacy vulnerabilities is a valid one. You say OS X was built on Darwin BSD which, by the way, was a certified UNIX which itself is almost 70 years old UNIX is far older than any version of Windows and is still the most powerful computer OS on the market. The vulnerabilities, when they occur with EITHER OS, crop up in the user interface far more than in the root kernel.

            And your suggestion of Microsoft abandoning the NT structure is one I have recommended since Windows XP. When Windows 7 received a vulnerability patch to cover a hole left from Windows 95 (Yes, check it out–about 2 years ago now they released it) I knew they hadn’t done the one thing Windows drastically needs: A complete overhaul. Microsoft has worked so hard on the visible parts of Windows, painting pretty pictures and adding gewgaws, that they’ve effectively ignored the rust underneath that will eventually make the whole platform crumble. They keep ‘welding’ patches on the frame to the point that the thing weighs more than it was designed to carry and eventually something is going to give–making it totally irreparable.

            Why am I using automotive similes? Because they’re valid. Apple completely rebuilt the frame of the Mac OS first, then put a new engine in it with Intel processors. It looks soon like they’re going to put an even newer, more efficient engine in it, bringing mobile and workstation together in a way Microsoft’s Windows 8 platform only hints at. Unlike Microsoft, Apple had a roadmap plotting the least disruptive path for their users–one which now seems destined to attract even more former Windows users while even many hard-core anti-Apple zealots are bailing out of Windows for Linux.

            The point is that Tesla’s system, for now, is working well enough that Tesla simply cannot build their cars fast enough to meet demand, evidenced by the fact that they are expanding into additional parts of the old auto plant to increase capacity and build their next newest model due out next year. If, as some suggest, the system won’t work, Tesla should have already failed. Ford giving up their plan in only two years? They didn’t even give it enough time to get established, much less have any chance at success.

      • 0 avatar
        marman

        LOL. this sucker thinks he is “saving” money at a car dealership. ROFL….whatever you paid it was higher than you should have. Someone else got a better deal than you, and they still got screwed. The car dealer is not going to sell at a loss or break even…no where close.

        Having a price listed and that is what everyone pays is how it should be. If you think the price is too high, buy a different car, or a cheapo Windows cloner computer and think you are smarter than everyone else.

        • 0 avatar
          Pch101

          “The car dealer is not going to sell at a loss or break even…no where close.”

          Thanks for the strawman, but I’m obviously not expecting the dealers to lose money on every sale, otherwise they’d be out of business.

          However, some people pay a lot less than others. If you understand the dealer’s mindset, then it’s easy enough to manage them and their tactics.

          But shouting about them on the internet won’t help. It’s better to accept them for what they are, and then deal with them accordingly. Ruggles is a bit spamtastic in his approach, but if you read between the lines of his posts, then you can find some insights about how to beat them at their own game.

          • 0 avatar
            marman

            not a strawman, its a fact. If Tesla sells direct, you pay X. If you insert a leeching middleman dealer you pay X+Y. Genius to have laws written so you can leech in the middle. How about letting Tesla do what it wants. If not having dealerships works for them good. If it doesn’t sucks for them. Its Teslas money. The government should not be involved either way.

            Let the market decide if dealerships are the preferred method.

          • 0 avatar
            Pch101

            “If Tesla sells direct, you pay X. If you insert a leeching middleman dealer you pay X+Y.”

            If an automaker owns the store, then it has to cover the same sort of overhead costs that a franchisee has. The staff still needs to be paid, the property taxes still need to be paid, the landscaping still has to be tended, etc.

            The franchise model is prevalent thanks to Henry Ford and his desire to not hold inventory or carry the costs of the retail part of the chain. This saved him money and pushed the risks onto other people, while allowing his company to do what it did best, i.e. designing and producing vehicles, instead of retailing them.

            Tesla hasn’t sold many cars, and it hasn’t been making any money. Before you start putting all your eggs in that basket, you might want to first wait to see whether the company becomes successful.

          • 0 avatar
            marman

            I am not shouting. i am stating my opinion that the laws forcing a company to use franchised dealers is a horrible overreach of government. If Tesla or any company for that matter, wants to sell direct and not franchise, they should be free to do so; its their money.

            I really do not get why you want the government forcing a company to only sell though a middleman. If tesla can be profitable running its own showrooms/car lots/ice cream stands/whatever let them do it. If no one buys, then Tesla’s business will fail.

          • 0 avatar
            danio3834

            “I really do not get why you want the government forcing a company to only sell though a middleman. If tesla can be profitable running its own showrooms/car lots/ice cream stands/whatever let them do it. If no one buys, then Tesla’s business will fail.”

            Does your army of straw men ride on straw horses?

          • 0 avatar
            Pch101

            “I really do not get why you want the government forcing a company to only sell though a middleman.”

            Do me a favor — debate the arguments that I’ve made, instead of the arguments that you wish that I had made. I don’t appreciate the strawmen, and your desire to misstate my position makes it appear that you’re just itching for a fight for the sake of it.

            What I did say is a matter of historical fact: Franchises exists because the auto makers wanted to have franchises. If you don’t like it, then blame Henry Ford.

            Most manufacturers don’t retail their own goods. They wholesale them and leave the retail to others who specialize in it. There are a lot of reasons for that, one of them being that production and retail are very different businesses. Being a good producer doesn’t necessarily mean being a good retailer, and vice versa.

    • 0 avatar
      AdamVIP

      See the problem with your apple argument is that there’s a lot more things that can go wrong in a Tesla. In addition to breaking parts, you have wear parts, and fit and finish issues, and the fact that you cant exactly just pick up a car and walk into the store with it if something goes wrong.

      I don’t have the money for one so I dont even know how service works on a Tesla. What do current owners do when they need new brakes. What about when shocks and ball joints and other more technical parts need replacement?

      Im all for Tesla sticking to its guns and cutting out the middle man but the arguments presented in this article are pretty relevant.

      • 0 avatar
        brenschluss

        Service on a Tesla works as such:

        You make an appointment, and someone comes and picks it up at your home or work. In its place, they leave a top-spec model.

        I can’t afford one either, but this info is available.

    • 0 avatar
      Grunt

      so you suggest that the dealer spend a few million to establish a dealership that customers can purchase and maintain their vehicles for free? Your prices for all that add-on crap are obviously over the top to simply attempt to justify your disdain for auto dealers. As many know you can simply decline on that bs. Oh and a car is not an I-Phone.

    • 0 avatar
      jeffzekas

      +1 Dealers suck and the author of the article DOES sound like a shill for dealers.

  • avatar
    dwford

    The difference between what Tesla is trying to do and what Ford and Chrylser tried to do is that Tesla has no existing dealers to compete with. There is no vested interest being harmed by Tesla operating factory stores like there was with what Ford and Chrysler were trying to do. The dealer complaints about Tesla just seem like mobsters whining about not getting “their cut.”

    That being said, there is something to be said for the dealer model for Tesla. It would allow Tesla to sell their cars at a set price to the dealers and eliminate the pricing risk if sales fall. Let the dealer take the loss if they can’t sell the car. We have a 2012 Azera sitting in our showroom that Hyundai has long since stopped supporting with incentives. Eventually we will bite the bullet and take the loss on selling it, Hyundai’s got their money for it.

  • avatar
    abhi

    Doubtful.. unless Musk can dictate every single dealer abide by very strict standards I see it as a weakness to the brand. I agree that a presence is needed for repairs / delivery etc.. I fail to see what a sales side would do. I bought the wife’s last vehicle 95% through online emails simply because of past dealership experiences.

    • 0 avatar
      sparc

      Exactly. We shouldn’t simply allow franchised dealers to use laws they essentially bought and paid for to extinguish a completely valid sales model. There’s nothing truly wrong with Tesla selling directly in the modern era. I think most people only need a local place for test drives at best outside of service centers for new car purchases. I wouldn’t have problem with buying and paying for a car through some sort of online sales model.

      We need fresh disruption of the existing car sales model as it is completely stacked against the buyer. That’s an easy reason to keep pushing Tesla forward since they’re the best chance we have to fix the system.

  • avatar
    thegamper

    I think in certain states, the cards are definitely stacked against Tesla’s business model with franchise laws firmly entrenched. Tesla does need growth, but I think if it just decides to play ball with the likes of GM, Toyota, etc, it will just become another car company and lose whatever luster it has in the eyes of consumers.

    I would certainly love Tesla to take on state franchise laws and put the dealership model under the microscope. But I can appreciate what the author is saying about being practical and growing a company/brand. If Tesla does do dealerships, I think you need to totally reimagine the car dealership. Dont call it a dealership first of all, have completely transparent pricing policies, totally eliminate dealer incentives to sell BS crap that has no value to the customer, essentially make dealerships an arm of the mothership with the client the only thing that matters.

    People hate car dealerships because they never know if what they are paying is fair, and the dealerships try to bleed ever more cash from the customer at every corner.

    Dealerships do not have to be the dirty vile things they have become with other car companies, with a clean slate, I think Tesla could build an experience buyers appreciate.

  • avatar
    DeadWeight

    Dealer franchise law, as it exists in nearly every state, is the product of a bygone era, perpetuated by a corrupt process of collusion between automotive dealer franchisees & state level legislators, that adds dramatic & wasteful transaction costs & unnecessary complexity to what could & should be a far more simple, efficient process of purchasing a consumer product.

    It has been estimated that the archaic layer of legislation forcing consumers to purchase vehicles from an unnecessary network of independent “vehicle stores,” which can be rationally argued to be the byproduct of political graft and quasi-racketeering, limiting true market competition, can add as much as 12% to the actual transaction (not MSRP) price of vehicle purchases.

    In the current era, with incredible technological advances compared to the era when existing dealer franchise laws were codified, there’s absolutely no legitimate reason hat the process of purchasing a vehicle should not be modernized, eliminating redundant and/or unnecessary processes, and introducing efficiencies that would both lower the prices paid by consumers while expanding the ease by which they are able to shop for & purchase their vehicles.

    The dealer franchise laws are nothing short of a anti-competitive racket, dramatically increasing transaction prices, limiting consumer choices, and reducing competition, all to the benefit of the politically powerful National Auto Dealers Association, and to the detriment of both consumers and manufacturers.

    • 0 avatar
      brenschluss

      Bingo.

      I can see no reason beyond graft why car dealers are allowed to have their monopoly on the process of purchasing a car.

    • 0 avatar
      Landcrusher

      A bit hyperbolic, but looks about right to me.

    • 0 avatar
      Jeff Weimer

      That’s called “regulatory capture”, and is the very reason why you can’t buy a casket from anyone other than a “certified” funeral director, or why Amazon has suddenly gotten behind online sales taxes.

      The apocryphal “bootleggers and Baptists” is the example – they both want alcohol to be banned or restricted, but one wants it for moral reasons, and the other wants to protect his business and profits. The customer isn’t really a concern.

    • 0 avatar
      lmike51b

      My thoughts exactly. Most of the benefits derived from this structure are for the dealerships and the politicians.

    • 0 avatar
      Lorenzo

      You’ve spelled out why Apple is a bad example. Apple HAS company stores, in addition to a distribution network. Other manufacturers have factory outlets and company stores, even McDonalds has company-owned stores in addition to its franchisees, but auto makers alone are forced to sell to a middleman.

      I suspect the automakers are rooting for Tesla as a wedge to attack the mandatory auto franchise system. Yes, it’s political, with dealers making payoffs to politicians, but you could make a legal case for restraint of trade, or even a RICO charge against dealers and the states with franchise laws. That would have to be a DOJ operation with a national, not local/state application. Only federal courts can break this racket.

    • 0 avatar
      E46M3_333

      Don’t dealer lots basically serve as the manufacturer’s finished goods inventory? Where to you put the cars so people have access to them for tests drives, etc? Doesn’t it cost money to inventory the cars?

      • 0 avatar
        danio3834

        “Doesn’t it cost money to inventory the cars?”

        Yes, lots. Dealers stock lots of cars because cars can be ordered in many more combinations than phones. Tesla has a mostly build to order system going on now which low volume, high margin markets can tolerate. It doesn’t really work for the “walk-in, sign, and drive!” folks.

        If they plan on getting into the lower end volume markets, they will need to figure out a way to keep lots of different cars on hand somewhere for customers to test drive, and pick from. This will add overhead costs which traditionally are carried by the “middleman” dealer that so many here are talking about. This is one reason why I think the premise of this article is correct and that Tesla may want to consider giving in and allowing franchised dealers to accomodate the lower price, high volume market.

  • avatar
    sirwired

    Why would it cost a half-billion to set up 100 dealerships? For a low-volume, limited-selection company like Tesla, a large, elaborate, facility is not required, especially if most units are special-ordered. 4-5 sales/finance staff, three mechanics, and a couple administrative people should be enough to staff a small dealership. Such a facility would require a minimum of real estate (little space is needed for inventory, as they are still a custom-order operation.)

    In any case, this represents the best chance there will be for a while to break the ridiculous franchising laws.

    • 0 avatar
      dwford

      $5 million per store is not crazy given land costs, construction etc

      • 0 avatar
        jpolicke

        Construction? Why? Tesla has a model lineup 1 car long; if the X arrives as promised then they’ll have 2. The buyers have shown they’ll wait a few days for delivery, so all you need is one demonstrator per model. You can fit 2 cars in a storefront at a mall or any other retail space.

      • 0 avatar
        Weapon

        What land costs? Tesla rents small locations in malls and has service centers in areas where land is much cheaper. The reason why a dealership costs a lot to keep is you need to buy a large lot at prime locations. Tesla rents a small mall showroom, keeps 1 or 2 cars in the mall parking area and then service centers are bought in in areas where land is cheap and keep 6 loaners.

        I would bet the costs are closer to 1 million per service center + mall location.

  • avatar
    campocaceres

    I don’t keep up with Tesla closely at all, but I don’t get the impression that high volume is their goal just yet. I mean we are talking about cars that still have a long way to go before a widespread infrastructure can be established to keep these cars going.

    No doubt their PR and legal teams will continue to chug away full time for the next years to come, but I would think outgrowing the infrastructure would be a bigger black eye on the company in the long term than yet another lead balloon boy.

    • 0 avatar
      Vulpine

      “Widespread infrastructure”. You mean like coast-to-coast SuperCharging stations which can recharge the car’s batteries in an hour? You mean like service shops in several large cities around the country already?

      Tesla is already more widespread than you know and is continuing to grow at a steady pace and THAT is why the dealers associations are crying. I’ll admit I don’t know how many Tesla cars are on the roads right now, but I do know that there is a SuperCharging station less than 5 miles from me and a service shop within 50 miles. I live on the east coast, almost 3,000 miles from Tesla’s manufacturing plant.

      • 0 avatar
        srh

        I do follow Tesla. I’d love to have one. But the “coast-to-coast supercharging” rhetoric is just silly.

        Yes, someone can drive coast to coast using supercharging stations, if they happen to want to take the exact route that Musk took. And if I wanted to drive from Washington to Montana via Las Vegas, I guess I could.

        But the reality is that the majority of long-haul trips /cannot/ be done conveniently using supercharging stations. The majority of people are not within a convenient distance of a tesla service shop.

        The infrastructure is getting better, but it’s a long way from ‘widespread’.

        • 0 avatar
          Vulpine

          Why is the “rhetoric… just silly”? The fact is that Tesla as a brand is only a very few years old and the infrastructure is growing rapidly. Sure, it’s still somewhat limited at the moment, but what you’re looking for isn’t all that far away. A little patience and we could see Supercharging stations at nearly every rest stop, many restaurants and who knows where else before this decade is out, letting you drive anywhere you want and probably as conveniently as using conventional gas stations today. More, Tesla has also demonstrated a newer technology that could make ‘recharging’ your car even faster by simply doing a 90-second battery swap for about $50 bucks (about what you pay for 15 gallons of gasoline today).

          Sure, not all of that is in place YET, but Musk appears to be going out of his way to make it happen sooner rather than later.

        • 0 avatar
          RussellL

          “The infrastructure is getting better, but it’s a long way from ‘widespread’.”

          It’s still WAY better than what other manufacturers are doing.
          If someone were to drive coast to coast in ANY OTHER EV or hybrid, think of how many times they would have to stop to charge or refill for gas.

        • 0 avatar
          Weapon

          The reality is, most people don’t drive coast to coast, they take an airplane. That said Tesla is going to be rapidly increasing their superchargers and will have 98% of the US covered by 2015.

          And your incorrect, the majority of Tesla owners are within a convenient distance of a service shop. See here is what makes Tesla different. Tesla knows where the customers are when they buy their car. And they build superchargers and service centers near their customers. To a Tesla customer, it is “wide spread”.

          This is something that big brands can’t do because they have to have a service center “everywhere”. But with Tesla, the infrastructure grows with the company and is conveniently places where their customers are.

          If your not next to a service center for we reason, Tesla will send a ranger to your house.

  • avatar
    jmo

    “I am also not shilling for automobile dealers”

    Uh huh…

  • avatar
    Vulpine

    I’m going to disagree, in part because you made one mistake in your introduction. “… who wouldn’t root for a man who is a combination of P.T. Barnum, Soichiro Honda and Bill Gates, …” It’s not Gates, but Steve Jobs in this case. In fact, Steve Jobs was one of the investors that helped Musk with the Tesla concept and advised Musk on a number of aspects of the new business. That is one reason why Musk is flat-out avoiding the conventional dealership paradigm.

    Why? Because working through a dealership costs more money and seriously hurts profits in the long term. A dealership can choose to undercut the MSRP or grossly exceed the MSRP and the manufacturer doesn’t see any difference in their profits from it. With a vehicle like the Tesla, this really means lost profits because a dealer is far more likely to overcharge for the car than undercut and do what it can to gouge the company for any warranty repairs. Rather than fight that, direct sales with company-owned service shops gives the buyer/owner a much more personal and enjoyable experience. Why drive your ailing car to a shop when the shop will pick it up on their own dollar under warranty? Why put up with a waiting room or wait for a courtesy driver to get you (late) to work when the car is picked up and delivered? Why put up with sometimes high-pressure sales techniques or settle for what’s on the lot when you want a car built to YOUR specifications?

    I, for one, HATE the “package” deals you get with new cars. Why do I have to have SYNC if I want a Ford King Ranch? Why do I have to have that ugly chrome surround on the grill if I want a RAM Longhorn Edition? Why do I have to buy a Denali edition if I want projector beam headlights on a GMC Sierra? What if I want an available color that dealerships tend not to carry? I’m sick of silver, grey, white, black and red. I WANT MORE CHOICE! I want to go back to the A la Carte system of ordering and Tesla offers that to some extent. That’s the advantage of Direct to Consumer manufacturing. Apple has been doing it for well over a decade and Apple saw 4000% growth in computer sales because of it.

    Tesla has already sold more cars across the country than it would have through a single pilot dealership. In essence, the old dealership paradigm is obsolete with the exception of some few who go out of their way to purchase and custom-modify their showroom models to a customer’s desires. Why are other dealers squawking like chickens? Because they see their heads getting cut off by a better system–one that puts the customer’s satisfaction over the dealer’s profits.

    • 0 avatar
      Quentin

      I’m an Apple fanboy, and I have to disagree with Apple being able to offer more options because of their retail stores. They are still pretty well constrained in what sort of builds you can do. If you want the standalone graphics card, you have to get the 27″, for example. You have more variety if you would build a conventional Dell desktop. That said, I think that Apple’s focus, rather than offering everything under the sun, ensures that they have very few “bad” products. My household has had 2 imacs, 2 macbooks, 2 apple tvs, 4 iphones, 4 ipods, 1 airport extreme, and I’m sure more things I’m forgetting. Short of 1 ipod, they’ve all been great products. I was an Apple “hater” up until their intel iMac won me over in ’06. haha 7 years later, they are my go-to company because I have very few if any complaints of anything I’ve bought from them.

      Anyway, I see the retail side being owned by Tesla as a huge improvement in the customer experience and allowing the manufacturer to cut out a middleman. The rare occasion I’ve had to get something fixed on one of our apple products has been a great experience. I used their app on my phone to set up an appointment with a store in Pittsburgh when I was visiting my brother. We brought the laptop in, the replaced the cracked bezel no questions asked, and we were out in no time. The macbook that came out 6 months later had a different design that didn’t have the cracking issue. With the manufacturer owning the retail stores, the quality engineers could be dispatched to the store to see field issues quickly and accurately rather than trying to coordinate through a dealer that often time wants to replace the component and get the customer out of their hair. You don’t have the dynamic where the dealer has to make a judgment call about covering something under warranty worrying if the manufacturer will cover it. As a customer, you don’t have to go to the dealer, get denied coverage on something that has a TSB but you are just out of the warranty, call corporate, get a ticket opened, and then corporate comes back and agrees to cover parts or labor. I’ve had friends get just-out-of-Applecare replacements as an act of goodwill because you give the people at the store the power to make that choice without worrying if their individual store will have to eat the cost. Happy customers are future customers. That is the beauty of Apple retail. They have a no pressure sales method that lets you play with their products without having a saleshawk making the experience uncomfortable. The supply chain is nice and short so they can meet customer demand quickly. The after-purchase experience is far better.

      In a past life I was an automotive quality engineer. There is absolutely no reason I should have gone through the hoops I did to see a failure in the field. The info I got back from warranty was only as good as the dealer decided to make it. If you want accurate information quickly, you go to the source. The dealership manufacturer relationship is a roadblock to that source.

      • 0 avatar
        Vulpine

        That’s not because of Apple retail stores; you have the ability to order a PC direct from Apple (and many other brands for that matter) equipped almost exactly the way you want it. sure, just like cars SOME options aren’t available on all models, but you can choose to accept or deny certain options from higher-end models. Maybe that standalone graphics card simply CAN’T fit in a 21″ iMac–ever think of that? On the other hand, maybe you don’t WANT it in that 27″ model. That’s my point.

        Tesla currently gives you much of that same kind of capability with how they’re selling the Model S.

        • 0 avatar
          Quentin

          I’ve ordered all of my macs from the online store and “a la carte”. My last iMac was the 3.4Ghz i7, 4GB ram (updated to 16GB aftermarket for a cool $92), 2GB vid card, etc. The form factor likely limits the options more than anything. If you stick with a standard HP desktop, for example, there tend to be more options. Maybe a bad example as we were looking at things from a different perspective. No malice meant.

          The short supply chain of Apple, helped by being able to closely control inventory in their retail stores and online store, which is the complete opposite of the automotive setup, allows them to quickly turn around an a la carte order, and I do think that is applicable to Tesla. A dealer just adds another set of wants and demands on the manufacturer that makes things worse for the customer. When I bought my 4Runner, it was nearly impossible to find a Trail Edition because dealers around here thought they’d have trouble selling a $40k SUV with cloth seats. Selling the SR5 with leather for $36k was a much easier to Joe-off-the-street, so that is all they ever order. Dealers also want to put you in what they have instead of ordering what you want even if it is available.

          What is interesting is that Jobs went to Japan and really studied JIT automobile manufacturing when they were getting ready to manufacture one of the earlier computers. It is pretty clear that the JIT philosophy continues at Apple. The car buying experience I want apparently exists in Japan. Supposedly, Japanese dealerships are set up to where you have the basic vehicle in the showroom and the normal thing to do is pick the options, place the order, and pick up the car a few weeks later rather than buying out of dealer stock.

    • 0 avatar
      mike1dog

      I hate to tell you, but Tesla does packages just like everyone else. The “Tech Package” has a bunch of useless things like lighted door handles along with some things you would want.

  • avatar
    eamiller

    I don’t think Elon is the quitting type. If anyone can change the corrupt dealer franchise laws, it’s him.

    I don’t think demand is softening for Tesla because of a lack of a dealer network. I somehow doubt flashy Sunday paper ads and obnoxious TV/radio jingles are the ticket for more sales of the Model S. I think that, ultimately, the market for such an expensive car is limited (and being electric further artificially limits the market for the time being).

    Instead of editorials like this, we should be cheering on Elon and Tesla. The only people who like dealerships are the dealers themselves who have carved a nice little protected monopoly for themselves through corrupt state politicians. It would be nice for someone to challenge the establishment.

  • avatar
    Robert Mark

    I am not aware of a single consumer protection that is accorded to auto buyers through a franchised auto dealer that is not also available when buying direct through the company.

  • avatar
    Robert Fahey

    If the technology in a Tesla becomes commonplace — and that could take a decade — I can see Tesla entrusting its product to a traditional car dealership. Until then, Musk is right when he looks askance at car salesmen and suspects they would give Tesla products short shrift. Car salesmen tend to shy away from anything really newfangled. It takes a lot of time and effort to educate them on something completely different, and for them to pass on the knowledge to the customer. It’s much easier to sell something everyone understands and has already tried. So maybe in 2023 or so, we’ll see Tesla and Toyota together in a parking lot — or a mall kiosk!

  • avatar
    Pch101

    If Tesla becomes a major producer (and that’s an “if), then yes, it will need to set up a dealer franchise network, as there is only so much volume that its current approach to retail can handle.

    But for now, it would be an incredible mistake. Right now, Tesla gets to build for wholesale and sell for retail. It also doesn’t have to operate a captive finance operation in order to provide financing to a dealership network. Even though it sells at MSRP instead of invoice, it’s still losing money. Remove the retail margins from Tesla’s revenues, and the company will produce even more losses than it does now — when Musk claims that he plans on hitting 25% gross margins, that goal is only possible because Tesla doesn’t have to sell cars for invoice.

    Tesla also has to deal with what is referred to in technology markets as a VAR problem. Namely, the value-added reseller (the dealer) has very little motivation to push a particular brand above another, since it is better off if it makes the easiest sale available. Since selling an EV isn’t easy, Tesla is better off having a completely dedicated sales network that is not at all tempted to push the customer toward another automaker’s vehicles.

    And at the current low volumes, Tesla doesn’t have enough volume at its price points to support a dedicated dealer network. A dealership needs to consistently move a certain amount of product in order to produce a proft, and Tesla can’t deliver anything close to that sort of sales volume.

  • avatar
    jmo

    “Word came this week that Tesla has been quietly selling vehicles to rental car companies Hertz and Enterprise”

    Quietly? It’s part of a huge joint marketing campaign.

    In addition – if you’re talking about the Monday morning flights into SFO from Dallas, Boston, Austin, LA, Seattle, etc. I’d be willing to bet at least 30% of the passengers could afford a Tesla.

  • avatar
    7402

    The staff at our local Tesla showroom are knowledgeable, courteous, and easy going. The third (third!) time I passed through one staffer suggested I provide an e-mail address so they could contact me when the Model X is available (better choice for me than the Model S). They were not insistent at all. I did and a few days later received an e-mail message inviting me to respond to schedule a test drive in a Model S. They have never contacted me again–not a phone call and no e-mail beyond the original offer. Meanwhile, car dealers where I stopped in as much as two years ago continue to send me daily e-mail messages and call me periodically. I advise anybody who is competitively shopping for a car in the traditional dealership space to set up a dedicated e-mail address and get a burner cell phone.

    You bet I’m going to try a Tesla next time I buy a car. Even if I didn’t love their product (which I do) I want to give them my business simply to do my part in changing the car-buying experience.

    Tesla is absolutely making the right move by avoiding the established dealership route. It will no doubt cost them trouble and a protracted legal battle, but Musk and his advisers know they are playing the long game. Nobody wins at chess by sacrificing powerful pieces early on.

    • 0 avatar
      Lie2me

      ” Meanwhile, car dealers where I stopped in as much as two years ago continue to send me daily e-mail messages and call me periodically”

      This

      Even the dealer I ended up buying my most recent car from does this. I’ve even tried to tell them, “Hey, you won, I bought the car from YOU” Nope, still sends them every day. I’ve just redirected them to spam

  • avatar
    jmo

    “Hertz (HTZ, Fortune 500) announced Wednesday that it was adding Tesla’s (TSLA) signature model to its rental fleet as part of its “Dream Cars” line, which also offers high-end rentals from companies like Ferrari and Aston Martin.”

    and that’s news on every site cnn.com, cnbc, bloomberg, etc.

    That’s hardly “Quite”.

  • avatar
    Kenmore

    This is a burning issue and I’m glad it’s being addressed.

    It could landmark whether I eventually get to buy Datsuns on my Amazon card.

  • avatar
    morbo

    “I am also not shilling for automobile dealers”

    LIAR! BURN THE WITCH, BURN HIM!!!

  • avatar
    DC Bruce

    The best evidence for the auto dealer protection acts being an anti-competitive scheme is that, in many states, there are similar laws prohibiting “company store” gasoline stations. Beginning about the time of the first Arab oil embargo (1973) the original “service station” (where fuel, tires, batteries and accessories were sold and repairs were done) concept was attacked by the oil companies who were trying to bring some efficiencies to their supply chain and reduce the retail price of their product (which had gone up sharply as a result of an equally sharp increase in the price of crude oil). So, they came up with the concept of high-volume gasoline-only outlets where the customer pumped his own gas. This allowed them to undercut the price of the less efficient dealer by a few pennies, and the dealers went into a panic and called their friendly state legislators. Presto! Company stores were outlawed in many states. In New Jersey, it was made illegal for the customer to pump his own gas (unsafe!), a law that is still on the books today.

    So now you have franchised high-volume, self-service pumpers instead of company-owned high-volume pumpers.

    Exxon challenged the Maryland ban on company stores and lost at the Supreme Court.

    Of course, Congress could pre-emptively prohibit any requirement that cars, or gasoline, be sold only through independently-owned dealers. That might have a shot of getting through, since the public perceives the “value-added” by car dealers as a negative number.

    The company store gives the manufacturer two very valuable tools: (1) the ability to control the retail price of the product and (2) the ability to control the “customer experience.” Together, these help the manufacturer avoid having its product become a commodity product, where the only competition with other manufacturers is on price. To see what that’s like, look what happened to the PC industry. A “WinTel” PC has become pretty commoditized. Apple has avoided this with the Mac, and the Apple Store (which sells a lot more than Macs) is part of the effort to keep the Mac from falling into the commodity pit with WinTel PCs.

  • avatar
    highdesertcat

    I’m not in the market for an electric anything but I hope that Musk will not succumb to pressure of selling his products through “dealerships”.

    I hope he can accomplish what Tucker could not, namely, manufacturing and selling his product on his own terms.

    For the believers, his products provide exactly what they bargained for and return fair value for the money they were willing to spend on it.

    Adding dealerships to the retail side only increases the cost and frustration to the buyers and decreases the profits to Musk and his company.

    Numbers, as in the number of Tesla’s sold, don’t tell the whole story but exclusivity does, and Tesla buyers are a cut above the average middle-class Joe. For the middle-class Joe there is the Prius or the Volt.

    I say, no dealerships to clutter up the distribution chain for Tesla.

  • avatar
    suspekt

    They should sell Tesla alongside Scion…. there is already an entrenched business relationship (between Toyota and Tesla) and I actually believe the two could co-exist without passing along exorbitant markups… could really be a win-win scenario…. I really want to see Toyota up their stake in Tesla

    • 0 avatar
      MLS

      Is that a joke? Sell $70K Teslas beside sub-$20K Scions? There’s a reason Hyundai will pick up an Equus from the owner’s home or office for service and leave a loaner behind, and that reason is the Equus buyer’s reluctance to mingle with sub-prime Accent buyers in the waiting room of a Hyundai dealership.

  • avatar
    cltwxguy

    One of the most disappointing editorials here to date. The automobile dealer network is so outdated in today’s economy. Kudos to Musk for exposing this, I hope he keeps trying and succeeds in dismantling this antiquated modus of buying vehicles.

    • 0 avatar
      highdesertcat

      Not disappointing. Thought provoking!

      Anyone who ever had a bad buying experience would long for the opportunity to buy direct from the factory.

      Back in the sixties and seventies that opportunity did exist to buy directly from Volvo, VW, Porsche, Mercedes, BMW and even Fiat, and pick the vehicle up at the factory.

      Many GIs stationed abroad did just that. Others had their new cars delivered stateside, to be picked up at the port.

      I have four brothers who spent more than 30 years in new-car retailing but I have NEVER, NEVER!, bought a car from them.

      The people who bought directly from Tesla must realize what a great feeling it is to not have to deal with a dealership. That’s why I am in favor of buying new cars through Big Box stores, like Costco or Sam’s Club.

      • 0 avatar
        Adi

        Yes, disappointing.

        Thought provoking as well, and that’s good. But the article is poorly written and/or documented. The coming 2014 Tesla will be called Model X, in line with the naming convention which produced the current name, Model S. So not X Model. This alone is proof enough that the writer of the article is not a close follower of Tesla and their products. Also, Musk made it clear from the very beginning that the Hyperloop won’t be a vacuum tube, and the point was stressed again and again, in the alpha-stage designs and the ensuing discussions. Clearly disappointing piece of journalism.

  • avatar
    audiphile

    Part of WHY people buy Teslas in the first place is because the car and the company is DIFFERENT. They travel longer distances and jump through many hoops just to acquire this car. Many of the wealthy people who are looking to stand out and be different will go back to other manufacturers (Germans) if Tesla becomes just another stealership network. Tesla is an American car to be proud of, and it should be a start of the dealership-model reform.

  • avatar
    enzl

    Disclosure: I am an employee of multiple franchised auto retailers.

    With that said, although the worst transgressions of the dealer body have rightfully seared their way into the collective conscious, the state franchise laws do have a practical purpose of preventing direct factory competition, which, given the capital required to put together a dealership, seems fair.

    Even if you completely disagree with the above, I still believe that there are great potential Tesla dealers out there, and Mr. Musk is lucky enough to be able to hand pick each one. Tesla will need growth one day, and increasing retail presence (on someone else’s dime) seems like a great way to do it.

    • 0 avatar
      DC Bruce

      I never expected to see the “prevent competition” argument stated so baldly.

      Why is it “fair?” Is a person making any capital investment guaranteed a return? Is it not “fair” if he isn’t? Think of all the people who invested in Research In Motion, the guys who brought us the BlackBerry. Is it unfair that the rise of the IPhone and various Android phones have rendered the BB virtually obsolete and has cratered the value of their capital investment?

      And, since we’re talking about “fair,” is it fair to the public that competition –which usually lowers prices and/or increases value — be reduced?

      • 0 avatar
        Pch101

        “Is a person making any capital investment guaranteed a return?”

        A shareholder and franchisee are not comparable.

        The franchisee promises to commit time, money and effort in exchange for some sort of exclusive arrangement. Presumably, the franchisor and franchisee enter into this sort of partnership because there is mutual benefit.

        The franchisor gets the benefit of not carrying the burdens of the retail business. The franchisee gets the benefit of having a dedicated territory that is contractually protected by the franchisor.

        A franchisee would be a fool to enter into an arrangement in which the franchisor could take over a territory whenever the franchisee proves that the location has some value. A franchisor that cherry picks its territories is not the sort of business partner than anyone smart would want to have.

        • 0 avatar
          marman

          you do not need laws to do that. If you are signing up as a Franchisee, you should have something in your contract stating the Franchisor can not do that. If you do not, that is your fault. No need for the government to pass laws to make your business model viable

      • 0 avatar
        enzl

        Dealers aren’t sympathetic figures in any way, however, the idea one could invest millions for a franchise and then have the corp. you franchise from open a store across the street and decimate your investment in months…I don’t see how that’s ‘fair’ competition that’s being prevented.

        I welcome Tesla, however, I agree with the author that the effort to break franchise law will fail and some other path needs to be considered.

    • 0 avatar
      mnm4ever

      Haha, see what I mean? Complete crap. They have laws to prevent competition, because it costs a lot of money for them to start a car dealership. Wouldn’t it be nice if every business owner had such protection? They all cost a lot of money to start. Why should a Hooters be allowed to open up next door to a Winghouse? That’s so not fair!

      The dealership laws were put in place so that a Chevy dealer who spent a lot of money starting his own business did not find himself in direct competition with a factory-owned Chevy store selling the same product for less money. It does not affect the Chevy dealer if a factory-owned Ford store opens up next door selling Fords. Same with Tesla, the competition argument doesn’t apply. Just BS twisting of the laws. If Tesla, who has no dealers and never had any dealers, decides to never enter into the licensed franchisee dealer model, then why shouldn’t they be able to use factory-owned stores?

      • 0 avatar
        Vulpine

        The problem we run into with your argument is that several states, if not most, have laws absolutely preventing any factory-owned dealerships whatsoever–even if the factory is an absolute unknown that has never sold in that state before. As such, Tesla simply cannot open a factory store and MUST work through a traditional dealership–even if that dealership itself is brand-new and never before licensed. It MUST be owned by someone who has no direct connection with the manufacturer in any other way.

        • 0 avatar
          marman

          ok. so those anti-competitive laws should be thrown out. Again, if you are signing up to be a franchisee, you should be certain something is in your contract which says the franchisor can not open up a store next door. Why does the government need to be involved?

          Tesla should be able to sell direct if they want; its their money and their choice. If the business model fails because people want to work with a franchised dealership, let Tesla fail. Government has no business being involved.

      • 0 avatar
        Pch101

        “Why should a Hooters be allowed to open up next door to a Winghouse?”

        The Winghouse franchisee doesn’t have a contractual arrangement with the Hooters corporation. There’s no comparison.

        If you already own a Hooters and it’s successful, then the last thing you’d want is to have the corporate office cherry pick your location, by building a bigger and better Hooters across the street after you’ve gone to the trouble and expense of proving that the location works.

        • 0 avatar
          mnm4ever

          @pch… i was being sarcastic, I know why that is.

          And I am not arguing about the franchise laws protecting existing dealers from their brand manufacturers. I was speaking to the “competition” arguement relating new manufacturers such as Tesla affecting existing “other brand” dealerships.

    • 0 avatar
      Big Al from Oz

      @enzl
      I believe anyone should operate a business anyway they want, so long as they don’t steal, lie and cheat.

      If someone can come up with a better model to sell, why not?

      Just because a system exists doesn’t mean it’s the best possible system and protecting that system can only reduce the benefits to the consumer. It called protectionism, a very inefficient tool.

      If the franchise model is no longer relevant in providing the consumer with the best possible price, then adopt and change.

      The existing franchises can come up with an agreement for the manufacturers to buy them out or whatever.

      I mean how secure are these franchises? How many were closed down after the GFC?

      Evolve or perish.

    • 0 avatar
      Whatnext

      So buggy makers should have been allowed to shut down the first car dealers, beacuse they had already invested a lot of capital in making buggies? Time moves on.

      I can’t think of anyone who has said they enjoyed going into a dealership fre the car-buying experience.

  • avatar
    olddavid

    I cannot understand how a human being of average intellect would ever spend five cents in a disagreeable environment. The dealers of whom you bitch are obviously getting money from someone. Who? Why? I read that one commentator doesn’t want to buy from stock. Then, why do you? You couldn’t be bothered to find some honest, capable store to order a car for you? What part of free will to get up and leave allows anyone to stay and actually buy a vehicle from one of these stores? I cannot for the life of me figure out how these system and bait and switch stores continue to stay in business. Yet, they are always very high on the volume lists of every manufacturer. Someone is obviously buying from them, then leaving with a bad taste in their mouths. You – the public – continue to do this and the same problems perpetuate. There are honest and fair individuals out there in the dealer body. Find one. Can it be harder than finding a good dentist? You’re going to spend a ton of money over a lifetime with each one, at least if your kids need braces, anyway. You guys that spend anyway, under the mistaken idea that the car dealer X has in stock is what you have to have are as guilty as the assh#*e you bought from. The car business is cash and contract dependent. Starve the beast and it dies. Our family store was finally bought out because the system stores won the battle. From 1950-2000, people voted for what you have now in the truest way – with their money. The problem with the car business is in the mirror, folks. P.S.- I ran into two carloads of Tesla guys in the SoDo neighborhood while renewing my passport. They suffer from the same entitled arrogance that your local chain store sales manager exudes. Be careful what you wish for.

    • 0 avatar
      Robert Mark

      Methinks thou dost protest too much.

      • 0 avatar
        olddavid

        Probably true. Retirement is a decidedly mixed bag that I am still adjusting to. But, just saying I won’t scream to get off my lawn doesn’t mean I won’t, just that I’ll try. I could have been more diplomatic. My apologies for the inflammatory rhetoric. My mirror is also filled with the guilty.

        • 0 avatar
          highdesertcat

          “Retirement is a decidedly mixed bag that I am still adjusting to.”

          You may wish to consider that retirement IS a full-time job.

          I’m currently helping a friend adjust to his recent retirement at age 65 after 47 years of various career employment, and urging him to re-focus from his past accomplishments to his as yet unidentified new challenges and achievements.

          He has found that there is a fine line between a fulfilling and satisfying retirement and the downward spiral of depression.

          Sometimes it isn’t enough to simply manage change; sometimes you have to pro-actively force change. Regardless, change is inevitable.

    • 0 avatar
      morbo

      “There are honest and fair individuals out there in the dealer body. Find one.”

      I have yet to see one. I have directly purchased 2 used Fords, 1 used Mitsubishi, 1 new Pontiac, and 1 new Chrysler for myself from 3 stores in 2 states. I have been the primary negotiator and decision maker in the purchase of 2 new Hondas, 1 used Ford, and i used Chrsyler across 3 states for other people. Aggregate I have directed the purchase of 5 used cars and 4 new cars in 4 states, 7 dealers bought from across 4 states over 13 years (the only repeat business store went out of business for stealing people’s trade-in cars). They all suck. They all take too much time, lie out the side of their mouth, and all attempted straight up theft (changing terms from verbal to handwritten contract, hiding defects/accident unless asked explicitly about it, in some cases just straight up stealing).

      Where I came from there was no Carmax. There were no low-pressure, honest options (besdides Saturn, but the cars were terrible). EVERY dealer has the same, smoke stained, greasy haired, crooked smiling theives up front. IF I had an option in NJ to not have a scummy dealer experience, I would. The next used car I need to buy will be from Carmax, knowingly paying more for a simple, time efficient buying experience.

      In the most recent car purchase, we actually went with the Honda dealer (Silver Spring) that was lowest pressure, least scummy, only middle of the pack value; explicitly to not waste time (don’t get me started on Rockville or Alexandria Honda).

      You may not be a scumbag in person, but your chosen profession has earned it’s badge of shame. It’s not the consumers fault you hold this power, its the fact that your people bribed state lawmakers to enslave our buying choices.

      in short, fark car dealers.

      • 0 avatar
        jeffzekas

        Agreed. I got my license in ’70. I have NEVER found the “honest, capable store”. Never. Nowadays, I either use Costco buyer service, or have my son (he is a salesman) help me buy cars. Dealers are scum. End of story.

      • 0 avatar
        krhodes1

        Seriously? I have bought one new VW, one new Saab, one new BMW (special ordered), and one new FIAT. I have no complaints about the dealership experience for any of them. I did have to say “thanks, but no thanks” and play the waiting game a bit to get the price I was willing to pay for the BMW, but I didn’t get all hurt feelings about it. Go in knowing your stuff about the car, and knowing what you are willing to pay. It’s not hard.

  • avatar
    mnm4ever

    I cannot even believe that in this day and age there is even one person who can seriously extol the virtues of the auto dealership model (who isn’t a dealer or related to a dealer or somehow supported financially by a dealer).

    Its complete crap, its been complete crap for a long time, as @DeadWeight said above, the laws are based in the past. Dealers don’t want to give up their cushy high profit businesses.

  • avatar
    Rada

    I think since EV require far less maintenance and care, the dealership model becomes obsolete. Plus, most people research their vehicles online anyway, why not order it there too?

  • avatar
    racer-esq.

    Tesla should be allowed to sell cars directly to the public.

    But the assumption many people are making that cars would cost less if manufacturers sold them directly is wrong.

  • avatar
    Robert Mark

    Here’s why we spend five cents in disagreeable environments. We have no other choice.

    I love cars. Fascinated by them. Love the technology. Love the new car smell. Love the new designs. About once a year I like to take my son to look at the latest models. Just like me dad did with me. We’re not ready to buy a new car today. Maybe I will be in the future if I like what I see.

    But when the salesmen see me coming, all they see is an “UP”. They’re taught to hound me for my telephone number (really — I don’t want you to call me). They’re taught to refuse to answer my questions about the price of the car. They’re taught to refuse to let me leave until I come inside and sit down with them for HOURS just to find out the best price. They’re taught to play head games with me as they walk around my car rubbing their fingers across every scratch and ding and shaking their head to make me think they’re doing me a favor when they give me a trade value that’s thousands below what I found on Edmunds or KBB. They’re taught to lie about the value of nitrogen filled tires and invisible paint protectant that they charge me for, but can’t possibly qualify the value of.

    Is there even one person who wants to be treated this way? But for the most part, we don’t have a choice. If I want to see a new model [fill_in_the_blank] I have to go to your dealership.

    Ultimately, we humans of average intellect do spend our money — our five cents, as someone put it — in disagreeable environments. We’d really prefer not to play your game, but it’s the only game in town.

  • avatar
    redliner

    How will a dealer be able to stay in business if they sell only Tesla?

    Dealers make their money on service, not sales. How do you make money on a car that needs no oil changes? Tesla cars have very few moving parts. How is a dealer going to stay in business servicing low volume luxury cars, when the car will probably only be in for service once a year, maybe less. Are they going to start charging $1000 for new brake pads? $200 windshield wipers?

    I would happily drive 90min to a factory owned store than go to a franchise dealer 5 min from my house.

    • 0 avatar
      Richard Chen

      Used Tesla sales don’t sound so great, either – how much will a new lithium battery pack cost, and how soon will it be needed? And who do you really trust to do it right?

      But this fight is not really about Tesla, rather, dealers having to suddenly compete with manufacturer direct sales outlets.

  • avatar
    philadlj

    If Musk continues on the road towards trying to change those laws or find a loophole, he may well end up spending just as much if not more than what setting up a dealer network would cost.

    Still, I’m glad that for now he’s still making this stand. If anyone has the clout and the resources to make any kind of stand, even if ultimately futile, it’s Musk.

    Those state laws are in place and may be extremely difficult to remove, but that doesn’t make them right.

    I think direct outlets should be allowed to compete against dealerships, until either the best system wins, or both systems find their audiences in the market, and are able to coexist.

    Forcefully denying one or the other from consumers isn’t right.

  • avatar
    George B

    There are at least three different routes that Elon Musk and others could take to get around state laws requiring sales through franchise dealers.

    1) They could apply all their lobbying effort to one state legislature to get them to change state law in one state and ship cars out from a company distribution center in that state. Maybe Michigan law could be changed to allow direct sales sans dealership.

    2) They could make use of the ballot initiative process plus public hatred of car dealers to get state law changed in one state. Tesla might be able to get that done in California.

    2) They could make use of tribal sovereignty and lobby for a federal law to facilitate auto manufacturer owned stores on Indian reservations. Works for casinos.

  • avatar
    EquipmentJunkie

    Honestly, I am getting tired of the Tesla / Apple distribution parallel. I think that the comparison is unfair since the products are very, very different. An iPhone or iPad does not have ball joints, brake calipers, or even the need for something simple like tire rotation or bulb replacement. The bulk of today’s consumers cannot handle routine maintenance of a machine. I feel that it is presumptuous on Tesla’s part to skirt a servicing facility.

    A similar parallel to a product like Tesla is difficult to find. However, one did come to mind. What if we were to compare Tesla to a product like mining haul trucks? (The kind that are about the size of four houses and can haul multiple pickup trucks in their dump beds.) Many mining trucks have similar electro-mechanical drivetrains and the mining customer base is very small and easy to determine. There is also a good deal of close communication between truck manufacturer and the mines. On top of that, mines have capable service departments and facilities which can handle some large rebuilds and/or maintenance. Mines also typically have multiple haul trucks in their fleets which would further reinforce an expert customer base. Do Caterpillar, Liebherr, or Komatsu sell direct to end users? No. All use their dealer networks. I would think that if it made sense to change the distribution model, one of those multi-nationals would have.

    As interesting as I find Tesla products, I will not consider one until I would have a dealer realtively close by who could service the vehicle.

    • 0 avatar
      Vulpine

      Have you bothered to look and see if there’s a service location reasonably close? As I stated before, Tesla has a service location about 50 miles away from where I live AND Tesla is noted for actively retrieving and delivering the car if you can’t drive it there yourself.

      • 0 avatar
        EquipmentJunkie

        Yes, the closest service center is almost 50 miles away…virtually the same distance that my sister travelled to buy her Mini. She probably would not do that again from a distance standpoint. Back when she bought her Mini local service options were minimal and it was serviced under warranty initially. Half the distance would be much more tolerable.

    • 0 avatar
      BobinPgh

      The difference is that industrial sales is a lot more professional type of sales and many of the salespeople are “sales engineers” who have to find out the needs of their “client” (in this case the mine) and come up with a price based on the equipment the client needs. There is really no role for the “games” car dealers play in this situation.

      But come to think of it, just about any other sales – clothes, appliances, or cosmetics – is more professional than car sales. When I buy a cosmetic for my mother the Estee Lauder lady at the local Macys knows all about what products she likes. Car salespeople seem to know very little about their merchandise.

      • 0 avatar
        kkt

        Clothes, appliances, cosmetics all more professional? I am not sure. Clothes and appliances change model numbers at random just to confuse comparison shoppers. At least if you buy a car from dealer X it’s the same as the car you buy from dealer Y.

        The more expensive the deal, the more room there is for negotiations (or mind games, if you prefer). Sure, the grocery store is fixed price, but the negotiations involved in buying a house make most car dealer experiences pale in comparison.

        I wish Musk luck in getting rid of the independent dealers, but I am not very optimistic that it’s going to happen.

    • 0 avatar
      RussellL

      “As interesting as I find Tesla products, I will not consider one until I would have a dealer realtively close by who could service the vehicle.”

      Tesla has you covered.

      No matter how far you live from a service center, be it 100 miles or 5, Tesla Rangers are always available to make a house call. Contact Tesla Service.

      Buy it, they will come.

      “We are putting our service centers where we’ll have cars,” Shanna Hendriks, Tesla Spokesperson.

    • 0 avatar
      Whatnext

      Boeing, Airbus both sell far more complex machines direct to the customer. If John Q Public is too stupid to service his car properly he deserves what he gets.

  • avatar
    brenschluss

    Where you “simply see no alternative” to the current dealer model, Elon Musk clearly seems to, and no offense but between the two of you I know who my money’s on.

    That the status quo is antiquated and only serves to frustrate, confuse, and bilk consumers is debated by no one except the dealers themselves.

    You might not think he can win the war, but Elon has proven that he knows how to keep a business afloat, so I don’t think he’ll let this ruin Tesla. In the meantime, win or lose, I’m glad to see someone fighting this. My personal opinion is that most of the NADA should be forced into a lifetime of hard labor.

  • avatar
    PrincipalDan

    If no one ever challenged the status quo and the conventional wisdom, where the hell would we be? GO MUSK!

    I hope that in 20 years cars are ordered like computers. Start with basic model and add or subtract options as you go through the online ordering form. Have a few small manufacturer owned storefronts with the basic model for me to test drive and I’ll take it from there. So I have to wait for it to be built and delivered, big effin’ deal.

  • avatar

    While I agree dealers suck. I think the author makes good points even ignoring the laws.

    Almost all the products we buy go thru a middle man, there is a reason for this the middle main takes financial pressure away from manufacturers as well as providing an outlet for product being built at a near constant pace with an unsteady pace of retail sales (the dealer sits on inventory on slow months)
    You also avoid the up front costs of building and maintaining your own outlets
    The dealer provides a larger footprint that is much more visible than your own online presence. (I couldn’t tell you how to buy a Tesla here in CT I’m sure the answer is easy enough but any joe on the street knows how to buy a BMW and where to do it)
    Dealers are evil but there is a real reason why they exist.

    To the heart of the matter I know lots of complaints exist about dealers but to the authors point most luxury car buyers don;t seem to have this as bad as the rest of us. Lexus in particular tends to have very loyal customers not just at the brand level but at the dealer. I knew an F and I manager at a local Lexus dealer about 10 years ago. At the time he said more than 80% of leases that originated at their dealer leased their next car from them at turn in. I think it says that there is a right way to build a independent dealer body and a wrong way.

    • 0 avatar
      brenschluss

      Should it be the only way, though? I’m sure there are excellent dealers out there (wish they were near me,) but shouldn’t the option exist for selling direct if a manufacturer is willing to do so? And if franchise dealers can’t compete, isn’t that a bit telling?

      • 0 avatar

        I actually from a legal stand point prefer they were allowed to sell direct if they want, I think Franchise protection should exist for existing dealers (per their contracts) but if Tesla wants to open a dealer where no one exists for Tesla go right ahead.

    • 0 avatar
      Vulpine

      How to buy a Tesla car in CT — by an individual in MD:

      Go to the Tesla website and purchase the car.

      There, you’re done. Oh, you want a test drive first?

      Go to the Tesla website and schedule a test drive. They will come to your house (or place of work) and put you behind the wheel of one of their demonstrators. If you decide you like it, then go to the Tesla website and purchase the car–or not if you decide you don’t like it.

      How can it be any easier?

      • 0 avatar

        I agree but this is not the same touch and feel effect most people like with major purchases. I used to sell boats for a living, the company I worked for did a lot of business with a very wealthy clientele, and yes we did sell boats online site unseen and delivered them to the customer, no fuss limited haggle pricing simple. But this was not where most of our sales on higher end models came from. The higher end stuff almost always sold by some one coming down and walking the lot. I assume it’s much the same with cars. Talking with non car people I know most of them hit up a few dealers and buy a car very little research is involved. (same goes for buying a smart phone at the verizon store or a laptop at bestbuy) walk in and buy. I think this buyer may be in decline but at the moment I think it makes up a much larger percentage of buyers than we are willing to admit.

    • 0 avatar
      Weapon

      Actually, in Tesla’s case. Going with a dealership would put financial burden on the company.

      Tesla’s CCC is around 2 weeks. Other manufacturers it is half a year. that means that Tesla can buy the parts for a car and in 2 weeks make the money to buy the next car and invest the profit into R&D and expansion. This allows Tesla to double in size every year. Under the dealership model, that will change and they would be able to double maybe once every 5 years. It makes no logical sense.

      Tesla does not need dealers to sit on inventory, they are selling cars as quickly as they produce them. Even if in the future they get to a point where it becomes a slow month. It wouldn’t matter because Tesla builds cars to order. So fast month or slow month there is no waiting on inventory as each car is custom built.

      The cost of building and maintaining their own outlets is also less for Tesla. Dealerships need to buy expensive land and prime locations. Tesla only rents out showrooms at malls and buys cheap land in non-prime locations for service centers. The overall costs to Tesla is much cheaper then a dealership network.

      Buying a Tesla is as easy as ordering something from amazon. If that is too complex, visit a Tesla showroom and they will guide you through the process.

      • 0 avatar

        I agree with the principal of your post. The trouble with just in time manf is that it will at some point fail and cost you sales. This is one of the reasons that even the all mighty of just in time Toyota builds more cars than they have orders for. In modern times you line may have 99% uptime but I guarantee you at some point a supplier will cause a major disruption that you will have no control over. You can than dump that supplier but after you do that a few times your other suppliers will start slowly increasing their prices, why? because they will be holding some inventory for you in case the have a problem preventing them from delivering and will try to eek a few more percent on the product to cover their new higher upfront costs. Now my experience comes from much lower volume products than cars, but I have to imagine the same scenarios play out.

        • 0 avatar
          Weapon

          The thing is, EVs bring a new game to town because most of the sophisticated components are in the engines. Tesla builds their own BMS, motors, their own frame and their own body. So all they need are battery cells and parts for the glider. Tesla plans to be vendor agnostic with their components so the right thing to do is bring on say 3 suppliers and have them produce 33% of the parts each. If there is an issue, at max it will only have a delay on 33% output. Though more than likely Tesla may be able to get more supplies from the other 2 to bridge the gap. That is the advantage of high volume manufacturing, multiple vendors.

          They also plan to have a minimum of 6 loaner cars at each service center and 1 or 2 cars at malls. Those cars are for sale.

  • avatar
    nguyenvuminh

    I like and admire Apple products but I don’t worship them. I don’t believe everything Apple does is great or good. Remember the days when everything the Japanese conglomerates did was great? Well I don’t think Tesla in terms of Apple so I want to take Apple completely out of the discussion. I am focusing solely on the auto dealership issue and they’re appalling with no signs of improvements. I moved to live and work in Asia for 10 years (2002 to 2012) and I come back and still see and experience the same painful experience with auto dealership. If the concern about not having recourse if you buy directly from Tesla, then I would prefer to see a law that requires Tesla to have servicing/repair stations throughout the country. The purchase can be made directly, but post-sales services must be available to consumers. If such service/repair stations are not possible, then Tesla have to i) provide repair team to come to you within 12 hours or ii) pay for shipping cost of sending the broken down car to them.

    • 0 avatar
      Vulpine

      I suggest you take a look at Tesla’s web page. While I will acknowledge that they don’t have service facilities in every state–yet–they are moving far more quickly than you think to get there

  • avatar

    RE: “Look at what Apple did in retail. They operate over 400 stores. Every one owned by Apple. No dealers. They have the highest customer satisfaction ever recorded in retail.”

    Comparing the sale of gadgets with the sale of vehicles is ludicrous at best.

    This article points out some important facts. Musk has to know that he can’t go where he wants to go without a real dealer network. But during the formative years, he can maintain better control by owning his own stores. At some point he will be able to sell off these factory stores for huge multiples IF he wants to establish a real network of dealers. He will have to divest the original stores first.

    He COULD grant franchises based on territories, ala Saturn or Japan. One franchise dealer might own all of the franchise stores in a state. This could facilitate some level of “price fixing.”

    Apple makes HUGE markups over their costs, but consumers aren’t upset about it because everyone gets the same deal. When a franchise dealer makes a HUGE deal on a vehicle, consumers are up in arms.

    • 0 avatar
      ajla

      People don’t object to dealership profits as much as they object to dealership tactics and attitude.

      Like you point out people don’t like places that “take advantage” of others or where your price depends on how well you can negotiate with someone that does it for a living. At least at Apple, everyone is getting hit for the same amount.

      • 0 avatar
        racer-esq.

        “At least at Apple, everyone is getting hit for the same amount.”

        Apparently a lot of people really would prefer to pay $25,000 for car X, as long as buyer Y also has to pay $25,000, than get car X for $22,000 with the possibility that buyer Y might be able to get it for $21,000.

        Talk about foolish pride.

        And direct manufacturer sales aren’t even going to solve that. Sure on a particular day everyone is probably going to pay the same price, but there are going to be sales and price reductions, and the people that hold out for those will get a better deal.

        • 0 avatar
          cloroxbb

          That is not how it actually is though. It is more like we want: Cust A wants to buy for MSRP of $25,000 while EVERYONE that wants that car with the same option pays that price rather than; Cust A negotiates a price of $28,000 ($3000 above MSRP) because the dealer added their “paperwork” fee, tax-title-license fee, and “profit margin,” while cust B, may pay $27,000 by negotiating better, or pay $30,000 by not negotiating at all.

          Im sure it is a VERY rare day where someone gets a vehicle for LESS than the dealer paid for it.

          The problem most people have (at least I have) is that I HAVE to pay for “dealer profit” when buying a vehicle, which is added on top of Manufacturer profit that is in the MSRP.

          Also, with a dealer, many of them will NOT allow you to “order” a vehicle with the exact specs that you want. You either buy what is on their lot, or fuck you! Its not a customer-friendly relationship at all. We have zero options in this deal aside from “buy what the dealer wants” or “don’t buy.”

    • 0 avatar
      Vulpine

      @Ruggles:
      Why? Why does Musk have “… to know that he can’t go where he wants to go without a real dealer network”? When Apple opened its retail stores everybody said, “It’s already been done and failed.” Jobs didn’t listen and Apple has become the most profitable brick and mortar store network in the world. Just because Musk is doing something differently doesn’t mean it’s an automatic fail; he may do something that simply works better than anybody else would imagine simply because it’s never been done before or he’s doing it differently enough that it DOES work. That’s the whole point of this discussion.

      Until it fails, why not see how it goes? Who knows? Maybe he’ll change the entire car-buying paradigm and drive all dealers out of business. THAT is what they’re most afraid of.

      • 0 avatar
        Vulpine

        Ah, ruggles; trying hard to out-debate me without any real rebuttals. Turning a question back on the questioner is not an answer.

        It has already been discussed more than once in this forum that manufacturers are effectively prevented from operating their own dealerships. Steve Jobs proved tradition wrong when he opened his Apple Stores against the recommendations of high-end analysts and again when he put the iPhone up for sale, again against the recommendations of industry analysts. In both cases they declared irrevocably that such efforts would fail–yet BOTH are more profitable than their competition by far. Just because something didn’t work in the past doesn’t mean it can’t work now.

        How would Tesla drive auto dealers out of business? By simply eliminating the middleman entirely. Selling and delivering direct to the customer and completely bypassing any need to even go to a showroom. The cars can be displayed in a storefront the way Tesla is doing now and the entire purchase process can be handled online. MEANWHILE, once the owner takes delivery, the car or truck it replaces can be sold directly to someplace like CARMAX, itself changing how we buy used cars. Then we have Carfax, which is helping buyers to ensure they’re getting what they pay for and not some shade-tree mechanic’s salvage project.

    • 0 avatar
      jeffzekas

      Um… cars ARE a gadget. We treat them differently ONLY because history and laws dictate that we treat them differently than, say a Mac or a toaster. I can buy pretty much anything on Amazon, and not deal with a jerk dealer who wants to waste 8 hours of my time, locked in his greasy, tobacco stained office.

  • avatar

    RE: “shouldn’t the option exist for selling direct if a manufacturer is willing to do so? And if franchise dealers can’t compete, isn’t that a bit telling?”

    Are you actually suggesting that franchise dealers compete with their own supplier. What investor would consider such a stupid arrangement? How would a franchise dealer compete with their supplier?

    • 0 avatar
      ajla

      “How would a franchise dealer compete with their supplier?”

      The implication here is that franchise dealers don’t really offer anything of value to car shoppers.

      • 0 avatar

        http://autosandeconomics.blogspot.com/2013/09/maryann-keller-speech-to-nadajd-power.html?showComment=1380309570915#c5743669660995109475

        Many consumers are fickle and don’t know when they are receiving more than they deserve. They mostly don’t know a good deal from a bad deal.

        A dealer makes an investment based on rules. The investment is considerable. How would it work if his supplier, the one he entered into an agreement with, opens a store in competition with him/her, then undercuts his/her prices because they are the producer and the dealer hs to pay invoice for his inventory? After that dealer is run out of business, the OEM is free to RAISE prices. That’s how things work. It is the competition among franchise dealers that gives consumers the opportunity to shop for a better price.

        • 0 avatar
          brenschluss

          Competition between franchises seems to end up being a race to see who can screw the most out of an unsuspecting buyer going for the lowest advertised price who doesn’t understand the financing process.

          For the savvy buyer, sure, it’s good to be able to negotiate a deal. In this case though, why should Tesla be stopped from forgoing franchised dealers entirely and setting a firm price like most other commodities? I don’t understand how it would be a problem for them to enter the market this way. If they had established dealers it would be another matter, but they don’t.

        • 0 avatar
          ajla

          “… don’t know when they are receiving more than they deserve.”

          And who decides what a customer “deserves”? This is the kind of attitude people don’t like about car dealers.

        • 0 avatar
          cloroxbb

          “It is the competition among franchise dealers that gives consumers the opportunity to shop for a better price.”

          If by “better price” you mean “lower dealer profit.” Either way, you are still paying MORE for the vehicle than is needed if you were to buy direct from manufacturer.

          • 0 avatar

            It really depends. In my experience yes a manf will raise prices to avoid under cutting their own margins in order to have a dealer network. but in the long game the dealer is not driving up the price that much. In manufacturing you need to find a balance between volume and margin, there are times (apple ) where demand allows for you to have huge margin and huge volume but that is an exception to the rule. Dealers represent high volume customers compared to high margin customers (retail) if your in an average demand vs production capacity business the two final prices are much the same, you can spend 12 man hours making a sale to one individual or 12 man hours selling 38 Corollas to one dealer, this basically means your margins are similar with each sale even with leaving the dealer with his 10% (or what ever they actually make on a sale)

        • 0 avatar
          Weapon

          Actually, what lets people shop for a better price is competition between oems, not competition between dealers. The problem with middlemen in general is to account for them, oems have to raise MSRP to create enough margins. It also unfortunately kills competitions between oems. This is why car prices in general keep going up and not down. Lack of competition.

          This is why competition tends to be healthier with retailers over franchises.

    • 0 avatar
      brenschluss

      From a consumer’s (i.e. my) point of view, I don’t see the need for a middleman if the supplier is willing and able to sell directly to the consumer. Of course the franchise can’t compete. That’s the point. I have no sympathy whatsoever if a dealer model which doesn’t provide any benefits to the buyer falls apart.

      I’m suggesting that if a manufacturer does not want to have dealer franchises at all, as is the case with Tesla at this point in time, they should not need to do so. It would be much more difficult for say, GM to suddenly start directly operating all of their dealerships than it would be for Tesla to build from the ground up doing the same. As I see it, all methods should be fair game though.

  • avatar

    RE: “There are at least three different routes that Elon Musk and others could take to get around state laws requiring sales through franchise dealers.”

    Most states don’t have any laws prohibiting an auto OEM from selling direct UNLESS they are trying to do so in competition with dealers they entered into a franchise agreement with. In those states Tesla has set up shop. They even have showrooms in TX, but they are not allowed to talk price or transact business there. I don’t agree with the TX law. It is a “mixed” system that is the issue.

    Maryann Keller’s testimony on the issue is at the link:

    http://autosandeconomics.blogspot.com/2013/06/maryann-keller-testimonay-re-tesla.html

  • avatar

    RE: “You’ve spelled out why Apple is a bad example. Apple HAS company stores, in addition to a distribution network.”

    Actually, I only touched on the reason the Apple comparison is a bad example. One buys a gadget with a credit card. Financing a car is much more complex. Then there is the small issue of trade ins. With a gadget, you can mail it back to the manufacturer for repair or replacement. A car? Probably not.

    RE: “but auto makers alone are forced to sell to a middleman.”

    Not true. Auto makers were NOT forced to see through dealers. They did so voluntarily. No one made them do it.

    RE: “I suspect the automakers are rooting for Tesla as a wedge to attack the mandatory auto franchise system.”

    Suspect all you want. Automakers could get rid of their franchise dealers simply by buying them out. They can do this anytime they want to IF they could find the money, not to mention the expertise.

    RE: ” Yes, it’s political, with dealers making payoffs to politicians, but you could make a legal case for restraint of trade, or even a RICO charge against dealers and the states with franchise laws.”

    You really shouldn’t try to practice law without a license. You are oblivious to the issues. Dealers made significant investments based on understandings and agreements.

    RE: “That would have to be a DOJ operation with a national, not local/state application. Only federal courts can break this racket.”

    Racket? An entire business established on agreed upon principles is a “racket?” Of course, if you think the franchise system was forced on automakers it is no wonder you come up with really strange conclusions.

  • avatar

    RE: “My Android is often thrown in a Camelback or jersey pocket for long bike rides, I’ve taken it camping, off-roading, and dropped it many times. It has been covered in dust, sweat, and grime yet it still looks presentable.”

    AND it probably has an interchangeable battery and can accept a micro SD card. The Android, that is… not the Apple product, which forces you to go into iTunes so they can snooker your credit card number out of you. And no one has a problem with that

  • avatar

    RE: “Anyone who ever had a bad buying experience would long for the opportunity to buy direct from the factory.”

    Which would remedy the situation exactly how?

    European OEMS have had “European Delivery” programs available for years, ARRANGED FOR by the dealer back home that would do the warranty and service work on the vehicle.

    RE: “I have four brothers who spent more than 30 years in new-car retailing but I have NEVER, NEVER!, bought a car from them.”

    And you would feel better buying from a factory store because? This is more a commentary on you than your brothers.

    RE: “The people who bought directly from Tesla must realize what a great feeling it is to not have to deal with a dealership.”

    Its still a dealership regardless of who owns it.

    RE: “That’s why I am in favor of buying new cars through Big Box stores, like Costco or Sam’s Club.”

    Is it because you perceive you’d get a better price? The traditional system has sold 17 million vehicles in a year. That’s a lot of people to piss off.

    • 0 avatar
      Weapon

      “Is it because you perceive you’d get a better price? The traditional system has sold 17 million vehicles in a year. That’s a lot of people to piss off.”

      Yes, there is a reason why gallup poll places car dealers below lawyers, spammers and congress in terms of honesty and ethics.

  • avatar

    For those who believe the dealer distribution system offers no value to consumers.

    http://autosandeconomics.blogspot.com/2013/09/maryann-keller-speech-to-nadajd-power.html?showComment=1380309570915#c5743669660995109475

    • 0 avatar
      racer-esq.

      I am interested in watching the direct sales experiment, and there is probably no better person to run it than a co-founder of PayPal, selling his own product (i.e. not trying to force a traditionally sold make into the direct sales model).

      But the notion that no customer value comes from the manufacturer – distributor/franchisee model is naive. A buyer is decent at negotiation (not that hard, only one thing to remember, walk away) is almost certainly going to get a better deal on a Ford when there are two dealers owned by separate people in a town than when there are two Ford dealers owned by Ford in a town.

      Another factor is warranty work. Independent dealers make money off of warranty work, while for manufacturer owned dealers it is a cost. Who has more incentive to perform warranty work?

      • 0 avatar
        Weapon

        It is not that the dealers add no value overall but they add no value to electric cars. Especially to Tesla. So you are aware, Tesla is ok with distributors. They just don’t want a franchise.

        Also, you have to understand that to have a middleman, manufacturers have to raise MSRP to account for that middleman.

        As for your question for warranty. Here is the real weakness of the dealerships. The dealerships make most of they money on services and parts. But the person who gets commission is the one making the sale, not the technician doing the actual servicing.(unless of course you are a tiny dealership where the owner is both the sales and the tech, but those have mostly gone extinct) So in the end the incentive to the technicians are the same but it is going to be cheaper when the manufacturer owns it.

    • 0 avatar
      Weapon

      Read the article and there really isn’t anything useful in there. The fact that she didn’t know how Tesla cars are services is already an indicator of poor basic research.

      She also completely missed what Tesla is doing. Tesla is not using malls to sell cars. They are using malls to educate people on EVs and Tesla as a whole, answer questions and etc. So they placed them in convenient locations to access. Tesla in the long run wants to utilize retailers like carmax and not franchises. And considering Tesla makes cars built to order, they can probably include Best Buy, Apple and other stores by having a corner dedicated to Tesla. The flaw of the walmart example is an obvious one, the inventory cost killed it and the audience was not good. But with no inventory and just a corner dedicated to it, the cost would be tiny for all parties involved.

      Tesla will not have to worry about running out of demand for decades. Simply because the shift to electric is going to generate a lot of continues demand. But lets say hypothetically everyone has an electric car and Tesla starts running into lack of demand. This is where the Musk ecosystem comes in, the most expensive part is the battery. And the same battery is used by the SpaceX Dragon and SolarCity plans to use the same battery for stationary power in 2015. All he has to do is channel the extra supply to his other companies. As far as people go, Tesla has one of the most automated factories. Since Tesla has no unions he can easily keep a buffer of temp employees for times that he needs them. Or he can just have them do some work for solarcity or spacex.

      Overall though there isn’t any value that dealers can bring to Tesla.

      My favorite part is about how she says businessmen in auto manufacturers are too scared to take risks like dealers. While that may be true of most auto manufacturers. Musk is no stranger to take a risk and double down.

    • 0 avatar
      MLS

      That’s the second time you’ve posted the same link. Nobody gives a shit about the biased blogger’s opinion. The fact remains, the dealer distribution system offers no value to consumers.

    • 0 avatar
      MLS

      Came late to the discussion; didn’t realize how thoroughly you’d already been refuted.

  • avatar

    A dealer makes an investment based on rules. The investment is considerable. How would it work if his supplier, the one he entered into an agreement with, opens a store in competition with him/her, then undercuts his/her prices because they are the producer and the dealer hs to pay invoice for his inventory? After that dealer is run out of business, the OEM is free to RAISE prices. That’s how things work. It is the competition among franchise dealers that gives consumers the opportunity to shop for a better price.

    • 0 avatar
      PrincipalDan

      Bullsh**. Musk has no dealers of his own to compete with. He is talking about having a different model than the other manufacturers he is competing with. Price will still drive competition. One day several manufacturers will be building cars like the current Teslas and consumers will cross shop them them in the same way that I would cross shop Dell, Gateway, HP, Lenovo, Acer, etc. for computers. Not having dealers does not hamper price competition in the computer market.

    • 0 avatar
      mcs

      >> That’s how things work. It is the competition among franchise dealers that gives consumers the opportunity to shop for a better price.

      That’s totally untrue. The better price is essentially the dealer that’s going that’s going to take the least amount of skim from the transaction. Many of these dealers are mega-dealers with multiple dealerships, so how do you go between different dealerships when one guy owns almost every dealership for a particular make in your area? One of our local mega dealers is a billionaire. Give me a break!

  • avatar

    RE: “That is why Apple is able to keep higher profits on their products, though not as high as most people think.”

    If Apple sold through dealers, dealer competition would lower the price to consumers. Evidently, lower price isn’t really what consumers want?

    But again, gadgets and vehicles? Two VERY different things.

    • 0 avatar
      morbo

      “Evidently, lower price isn’t really what consumers want?”

      No, it isn’t. Most consumers want a low hassle, consistent shopping and use experience. This is why Apple won. There were technically better music players than iPod, but not at the hassle/use factor. Same with phones. Price sensitivity must also account for ease of use and the value people place on that. The ‘cool’ factor and it’s monetization by Apple in another discussion better explained by the marketing types.

      “If Apple sold through dealers”

      They do. You can buy an iPhone through best buy, Amazon, verizon, ATT, Sprint, WalMart, or the Apple store/website. In fact, WalMart is undercutting the new iPhone by $20 to drum up business. The dealer and direct sales model works for technology. It works for food distribution. It works for clothing. it works pretty much everywhere dealers don’t have illegal and/or immoral franchise laws to protect them.

      • 0 avatar

        While I agree with most of your statement the trouble with auto dealers is the captive part. Walmart sells lots of stuff having an apple store next store is not that big a deal. But a dealer is required in their contracts to be setup to sell one brand I don’t think a manf should be blocked from having their own store in the same state as a franchised dealer, but maybe require a geographic separation ( I believe some states actually have this) to prevent a manf from using a local dealer as a test bed for a market then dropping in a company store the next block over. I mention this as it has happened in the marine market where a boat builder set up a franchised dealer who was very successful, he had so much volume that they opened a company store 5 miles down the road less than 2 years after he committed to the brand. You can argue yeah its just competition but to me it’s really just a manf being a slimeball instead of the dealer.

  • avatar

    RE: “flat-out ignoring the traditional methods and succeeding.”

    Aren’t you jumping the gun here? Without SUBSTANTIAL government subsidy, which also allows Musk to sell Tesla ” energy credits,” this deal would have cratered long ago.

    • 0 avatar
      morbo

      GM and Chrysler alone consumed close to $100 Billion+ dollars in subsidies from us in the last 5 years. Don’t forget to include the legacy cost of Superfund cleanup the US government will pay at old factory sites cast off in bankruptcy, not just the dollar amount in direct TARP aid. It’s hypocritical to point out the couple billion dollar pittance Musk got. Especially since he actually paid his back with interest. And that energy credits benefit the traditional builders like Nissan will sell how many this yera?

  • avatar

    RE: “People don’t object to dealership profits as much as they object to dealership tactics and attitude.”

    For those who think they know how to run a dealership better, what’s stopping you?

    • 0 avatar
      morbo

      “fOr those who think they know how to run a dealership better, what’s stopping you?”

      Personal ethics, specifically not wanting to cheat people.

      Otherwise, Carmax has solved this problem in states where they exist.

    • 0 avatar
      jeffzekas

      The old “love it or leave it argument” (start your own dealership)- didn’t apply to Vietnam War, doesn’t apply now. The “better” dealer is NO dealer. And the only folk who like the dealer system are… dealers! Ruggles, you are a true believer. The rest of us know that the emperor has no clothes.

  • avatar

    RE: “Just because Musk is doing something differently doesn’t mean it’s an automatic fail;”

    What is he doing differently as it regards owning his own stores? Ford tried it and gave it up. IN fact, Ford tried it from the beginning and again about 12 years ago. They don’t do it any more.

    RE: “he may do something that simply works better than anybody else would imagine simply because it’s never been done before or he’s doing it differently enough that it DOES work. That’s the whole point of this discussion.”

    Musk is well capitalized. He can afford to own his own stores in the beginning. AND he can be a successful boutique auto maker doing it. If he decides to take the next step, he doesn’t begin to have the money required to own his own network.

    RE: “Until it fails, why not see how it goes?”

    Just because he will eventually sell his factory owned dealer network to franchise dealers doesn’t mean his original business model failed. He will have launched his brand and made a killing selling his network.

    RE: “Who knows? Maybe he’ll change the entire car-buying paradigm and drive all dealers out of business. THAT is what they’re most afraid of.”

    REALLY? And you know this HOW? How would Tesla drive all auto dealers out of business?

    • 0 avatar
      morbo

      ” How would Tesla drive all auto dealers out of business?”

      Ask Blackberry.

      “Ford tried it from the beginning and again about 12 years ago. They don’t do it any more.”

      Don’t, or Can’t due to dealer enacted franchise law?

  • avatar

    RE: “It would be much more difficult for say, GM to suddenly start directly operating all of their dealerships than it would be for Tesla to build from the ground up doing the same.”

    All GM has to do is buy out its current dealers. They could do it anytime they want, right? What they can’t do is establish factory stores in competition with dealers they have agreements with, which is all of them. AND they’d have to negotiate a price one by one. Daunting task, I think.

    As I see it, all methods should be fair game though.

    • 0 avatar
      brenschluss

      We’re not disagreeing here. I’m just wondering why Tesla can’t go this route, if they don’t have any dealers in place to compete with.

      Also, you can reply directly to comments. I want to hear your responses but finding them is tougher than it should be.

    • 0 avatar
      MLS

      And how much would it cost GM to buy out every dealer in Bumblefuck, USA?

      I understand what you’re getting at re: competition from the manufacturer. GM’s lawyers should have been smarter and included provisions in the franchise agreement that only allowed for, say, 10 years of exclusivity.

      But there’s no way GM can (or should) buy out all its dealers today. Let any dealership over 10, 15, even 20 years old compete on its own merits.

  • avatar
    Big Al from Oz

    My biggest dislike, anti competitive regulation.

    Why can’t someone sell something they build.

    I suppose a carpenter, mechanic, maybe everyone should by law have some form of agent representing them. Why should a home be allowed to be built and sold by one company :-)

    No-one should be allowed to go shopping you must employ a ‘shopper’.

    Ridiculous, regulations. What is it protecting?

    In the end the best model will succeed, if progressive regulation allowed.

    Like I stated this is why the West will lose out.

    • 0 avatar
      racer-esq.

      “Like I stated this is why the West will lose out.”

      When I think of countries that are free of inefficient, Byzantine, corrupt, favoritist regulations China, India, Brazil and Russia are the first countries that come to mind.

      /sarcasm

      • 0 avatar
        Big Al from Oz

        @racer-esq
        But what are the wages in those countries? That’s their competitive edge.

        How can we compete?

        We have to come up with better idea’s to increase competition which will breed more successful business.

        Restrictive regulation that impedes progress shouldn’t be a part of our lives.

        If Ford or Chev or no one else can compete with the Telsa model, then shut down or change your business.

        Flexibilty, not protectionism/subsidisation is needed.

  • avatar

    RE: “How to buy a Tesla car in CT — by an individual in MD: Go to the Tesla website and purchase the car.”

    Trade In? Financing?

    There, you’re done. Oh, you want a test drive first? Go to the Tesla website and schedule a test drive. They will come to your house (or place of work) and put you behind the wheel of one of their demonstrators.”

    This will last until consumers stroking them for test drives render that impractical. You know, 15 year old kids and college frat brothers? Wait until one of their test drivers ends up stolen and the driver mugged.

    How can it be any easier?

    They’ll find out in time.

    • 0 avatar
      morbo

      Hypothesizing about Tesla test drivers getting mugged is spurious at best and outright trolling at worst.. The simple requirement of running a credit check on all test drivers and requiring proof of insurance before handing over the keys mitigates that.

    • 0 avatar
      Vulpine

      “Trade In?” Sell your own car.
      “Financing?” Banks and Credit Unions are more than willing to finance. Often at lower rates than most financiers.

      Teenagers ‘stroking’ the test drives? They do that already without needing to have the car brought to them. As for the stolen car, well, unless they know where and how to charge it, they’ll only go so far and the car itself CAN report its position if they do. For that matter, Pizza drivers get mugged more often than you might think, and they’re usually carrying money.

      I’ll grant, if something can be used, it will be ABused. That’s what’s happening in the dealership network now. Interesting thing is that the manufacturers currently have a little something they can hold over those dealers’ heads; if they get enough bad reports about a dealership, they’re more likely to pull that dealership’s license to sell their cars. I’ve seen a number of local dealers lately really changing their methods for the better–for now.

    • 0 avatar
      RussellL

      “Trade In? Financing?”

      Manufacturers should have a choice. Not every car buyer needs those services nor should every manufacturer be required to offer them.

      “You know, 15 year old kids and college frat brothers? Wait until one of their test drivers ends up stolen and the driver mugged.”

      That is not a problem unique to Tesla. It can happen to existing dealers too. Safeguards are in place like holding the borrowers drivers license.

      Have you never test driven or purchased a car before?

    • 0 avatar
      mcs

      >> Trade In? Financing?
      Used car dealers, ebay, autotrader etc.

      Financing? I don’t know about where you live, but not far from me are these things called banks and we have credit unions as well.

    • 0 avatar
      Weapon

      “Trade In? Financing?”

      No problem, Tesla cars can be traded in through Tesla’s 3rd parties. Financing is also done by Tesla’s 3rd parties.

      “This will last until consumers stroking them for test drives render that impractical. You know, 15 year old kids and college frat brothers? Wait until one of their test drivers ends up stolen and the driver mugged.”

      You can test drive a Tesla at a mall or service center as well. As for being stolen. Tesla limits the loaners and store cars to 80mph max speed and they can shut off the car remotely.

  • avatar

    RE: “Not having dealers does not hamper price competition in the computer market.”

    Again another attempt to link gadgets and vehicles as if there is any comparison. IF the automakers owned their own dealers, Camaros would still compete with Mustang and Challenger. But amongst Camaro dealers there would be no competition. This works much differently with a vehicle than with a gadget.

    • 0 avatar
      PrincipalDan

      But you are assuming that EVERY consumer sees the Camaro as ONLY competing with the Camaro. It might if you are a GM fanboy but for a real world consumer who is not blinded by manufacturer loyalty the Camaro competes with every V6-V8 powered RWD coupe within a given price range. And if the Camaro is the ONLY car you want you’ll pay what the manufacturer is asking which is likely LESS than the silly dealer markup that is usually on any car that might actually be “hot” at the start of its model cycle.

      • 0 avatar
        ajla

        Exactly, despite what manufacturers would want us to believe, vehicles in the same class are close enough substitutes to keep prices down.

        If Ford prices the Fusion too high people will go to Mazda, Honda, etc.

        Were Suzuki dealers able to charge higher than usual prices? They didn’t exactly have much competition from other Suzuki dealers.

      • 0 avatar
        Vulpine

        @Ruggles: The comparison is NOT the same. Sure, there are Camaro fans and there are Apple fans; but there is more than one class of Apple fan, whether you want to admit it or not. There are those who buy Apple simply because it is Apple–they’re the ones who tend to buy the next newest model each year–and then there are those who buy Apple because it’s the most durable machine on the market–especially when compared to “cheaper” makes.

        If I could, I would pay less for every Apple product I buy. In fact, I do. My wife works for a company that gets us a significant, though not huge, discount over retail. Even a few hundred dollars can make a difference depending on the model you buy.

  • avatar

    RE: “But the notion that no customer value comes from the manufacturer – distributor/franchisee model is naive. A buyer is decent at negotiation (not that hard, only one thing to remember, walk away) is almost certainly going to get a better deal on a Ford when there are two dealers owned by separate people in a town than when there are two Ford dealers owned by Ford in a town.

    Another factor is warranty work. Independent dealers make money off of warranty work, while for manufacturer owned dealers it is a cost. Who has more incentive to perform warranty work?”

    You NAILED it.

    BUT regarding PayPal… have you ever had the experience of trying to sell something on eBay and the person who gets the bid doesn’t pay and pick up the item? But eBay charges you anyway? So you can’t call them to get anything resolved BECAUSE it more convenient for THEM to communicate by email. Finally, they issue you a credit via PayPal. So you try to call PayPal on the phone. Any luck with that? They operate based on what is convenient for them too. Finally, they inform you by email that there policy is to HOLD YOUR MONEY for a full month even though you have a credit on their books. The credit might be issued on March 3, but you have to wait a MONTH after March, because March isn’t a full month… so you finally get a check in May. Why? You might want to buy something to use up your credit.

    And you think a guy behind this kind of thinking is someone you want to do business with on an item as important as a car?

    • 0 avatar
      morbo

      Nope. I’ve had one issue over 10 years of eBay/StubHub. Email correspondence within 30 minutes resolved at no cost to me.

    • 0 avatar
      cloroxbb

      More uninformed crap. Musk sold Paypal HOW LONG AGO? Ebay owns Paypal, that’s why it sucks, not because of Elon Musk.

    • 0 avatar
      RussellL

      “”Another factor is warranty work. Independent dealers make money off of warranty work, while for manufacturer owned dealers it is a cost. Who has more incentive to perform warranty work?””

      “You NAILED it.”

      Either way, the manufacturer still has to pay for the repair.
      Is it cheaper for the manufacturer to do the repair work themselves or pay the dealer, the same dealer that expects to make a profit every minute the car is in their garage?

  • avatar
    Dr. Kenneth Noisewater

    I’m typically a pretty big fan of States’ rights and federalism, but when it is in restraint of trade and liberty in favor of a select few good ol’ boys, methinks it’s time for a federal case to be won and trump interstate protectionisms. Tesla could make a federal case about it and claim that forcing automakers to sell thru state agents constitutes restraint of trade and introduces costs that could reasonably be likened to tariffs.

  • avatar

    RE: “In this case though, why should Tesla be stopped from forgoing franchised dealers entirely and setting a firm price like most other commodities?”

    First, in most states they already have their own dealerships, and IMHO they should be able to have them in all 50. BUT an automobile is NOT a commodity. A commodity price is set be an efficient market, where buyers and sellers have the same information. Corn, Wheat, etc. etc. Buyers and sellers both have knowledge of the production costs of these items. Does anyone think Tesla would divulge that information to consumers, who wouldn’t believe it anyway?

  • avatar

    RE: “Competition between franchises seems to end up being a race to see who can screw the most out of an unsuspecting buyer going for the lowest advertised price who doesn’t understand the financing process.”

    How so? Define “screw.”

    • 0 avatar
      morbo

      “Define “screw.””

      Advertising a purchase price in media which is unattainable for all but a significant minority of the population, and detailing minimum legally required financing/purchase requirement in such a way as to intentionally confuse or obfuscate that fact.

    • 0 avatar
      ajla

      -Telling people that their dealer fee is required by law.

      -”Losing” your trade-in keys when you want to leave.

      -Having your car blocked in the parking lot when you try to leave.

      -Lying about their computer system crashing.

      -Lying about issues they see in your trade-in.

      -Telling you that your provided credit report is wrong and you actually need to pay a higher rate.

      -Changing agreed upon numbers when you sign your final paperwork.

      -Telling you your vehicle has a higher “real” towing capacity than what the manufacturer rates it at (hello Ram dealers).

    • 0 avatar
      brenschluss

      Long, high-interest loans on stripped new cars come to mind, as does the four square. Neither of these things are inherently evil, the former is the result of irresponsible borrowing, and the latter is just a tool.

      But that credit is extended to some people for the amount of a new car at extreme rates, while the lender knows that it’s putting the borrower in a position that almost inevitably leads to a worse financial situation years down the line seems ethically a bit grey.

      I had planned on buying a new car over the summer but walked out of a half-dozen dealerships after being browbeaten with a foursquare until I couldn’t think straight. I’m not particularly bright, I’ll admit, and some folks can retain clarity of thought while looking at a foursquare colored completely black with pencil, but I can’t. I had to leave just because I was no longer confident that I knew what I was looking at. Now I’m hanging on to my hateful enconobox until I can either buy with cash or get a loan before going in. Most people are like me, and can’t necessarily hold their own against a dealer who has so much power over the transaction, and who created the game we’re forced to play.

  • avatar

    RE: “Tesla could make a federal case about it and claim that forcing automakers to sell thru state agents constitutes restraint of trade and introduces costs that could reasonably be likened to tariffs.”

    Why would Tesla go through the Federal system when he already has factory owned dealerships in most states and is free to establish more? His issue is with states like TX.

  • avatar

    How to respond to a comment? Is this not working?

    • 0 avatar
      brenschluss

      If you’re clicking the reply button at the bottom right of a comment and it isn’t working, it’s probably not your fault.

      • 0 avatar
        highdesertcat

        I had that problem for awhile, using Opera v12.16. Weirdest thing: try to append a comment with a reply and poof! it ends up at the bottom of the heap.

        As long as I have been on ttac, I never had that happen before. It also happened with FireFox, IE8, Safari and Chrome, but only occasionally, not all the time.

        It seems to be OK again, now. Wonder what changed?

  • avatar

    RE: “But you are assuming that EVERY consumer sees the Camaro as ONLY competing with the Camaro. It might if you are a GM fanboy but for a real world consumer who is not blinded by manufacturer loyalty the Camaro competes with every V6-V8 powered RWD coupe within a given price range.”

    Tru Dat… but there are MANY Camaro fanboys, just like there are MANY Aoole fanboys paying HUGE markups for Apple products even though they could buy other makes.

    RE: And if the Camaro is the ONLY car you want you’ll pay what the manufacturer is asking which is likely LESS than the silly dealer markup that is usually on any car that might actually be “hot” at the start of its model cycle.”

    Why would you assume that OEM markup would be less than the “silly dealer markup?”

    • 0 avatar
      ajla

      “Tru Dat… but there are MANY Camaro fanboys,”

      Not enough to make the Camaro a viable product if it is priced considerably higher than its class competition.

      The manufacturer sets MSRP already and they take the substitution effect into account when doing so.

  • avatar

    RE: “I’m just wondering why Tesla can’t go this route, if they don’t have any dealers in place to compete with.”

    IMHO, Tesla SHOULD be able to own their own dealerships as long as they only have factory owned stores. And in most states they can. I am at odds with the states who have prohibited it. AND I like the Tesla Model S a LOT.

    NADA is afraid that if Tesla is some how able to establish a mixed system, the IMMENSE investment franchise dealers have made will be compromised. There is a LONG history of OEMs trying to screw with dealers via company owned stores.

    I could talk at GREAT LENGTH about the Ford Collection experiment, not to mention Saturn.

  • avatar

    RE “Like I stated this is why the West will lose out.”

    So who wil the West lose out to? China, Brazil, India, and Russia, or some laissez faire country yet to emerge?

  • avatar

    RE: “GM and Chrysler alone consumed close to $100 Billion+ dollars in subsidies from us in the last 5 years.”

    You must know something no one else knows. GM and Chrysler consumed $100 billion in subsidies from us in the last 5 years? Did you just make this up? :)

    • 0 avatar
      morbo

      Please use the reply button, you’re disrupting the threads.
      http://projects.propublica.org/bailout/list

      GM – $13 Billion
      GMAC-$17 Billion
      GM Receivables LLC – $0.3Billion
      Chrylser – $4 Billion
      Chrylser Financial – $1.5 Billion
      Chrysler Receivables – 0.5 Billion
      Superfund costs – Approx $5 – $10 Billion

      So my math is off, actually ONLY cost us $40 Billion

  • avatar

    RE: “It’s hypocritical to point out the couple billion dollar pittance Musk got.”

    We should pretend it didn’t happen? In mentioning I never said I didn’t approve of it. Its a fact. I believe it is the province of government to prime the pump for new ideas that couldn’t make it to market without some government help… the Internet for one, the transcontinental railroad for another.

    Nor was a critical of the energy credits. I made the point that is premature to call Tesla a success until they can fly without training wheels.

  • avatar

    RE: “Personal ethics, specifically not wanting to cheat people.”

    First, define “cheat.” Second, certainly you would be a great success by having personal ethics and not cheating people. You’d make a fortune, right?

    RE: “Otherwise, Carmax has solved this problem in states where they exist.”

    Since CarMax proves that having personal ethics and not cheating people is successful, I repeat, what’s stopping you?

  • avatar

    RE: “How would Tesla drive all auto dealers out of business?”

    Ask Blackberry.

    Last I knew Blackberry is still in business and working on their business model. But this still doesn’t answer the question about how Tesla would drive all auto dealers out of business.

    “Ford tried it from the beginning and again about 12 years ago. They don’t do it any more.”

    Don’t, or Can’t due to dealer enacted franchise law?

    They don’t because they lost hundreds of millions and finally had to give it up. What does “dealer enacted franchise law have to do with it. Dealers don’t enact franchise law. Are you kidding? Do you even know anything about the Ford Collection experiment? Before commenting you might want to study up.

    • 0 avatar
      morbo

      Please use the reply button, you’re disrupting the threads.

      Blackberry is a dead man walking, read todays news articles. Point is, a disruptor in business can drive established an seemingly invicible busineeses to bankruptcy, in a shockingly short timeframe.

      Apple-Google / Blackberry – Nokia
      Sony-Apple / Kodak – Polaroid
      Toyota – Honda / GM – Chrysler

  • avatar

    RE: “Evidently, lower price isn’t really what consumers want?”

    No, it isn’t. Most consumers want a low hassle, consistent shopping and use experience. This is why Apple won.”

    First of all, Apple hasn’t won. They game is ongoing. They are ahead by some measurements. If you have watched Apple for a while you understand there is an ebb and a flow to things. Second, Apple products sold elsewhere are bound by restrictive pricing agreements imposed on those merchants. By contrast, if the Chevrolet dealers in a particular market all got together to fix prices, to give the consumer “a consistent experience,” they’d end up in the GrayBar Hotel.

    RE: “it works pretty much everywhere dealers don’t have illegal and/or immoral franchise laws to protect them.”

    First, the franchise system works well in the selling of new vehicles. What “illegal laws” do you cite? Really? Illegal laws? A law might be legal if the Supreme Court said so. Immoral? What is immoral about forcing an OEM to honor its contracts? What is immoral bout preventing a supplier from abusing a distributor after the distributor made a substantial investment to become its business partner? You’ve reached some real leaps of logic here without an understanding of how business works.

    • 0 avatar
      morbo

      Please use the reply button, you’re disrupting the threads.

      “First of all, Apple hasn’t won.

      Apple has $75 Billion in cash and cash equivalents, with no debt. The stock itself is worth Half a trillion dollars.

      They won. They may lose in the future, but in the year 2013, They have won.

      ” A law might be legal if the Supreme Court said so.”

      And I hope Musk takes his case to SC so we can get a definitive answer once and for all on franchise laws. The dealers body says the Tesla store is illegal. Tesla says it’s legal. Let the SC decide and get out of the way.

  • avatar
    Delta9A1

    Given Tesla’s huge market cap and tiny sales numbers, perhaps part of the the business plan that Musk is working on is to use the public pressure/demand to create cracks in the dealer protection laws, to make Tesla a more attractive acquisition target. The major carmaker buyer gets the technology and a luxury/electric category, with the direct-to-consumer marketing right as icing on the cake. If Tesla were to create a dealer network, any buyer of Tesla would have to merge the Tesla dealers into their existing dealer network, or try to revoke the overlapping franchises (good luck). D2C sales make economic sense for Tesla if they never sell to a major, and make Tesla more valuable to the majors if they do. A dealer network adds no economic value to Tesla now, and would be a disincentive to a buyer in the future.

  • avatar

    RE: “… don’t know when they are receiving more than they deserve.”
    And who decides what a customer “deserves”? This is the kind of attitude people don’t like about car dealers.”

    Most consumers have little or no understanding of business. And new vehicle dealers understand they can’t satisfy everyone. So far today I have asked various people to define “screw,” “unfair,” “gouging,” etc. and have received no response. In the final analysis, it isn’t important for consumers to like you if them liking you means losing money and going out of business, losing your investment, causing you to pull your kids out of college, and forcing you to live under a bridge.

    So maybe someone can tell me what it would take to satisfy consumers. I’ve heard here that consumers want a consistent purchase experience. If that’s true wouldn’t they feel better if they all paid the same price? Maybe the complaint should be against the FTC for imposing “illegal laws” on car dealers that prevent them from fixing the price. Perhaps consumers would like the factory to own all of the dealerships so THEY could fix the price. Surely that would please consumers. Right? That’s what the Ford Collection did. Ford bought out ALL Ford and LM dealerships in Tulsa, OKC, INdy, SLC, and San Diego to prove to the world that charging all consumers the same price would make consumers happy, and they would solve all problems with their additional volume. So what happened” Consumers got what they wanted. Consumers received what they wanted, and more. Why did the experiment fail. Maybe auto buyers need to buy from a dealer who isn’t trying to make money. Would that make them happy? Did anyone read Maryann Keller on the subject. That doesn’t even work. The company that tried it found that consumers would take the price they quoted to a competitor to try to beat it. They ran through tens of millions of Silicon Valley investment money doing it before they pulled the plug.

    • 0 avatar
      bball40dtw

      I want a fair price the first time. I don’t want to start at one number and have to haggle down to another. I would have paid more for my most recent car than I did if the dealership would have accepted my fair offer the first time. Instead, the price of me being unecessarily hassled gets factored in the final sales price. I’m sure they still made money on the vehicle, but they could have made more in a shorter period of time.

      There are so many research tools out there now. If people do their homework, the price that you pay should be a relatively known quanity. Even with all the data out there, many dealerships choose to dismiss or ignore it.

    • 0 avatar
      bball40dtw

      Maryann Keller is a shill for dealerships, sits on multiple dealership boards, and does public speaking tours for dealership groups. When I saw her speak at the Detroit Economic Club, her appearance was paid for by the Automotive Dealers of Michigan.

  • avatar

    The customer decides what they deserve via shopping and if they can’t get what they think they deserve, the either give in or go without.

    • 0 avatar
      RussellL

      “The customer decides what they deserve via shopping and if they can’t get what they think they deserve, the either give in or go without.”

      So it’s “My way or the highway”?

      And you still can’t understand why people don’t like car dealerships and their salesman?

  • avatar

    RE: “Hypothesizing about Tesla test drivers getting mugged is spurious at best and outright trolling at worst..”

    So say you. And you know this is spurious exactly how? Do you think I made this up? Ever heard of Tred?

    RE: “The simple requirement of running a credit check on all test drivers and requiring proof of insurance before handing over the keys mitigates that.”

    What is a credit check going to show you? Are you going to discriminate against people who have a credit score under a certain point? Do you understand credit tiering? Are you sure you’ve thought this out? If so, what might that score be? Do you know anything about “disparate impact?” Ever heard of the civil rights act of 1964?

    • 0 avatar
      morbo

      Please use the reply button, you’re disrupting the threads.

      Spurious – a line of reasoning apparently but not actually valid.

      ” Are you going to discriminate against people who have a credit score under a certain point”

      Yes, banks do this all the time

      Look, I get that you’re trolling under TTAC’s new rules. It’s kinda entertaining. But you’re close to Godwinning this one, bringing up the Civil Rights act of 1964. Stay on Topic or go back to trolling Jalopnik

  • avatar

    RE: “Exactly, despite what manufacturers would want us to believe, vehicles in the same class are close enough substitutes to keep prices
    down.”

    What do you think manufacturers want you to believe. Competitive vehicles in the same class DO help prices competitive but NOT as competitive as competitive vehicles PLUS competition in the same make/model.

    If Ford prices the Fusion too high people will go to Mazda, Honda, etc.

    Were Suzuki dealers able to charge higher than usual prices? They didn’t exactly have much competition from other Suzuki dealers.

  • avatar

    RE: “Were Suzuki dealers able to charge higher than usual prices?

    How do you define “usual prices?

    • 0 avatar
      ajla

      I’d define “usual prices” as a comparison between transaction price and cost.

      When Suzuki’s dealer network greatly contracted were the remaining dealers suddenly able to discount less from MSRP? Under your theory, these Suzuki dealers should have been able to rake in profits from people wanting a Grand Vitara or SX4 due to decreased competition. Did they?

      I don’t disagree that there is some downward pressure on prices due to dealer competition, but I contend that it is FAR smaller than what you are making it out to be. You seem to have some belief that there will be run away price increases without independent dealers keeping everyone in check.

  • avatar

    RE: Nope. I’ve had one issue over 10 years of eBay/StubHub. Email correspondence within 30 minutes resolved at no cost to me.”

    My experience happened the first time I tried to sell something on eBay. My experience with PayPal is first hand.

  • avatar

    RE: Defining “screw.” Advertising a purchase price in media which is unattainable for all but a significant minority of the population, and detailing minimum legally required financing/purchase requirement in such a way as to intentionally confuse or obfuscate that fact.

    These things are governed by law. A dealer guilty of pricing a vehicle for less to one group or class than another is open to horrific legal consequences. Anyone so wronged just needs to call an attorney OR lodge a complaint with the state attorney generals office. You seem to be trying to say this is a widespread offense, or am I missing something?

    As a car dealer, if I advertise a particular make/model, and I only have a few, I’d better state “While they last,” Limited Time Offer,” “Limited Availability,” or something the FTC approves. OR if I advertise a price that includes a rebate, I’d damn will better explain that the price depends on the rebate which could be withdrawn at any time.

    RE: Financing – There are 4 tiers of so called “prime financing.” There used to be one, until about the late 1980s. Before credit tiering, the best credit customers paid high interest so the less credit qualified customers paid less than they should have. In addition to credit score, there are all sorts of other credit criteria considered by lenders, to include debt to income, job time, actual income, etc.,etc. I’ve just scratched the surface here. Maybe you think this should all be explained in an advertisement? How to do this is mandated by the FTC, Truth in Lending, and via a HOST of regulatory agencies. Take it up with them.

    • 0 avatar
      bball40dtw

      Yes, you are missing something. Often manufacturers have different rebates for different people. They list it in the fine print of the ad, but sometimes its difficult to tell. In the Detroit area, I always assume anything new advertised is employee pricing.

      As far as lending goes, dealers don’t try to squeeze me on financing because I know that side better than they do. I haven’t experienced issues first hand, but I know people who have been called back a week later saying that their rate should be higher. Do they ever call people to say the rate should be lower?

    • 0 avatar
      ajla

      “How to do this is mandated by the FTC, Truth in Lending, and via a HOST of regulatory agencies. Take it up with them.”

      And I’m sure NADA wouldn’t complain at all about new rules that don’t allow them to use returning lessee and military discounts in their advertised prices.

  • avatar

    RE: “Not enough to make the Camaro a viable product if it is priced considerably higher than its class competition.”

    No kidding. And in like make/model competition and you have something additional that benefits consumers, even if they don’t know it.

    As I’ve mentioned again and again, except in a very few states, OEMs are completely free to buy out its franchise dealers and operate its own dealerships, just as Ford did in OKC, INDY, Tulsa, etc. So why did the experiment fail so miserable? Did ANYONE read the stuff Maryann Keller wrote?

    • 0 avatar
      bball40dtw

      Closing dealerships was part of the “Way Forward” plan. In most cases, it was cheaper/easier to close company owned stores.

      Why would I listen to Maryann Keller? Although she is an analyst, she is on the board of two dealership groups, one a BHPH group. Of course she will side with the dealerships.

  • avatar

    RE: “There is really no role for the “games” car dealers play in this situation.”

    What “games” do car dealers play?” Not saying they don’t, after all, it is a business where the price is negotiated on three levels, purchase price, trade allowance, and financing. What is keeping all the geniuses of coming up with a better process, buying a dealership, and becoming rich and famous by attracting all consumers to their better place to buy business model? Just asking?

    RE: “But come to think of it, just about any other sales – clothes, appliances, or cosmetics – is more professional than car sales.”

    Ever try to buy a suit, not on the sale rack, and make an offer less than posted? Ever try to trade in an old suit?

    RE: “When I buy a cosmetic for my mother the Estee Lauder lady at the local Macys knows all about what products she likes.”

    Do you have ANY idea what the markup is on that stuff? Ever try to bargain them down?

    RE: “Car salespeople seem to know very little about their merchandise.”

    Probably true. Vehicles might be somewhat more complex than cosmetics. Are you kidding me?

    • 0 avatar
      ajla

      “Probably true. Vehicles might be somewhat more complex than cosmetics. Are you kidding me?”

      So what? What good is a salesperson if they only have rudimentary knowledge that I can read off the window sticker? I should feel bad for the salesperson because what they are selling is complex? If you’re trying to sell me a $40000 Ecoboost Ford, the salesperson should know what a turbocharger and direct injection is.

    • 0 avatar
      BobinPgh

      Lots of games, like stalling for time, going to the sales manager with a lot of “oh, why do you want that price?”, “silent treatments”, keeping the keys to the car you have, I’m sure I can come up with more.

      No, never traded in an old suit but have asked about sale prices. And when you go to a tailor for a suit they know about fabrics and such.

      Yes, the Estee Lauder lady knows what my mother likes probably because EL sends them to training so that we have good customer experiences. I know its a high markup. I was saying why is it a cosmetics lady knows about her merchandise and a car dealer does not at all?

      I know cars are complex but I find car dealers have NO idea at all about engines or anything like even very basic information. Too many times they talk about their wife and kids which has nothing to do with a car.

    • 0 avatar
      danio3834

      Many people are fine paying absurd markup on things they want. What upsets them is when someone else can negotiate a much better deal than they got. If everyone pays the same inflated price, then no one feels like a loser.

      Most people aren’t comfortable in high pressure sales situations, and “no haggle” dealers have really gained traction in the last 20 years because of this.

      Still, the allure of a better deal has kept the traditional dealer sales model strong. Personally, I like the existing model as I’m not afraid to do my homework and talk to multiple dealers to get the best deal. I’ve helped other people get into cars at great prices by doing this too. I’ve gotten cars for below invoice as the dealer chases their volume bonus.

      An entirely corporate owned distribution network simply leads to fixed prices, period. It doesn’t cost Tesla nothing to retail their cars, so the middle man is still there. Just with them, the cost of the middle man becomes non negotiable.

  • avatar

    RE: “-Telling people that their dealer fee is required by law.”

    Dealer Fee? Either it is or it isn’t. If a fee is NOT required by law, and someone in a dealership says it is, I recommend smiling, agreeing to pay it AS LONG AS the person making the statement agrees to write “Required by Law” followed by their initials.

    RE: “-”Losing” your trade-in keys when you want to leave.”

    Attorney General Office, YELP, DealerRater, etc.

    RE: -Lying about their computer system crashing.”

    How would that benefit anyone?

    RE: “-Lying about issues they see in your trade-in.”

    Either it is or it ain’t. If you don’t like it, leave. BTW, do you suppose consumers ever lie about their trades, roll back mileage, make a deal, but carve out the battery, radio, tires, spare, etc.?

    RE: “-Telling you that your provided credit report is wrong and you actually need to pay a higher rate.”

    If you have doubts you are free to leave. What’s the big deal? Shop until you find the deal you want. Isn’t that what you do with appliances, clothes, groceries, etc.?

    RE: -Changing agreed upon numbers when you sign your final paperwork.

    “Attorney General, YELP, DealerRater, etc. etc. Walk. Are you helpless? Go to a different dealership until you find one that satisfies you. You can leave. You can shop.

    RE: “-Telling you your vehicle has a higher “real” towing capacity than what the manufacturer rates it at (hello Ram dealers).”

    Can’t you read? The tow ratings are displayed on the window sticker and all over the vehicle. Wake up and read.

    • 0 avatar
      ajla

      So all these tactics are fine to you? Not even a “yea, people shouldn’t do that”? It is just the way to do business? “Buyers are liars” anyway, right? If you don’t like it, get out. Or call the cops. We’re making plenty of money here.

      The burden of all knowledge is completely on the customer and if the dealer makes stuff up and the customers believes them then it’s the customers fault for not doing enough research?

      Wasting a customers time and causing them stress? Who cares? Those stupid marks don’t know how good they have it! They don’t know what they want! Can’t stand the heat, stay out of the kitchen!

      Tell me again how dealers are good for people.

  • avatar

    RE: “Teenagers ‘stroking’ the test drives? They do that already without needing to have the car brought to them.”

    Yes, and Tesla is just beginning to find out what it is like to do business in the real world with real consumers… and their kids.

    RE: “As for the stolen car, well, unless they know where and how to charge it, they’ll only go so far and the car itself CAN report its position if they do.”

    You don’t understand professional thieves who know how to disable GPS. They wouldn’t take a TESLA without know what it was.

    RE: “For that matter, Pizza drivers get mugged more often than you might think, and they’re usually carrying money.

    I’ve been in the auto industry for over 40 years. I can tell all sorts of real life stories about sales people being mugged OR killed. Tesla has a lot to experience before they need to get too cocky. Some of these lessons come hard.

    RE: “I’ll grant, if something can be used, it will be ABused.”

    TRU DAT!!

    RE: “That’s what’s happening in the dealership network now. Interesting thing is that the manufacturers currently have a little something they can hold over those dealers’ heads; if they get enough bad reports about a dealership, they’re more likely to pull that dealership’s license to sell their cars.”

    Manufacturers can’t pull a dealer’s license. Where did you get that idea?

    • 0 avatar
      ajla

      “Manufacturers can’t pull a dealer’s license. Where did you get that idea?”

      They can pull your franchise though.

      http://www.thecarconnection.com/news/1045174_update-mazda-dealer-that-overcharged-mentally-disabled-woman-loses-franchise

      • 0 avatar
        bumpy ii

        True, but it’s very difficult and generally only happens for blatantly illegal stuff that makes for horrible publicity. Bill Heard was scamming people for years before his franchises were yanked.

        Anyone else remember Bob Crumpler? He eventually “negotiated” the sale of his Nissan dealerships to settle things.

  • avatar

    RE: “Long, high-interest loans on stripped new cars come to mind, as does the four square. Neither of these things are inherently evil, the former is the result of irresponsible borrowing, and the latter is just a tool.”

    Who makes anyone sign a loan they don’t want? What makes people think they can’t get up and live and continue shopping, then blame it on the dealer when they don’t.

    RE: “But that credit is extended to some people for the amount of a new car at extreme rates, while the lender knows that it’s putting the borrower in a position that almost inevitably leads to a worse financial situation years down the line seems ethically a bit grey.”

    Why would anyone sign a bank contract they don’t want? Why would they blame it on the dealer? Like I say, consumers often don’t know what they want or what would satisfy them. And if they do, they are often wrong about what they should have coming.

    RE: “I had planned on buying a new car over the summer but walked out of a half-dozen dealerships after being browbeaten with a foursquare until I couldn’t think straight. I’m not particularly bright, I’ll admit, and some folks can retain clarity of thought while looking at a foursquare colored completely black with pencil, but I can’t. I had to leave just because I was no longer confident that I knew what I was looking at. Now I’m hanging on to my hateful enconobox until I can either buy with cash or get a loan before going in.”

    Good for you. As Nancy Reagan once said, “Just say NO.” And leave.

    RE: “Most people are like me, and can’t necessarily hold their own against a dealer who has so much power over the transaction, and who created the game we’re forced to play.”

    The ONLY the dealer has any power is if YOU think he/she does. The dealer didn’t create the “game.”

  • avatar

    This board gives on the idea that hitting a reply button replies only to a specific comment. Then they provide a Reply Box” with no indication of any difference.

    • 0 avatar
      morbo

      If the rest of TTAC reading this agrees, please reply to this message. This troll was entertaining but I think it’s time we ask him to leave. He is arguing for the sake of arguing, providing limited thoughtful insight, and is rephrasing others debate points as questions and/or using spurious logic to ‘win’ his argument. And more than anything the constant breaking of the threads is annoying and unplesant to read.

      Please leave Ruggles. You are making it difficult to use TTAC.

      • 0 avatar
        ajla

        Personally, I don’t think he’s trolling. He’s new and passionate about this topic. I do wish that he’d try to use the individual reply button as the thread is mess right now.

        I also think both he and I are getting a little incredulous in our replies, and the next step is personal attack stuff, which I know TTAC doesn’t want, so I think I’m going to cool it and stop posting on this editorial. I feel that the comments he made at 5:50 pretty much tells the story. I’ve said my piece.

      • 0 avatar
        el scotto

        + One buh-zillion

      • 0 avatar
        highdesertcat

        The reply button may not be working for his browser. I’ve had it happen, on occasion with Opera, FireFox, IE8, Safari and Chrome.

        Really weird, even though you hit the reply button the comment ends up at the bottom of the stack.

        But if this guy bugs you, just don’t respond to his posts.

  • avatar

    RE: “Blackberry is a dead man walking.”

    Apple was once a dead man walking. And might be yet again in the future.

  • avatar

    @ Vulpine

    RE: “Ah, ruggles; trying hard to out-debate me without any real rebuttals. Turning a question back on the questioner is not an answer.”

    With you I am not debating. It is called “teaching.” If you aren’t bright enough to learn, I can’t be responsible.

    RE: “It has already been discussed more than once in this forum that manufacturers are effectively prevented from operating their own dealerships.”

    Under certain circumstances which I have explained in great detail.

    RE: “Steve Jobs proved tradition wrong when he opened his Apple Stores against the recommendations of high-end analysts and again when he put the iPhone up for sale, again against the recommendations of industry analysts.”

    Steve Jobs wasn’t in the auto business, and gadgets are not vehicles.

    RE: “In both cases they declared irrevocably that such efforts would fail–yet BOTH are more profitable than their competition by far. Just because something didn’t work in the past doesn’t mean it can’t work now.”

    Then go ahead and try it. What’s stopping you? I have to question your reading comprehension. I am in complete support of Tesla’s bid to own all of its own dealerships. I have been clear on this from the beginning and is the sole purpose of my getting involved in this thread. I am at odds with TX and the states that have prevented Tesla from owning all retail outlets in those states.

    RE: “How would Tesla drive auto dealers out of business? By simply eliminating the middleman entirely.”

    Tesla has no power to eliminate the dealer bodies of other OEMs. Why would you think they would?

    RE: ” Selling and delivering direct to the customer and completely bypassing any need to even go to a showroom. The cars can be displayed in a storefront the way Tesla is doing now and the entire purchase process can be handled online.”

    Aren’t they doing that now? What does that have to do with GM, Toyota, or whomever?

    RE: “MEANWHILE, once the owner takes delivery, the car or truck it replaces can be sold directly to someplace like CARMAX, itself changing how we buy used cars.”

    Or, the car can be handled through AutoTrader’s TradeIn Marketplace. Wonder what happens to the sales tax credit? Ever thought of that?

    RE: “Then we have Carfax, which is helping buyers to ensure they’re getting what they pay for and not some shade-tree mechanic’s salvage project.”

    Why bring up CarFax? They’ve been around for over 20 years. What do they have to do with Tesla. BTW, they are currently under assault in the courts for certain business practices. If you have access to Google you can find out all about it.

  • avatar

    Way to open the article with a lie in the first sentence.

    Dealerships must be eliminated and giving up on the task is not the first step on the way.

  • avatar

    Your math is off by what, $60 billion? WOW, now that’s a rounding error.

    RE:

    GM – $13 Billion
    GMAC-$17 Billion
    GM Receivables LLC – $0.3Billion
    Chrylser – $4 Billion
    Chrylser Financial – $1.5 Billion
    Chrysler Receivables – 0.5 Billion
    Superfund costs – Approx $5 – $10 Billion

    RE: “So my math is off, actually ONLY cost us $40 Billion”

    In addition to the $60 billion error, these numbers are off too. Do you just make these numbers up? What are you trying to assert?

  • avatar
    el scotto

    Why can’t I buy my car like I buy suits from Brooks Brothers? Order on-line, go in to get fitted, and have it mailed to my house? No peckerwoods standing around trying to sell me triple pinstripes, 60 days same as cash, dealer applied button protection, or some other nonsense. Superb customer service, respect, and efficient use of my time is what I want from a salesperson. Instead, most dealers go out of the way to ensure none of those three values have ever been used on a dealer lot.

  • avatar

    @ Delta9A1

    RE: “Given Tesla’s huge market cap and tiny sales numbers, perhaps part of the the business plan that Musk is working on is to use the public pressure/demand to create cracks in the dealer protection laws, to make Tesla a more attractive acquisition target. The major car maker buyer gets the technology and a luxury/electric category, with the direct-to-consumer marketing right as icing on the cake. If Tesla were to create a dealer network, any buyer of Tesla would have to merge the Tesla dealers into their existing dealer network, or try to revoke the overlapping franchises (good luck).

    All good points and thoughts. If Tesla sold to say GM, that division of GM could maintain the factory owned dealerships under the existing franchise law in most states. It is doubtful that GM would want to maintain those dealerships, but they might. But I think Musk as WAY to big of an ego for that. His big windfall comes AFTER building out a factory owned dealer network and he sells that network out to franchise dealers. HUGE profits to be made there. But he can’t be more than a boutique OEM trying to own his own dealerships. I think he has a chance to be successful enough to reach the point when he will need franchise dealers. There isn’t enough money or expertise available to become a volume OEM and own all the stores. Not in the auto business.

    D2C sales make economic sense for Tesla if they never sell to a major, and make Tesla more valuable to the majors if they do. A dealer network adds no economic value to Tesla now, and would be a disincentive to a buyer in the future.

  • avatar

    RE: “”First of all, Apple hasn’t won.

    Apple has $75 Billion in cash and cash equivalents, with no debt. The stock itself is worth Half a trillion dollars.”

    The game is ongoing. Or do you think there is a finish line?

    RE: “They won. They may lose in the future, but in the year 2013, They have won.”

    That’s like saying “We were ahead at half time, so we won the game.”

    ” A law might be legal if the Supreme Court said so.” And I hope Musk takes his case to SC so we can get a definitive answer once and for all on franchise laws.

    I’m still trying to get my mind around your “illegal law.”

    RE: “The dealers body says the Tesla store is illegal.”

    NO, they don’t. Tesla has run afoul of laws in certain states. Have you not noticed they have showrooms in many states? How are you calling “the dealers body?

    RE: “Tesla says it’s legal. Let the SC decide and get out of the way.”

    You and I don’t get to decide what the SC decides and does not decide. The Supremes will never see this. Tesla only has issues in a few states. He’s fine in most, as he should be. And I’d like him to win in TX. But this is NOT the issue. the issue is “mixed systems.”

  • avatar

    RE: “Are you going to discriminate against people who have a credit score under a certain point” Yes, banks do this all the time.”

    So you make no distinction between “serving someone” and “pricing for risk?” Do you really think you understand this?

    RE: “Look, I get that you’re trolling under TTAC’s new rules. It’s kinda entertaining. But you’re close to Godwinning this one, bringing up the Civil Rights act of 1964. Stay on Topic or go back to trolling Jalopnik”

    Ever heard of the Gish Gallop? Stop making stuff up for the sake of volume or go back under the bridge.

  • avatar

    @ bball40dtw

    RE: “I want a fair price the first time.”

    How would you know a “fair price” from and “unfair price?” How do you define “fair price?”

    RE: “I don’t want to start at one number and have to haggle down to another. I would have paid more for my most recent car than I did if the dealership would have accepted my fair offer the first time. Instead, the price of me being unecessarily hassled gets factored in the final sales price. I’m sure they still made money on the vehicle, but they could have made more in a shorter period of time.”

    Anecdotes don’t represent the big picture. If you didn’t want to haggle you could have paid the first price. Why didn’t you?

    RE: “There are so many research tools out there now.”

    YES, consumers have more information than ever before.

    RE: “If people do their homework, the price that you pay should be a relatively known quanity. Even with all the data out there, many dealerships choose to dismiss or ignore it.”

    That’s because the dealerships live in the real world. They know how much they pay for their inventory. They don’t get it from the Internet. They see it hit their bank account.

    • 0 avatar
      bball40dtw

      Because I knew the price wasn’t where it should have been based on various research materials and the average auction price of the vehicle I purchased.

      I had the auction price of the specific vehicle, knew what they did to bring it to CPO quality, knew the cost of the CPO warranty to the dealership, and I was going to leave them $2500-3000 in profit.

  • avatar

    RE: “You can finance a house on line, I can’t see why you couldn’t do a car as well. Trade-ins…yeah that could be tricky. Partner with Carmax, but they’re not that ubiquitous.”

    No, not really. You can do certain things online. But not the whole thing.

    AutoTrader’s Online Marketplace covers the country I believe. But many consumers think they should get retail for their trade in.

    I’m still waiting for someone to explain why consumers would give up retail for their trade AND give up the sales tax trade in credit too. Anyone figure that out?

    • 0 avatar
      bball40dtw

      Dealers don’t want to give you blue book trade in value for your trade in. I understand, they know what they need to make on it, but I don’t think people expect retail value.

  • avatar

    @ Vulpine – Apple sells gadgets. Tesla sells vehicles. That’s the end for comparisons between the gadget business and the car business for me.

    I only have 11K MP3s and none came through iTunes.

  • avatar

    RE: “I’d define “usual prices” that as a comparison between transaction price and cost.”

    And that comparison quantifies as ?????????

    RE: “When Suzuki’s dealer network greatly contracted were the remaining dealers suddenly able to discount less from MSRP?”

    Suzuki’s dealer network didn’t contract, it disappeared. Suzuki pulled out of the U.S. Some dealerships might have left a Suzuki sign showing, but they aren’t Suzuki dealers any more. Suzuki dealers were always free to sell Suzukis for whatever they wanted to. Why would you think different?

    RE: “Under your theory, these Suzuki dealers should have been able to rake in profits from people wanting a Grand Vitara or SX4 due to decreased competition. Did they?”

    Do you have a problem with dealers “raking in profits? What “theory” are you talking about. Suzuki dealers disappeared. EX Suzuki dealers remained trying to get shed of their inventory to a population wondering where they would get warranty work done and banks unwilling to finance them. That’s NOT a recipe for any kind of profit. It becomes a game of defensive selling, to get the damn things off your floor plan to stop the interest clock. A Suzuki dealer friend found himself with a new building he had built for this Suzuki building, but now no franchise to supply him with new cars…. and no other franchises available to but to put in his expensive and new building. Not a recipe for profits. He has been trying to make his mortgage payments selling used cars to lose less money, not make more profit.

    RE: “I don’t disagree that there is some downward pressure on prices due to dealer competition, but I contend that it is FAR smaller than what you are making it out to be.”

    And how would you know this? Do you have ANY experience in the business?

    RE: “You seem to have some belief that there will be run away price increases without independent dealers keeping everyone in check.”

    I never said that. Did you access and read ANY of the Maryann Keller stuff I posted links to. Do you even know who she is? If you are trying to make the case that factories should be able to own stores that compete with their own dealers, give it up. It won’t happen. Attorneys would LOVE for the OEMs to try it. As I mentioned, Ford tried it. The surrounding dealers to the metro areas didn’t fight it. IN fact, they embraced it. And they were the saddest when the factory stores were wold off to franchise dealers. Why not study up on this. You could learn a lot.

  • avatar

    RE: “Yes, you are missing something. Often manufacturers have different rebates for different people. They list it in the fine print of the ad, but sometimes its difficult to tell. In the Detroit area, I always assume anything new advertised is employee pricing.”

    All true and factual. It is one thing to have all of the info. It is quite another to be able to interpret it. Dealers have to livein this world too, BTW. These programs aren’t always easy for dealers to decypher.

    RE: “As far as lending goes, dealers don’t try to squeeze me on financing because I know that side better than they do.”

    Do they know this because you walk in with a label on that says, “I know finance better than you?”

    RE: “I haven’t experienced issues first hand, but I know people who have been called back a week later saying that their rate should be higher. Do they ever call people to say the rate should be lower?”

    First, if a customer gets the kind of call you are talking about, why do they think they have to go back to sign a contract at a higher rate? Why don’t they just take the car back. Is someone holding a gun to their head?

    • 0 avatar
      bball40dtw

      Usually one talks to a salesperson and manager at a dealership before you talk finance rates. Loan applications typically ask for your occupation as well.

      I don’t lead with my occupation or title, but it will come up in conversation.

  • avatar

    RE: “More uninformed crap. Musk sold Paypal HOW LONG AGO? Ebay owns Paypal, that’s why it sucks, not because of Elon Musk.”

    Of course Musk sold PayPal years ago. Where do you think he got the money to invest in Tesla. When did I ever say differently?

  • avatar

    @ cloroxbb

    “It is the competition among franchise dealers that gives consumers the opportunity to shop for a better price.”

    OK. Here’s your big chance to show how INFORMED you are. What standing do you have? Are you an economist? Do you have any real auto industry experience? Or have you just bought a few cars yourself. Do you even know who Maryann Keller is? Did you read her analysis at the links I provided? Or are you just typing away because you have an opinion?

    RE: “If by “better price” you mean “lower dealer profit.” Either way, you are still paying MORE for the vehicle than is needed if you were to buy direct from manufacturer.”

    Amateur logic at best. Arbitrary and baseless. In other words, you really don’t know how this works. IF you want to get informed read Maryann Keller on the issue. Her standing is somewhat taller than mine. You strike me as the type of person who tries to teach the teacher, however.

  • avatar

    RE: “Why can’t I buy my car like I buy suits from Brooks Brothers? Order on-line, go in to get fitted, and have it mailed to my house? No peckerwoods standing around trying to sell me triple pinstripes, 60 days same as cash, dealer applied button protection, or some other nonsense. Superb customer service, respect, and efficient use of my time is what I want from a salesperson. Instead, most dealers go out of the way to ensure none of those three values have ever been used on a dealer lot.”

    You can. You can buy a Tesla, right?

    el scotto – Perhaps you’ve stumbled onto a great new business model. Anyone ever try it? Why don’t you and your friends get together some dough, and change the world. You’ll be rich and famous, right?

    Are you familiar with the old Rolling Stones song… You can’t always etc. etc. etc.

  • avatar

    RE: “True, but it’s very difficult and generally only happens for blatantly illegal stuff that makes for horrible publicity. Bill Heard was scamming people for years before his franchises were yanked.”

    Some of the stuff mentioned was blatantly illegal. With the other stuff, why doesn’t the customer just leave?

    Bill Heard is proof of what can happen when a dealership steps out of bounds. It should be a deterrent. Anyone ever hear of “King of Cars?

  • avatar
    Kenmore

    Scrolling this thread is fascinating.

    I’ve never before watched an invasive species attack.

  • avatar

    RE: “Ultimately, we humans of average intellect do spend our money — our five cents, as someone put it — in disagreeable environments. We’d really prefer not to play your game, but it’s the only game in town.”

    Yes, most people are reluctant to enter the arena if there is a chance they might lose, EVEN IF the cards are stacked in their favor.

    Breaking for supper…. But I’ll break with two comments. First, take the time to read Maryann Keller at the links I provided. Second, I’ll provide you guys with the same advice a gave Scott Painter, TrueCar CEO. Before setting out to change the car business, better to actually learn it first.

  • avatar

    RE: “Manufacturers can’t pull a dealer’s license. Where did you get that idea?”

    In the showroom, a copy of the drivers license is taken and scanned. Tesla could do that to.

    RE: “They can pull your franchise though.”

    How? They can go BK and abrogate. They can file an action based on “cause.” They can fuss a renewal, but have to show “cause.” This is narrow legal term. They can’t just terminate you on a whim.

  • avatar

    RE: “Is a person making any capital investment guaranteed a return?”

    No. Did I ever say they were. If a opportunity is not attractive, like having to compete with your own supplier after you’ve built or bought a facility for them, smart money walks away.

    RE: “shareholder and franchisee are not comparable.”

    True. A franchised car dealer is MUCH more important. I’ve been both.

    RE: “The franchisee promises to commit time, money and effort in exchange for some sort of exclusive arrangement. Presumably, the franchisor and franchisee enter into this sort of partnership because there is mutual benefit.”

    Very good.

    RE: “The franchisor gets the benefit of not carrying the burdens of the retail business. The franchisee gets the benefit of having a dedicated territory that is contractually protected by the franchisor.”

    There, you’ve got it.

    RE: “A franchisee would be a fool to enter into an arrangement in which the franchisor could take over a territory whenever the franchisee proves that the location has some value.”

    Exactly!!!!!

    RE: “A franchisor that cherry picks its territories is not the sort of business partner than anyone smart would want to have.”

    TYVM!!!!!

  • avatar

    RE: “We shouldn’t simply allow franchised dealers to use laws they essentially bought and paid for to extinguish a completely valid sales model.”

    You have some documentation about the “bought and paid for?” But again, I’m advocate for Tesla being able to own its own dealerships as long as it owns all of them. And I told that to David Westcott last week.

    RE: “There’s nothing truly wrong with Tesla selling directly in the modern era.”

    Or any era.

    RE: I think most people only need a local place for test drives at best outside of service centers for new car purchases.”

    Some people NOT most people. Most people NEED a dealer’s help. Why is going to wait until after dinner, but read Keller for an answer.

    RE: “I wouldn’t have problem with buying and paying for a car through some sort of online sales model.”

    Some would be happy with that, or so they say before doing so. Makes you wonder why AutoBids Online didn’t get off the ground.

    RE: “We need fresh disruption of the existing car sales model as it is completely stacked against the buyer.”

    Completely wrong. Consumers have NEVER had things more their way than now.

    RE: “That’s an easy reason to keep pushing Tesla forward since they’re the best chance we have to fix the system.”

    Its a solution in search of a problem.

    • 0 avatar
      mcs

      >> Some people NOT most people. Most people NEED a dealer’s help.

      Well, you’re an editor for a dealer publication, so show us the research.

      Read Keller?

      From http://mkellerco.com/About_Us.html:

      Ms. Keller has served as a Director of several companies over the last ten years. Currently, she serves on the Boards of Lee Automotive Group (privately held multi-line dealership group in Maine) and for DriveTime Group (the largest BHPH [buy here, pay here] automotive retailer in the USA based in Phoenix, AZ).

  • avatar

    RE: “That is not how it actually is though. It is more like we want: Cust A wants to buy for MSRP of $25,000 while EVERYONE that wants that car with the same option pays that price rather than; Cust A negotiates a price of $28,000 ($3000 above MSRP) because the dealer added their “paperwork” fee, tax-title-license fee, and “profit margin,” while cust B, may pay $27,000 by negotiating better, or pay $30,000 by not negotiating at all.”

    So you want to negotiate only if you are guaranteed to win the negotiation and you prefer price fixing, which the OEM can do?

    RE: “Im sure it is a VERY rare day where someone gets a vehicle for LESS than the dealer paid for it.”

    Fortunately

    RE: “The problem most people have (at least I have) is that I HAVE to pay for “dealer profit” when buying a vehicle, which is added on top of Manufacturer profit that is in the MSRP.”

    Yes, that you do. What do YOU think that profit is? An industry average will do.

    RE: “Also, with a dealer, many of them will NOT allow you to “order” a vehicle with the exact specs that you want. You either buy what is on their lot, or fuck you!”

    Actually, this is TOTALLY false. You are free to leave the dealer who won’t let you order and find one that will. Do you have a telephone, or better yet email? You are partially correct. Certain import brands DO NOT build to order. This NOT the dealer’s doing. Certain options might not be available if the supplier is running behind. Again, not the dealer’s doing. Most dealers will do an inventory search of other dealers inventory and do a trade for you. But don’t you have the Internet available? Why must you be such a victim? Try Google once.

    RE: ” Its not a customer-friendly relationship at all. We have zero options in this deal aside from “buy what the dealer wants” or “don’t buy.”

    Just false. Is there only one dealer for the vehicle you want?

  • avatar

    RE: “I cannot believe you are really that stupid to not see the reply button. You are a very experienced troll.”

    I can’t believe you are so stupid as to say some the amateurish things you say. :)

  • avatar
    RussellL

    “I’m advocate for Tesla being able to own its own dealerships as long as it owns all of them.”

    Finally! A logical, straight forward response.

    “Most people NEED a dealer’s help”

    Didn’t last long. I don’t want a traditional dealer’s help. I only want the manufacturer’s help for warranty work or recalls.

    “Makes you wonder why AutoBids Online didn’t get off the ground.”

    It wasn’t the right time or they didn’t do it right. They didn’t convince enough consumers.
    Tesla is doing it right. Consumers believe in them.

    “Its a solution in search of a problem.”

    Deceitful salespeople & dealerships are the problem. Tesla is our best solution.

  • avatar

    RE: “Maryann Keller is a shill for dealerships, sits on multiple dealership boards, and does public speaking tours for dealership groups. When I saw her speak at the Detroit Economic Club, her appearance was paid for by the Automotive Dealers of Michigan.”

    And she is the only one who has the experience of trying to operate a business model based on a bunch of consumers in study groups telling what they think they want. How many people here even have actual auto retailing experience, let alone the experience of trying to give people what they say they want. And she had HUGE money behind her, not to mention her reputation. How did that work out? Saturn? The Ford Collection? Will any of YOU put your money where your mouth is?

    • 0 avatar
      RussellL

      “Will any of YOU put your money where your mouth is?”

      Some do by purchasing Tesla vehicles or TSLA stock.
      Others educate the public as well as pressure our senators to create laws to allow direct sales.

    • 0 avatar
      Richard Chen

      Study groups have their limits, based on what questions you ask and who you’re asking. Ford commissioned one to ask prospective minivan buyers if a driver’s side sliding door was desired. Study group said no, Ford introduced the Windstar without one. A couple of years later, Chrysler introduced the 3rd gen minivan with available driver’s side sliding door. It took Ford 5 years to catch up.

      So what does the average Tesla buyer have compared with the average car buyer? Better finances, since most are also springing for a home 240V connection. I would think a good amount would be paying cash, even at those prices. And if you go by the recent study comparing Prius to Tesla owners, there just might be for an opportunity for an, er, _joint_ Tesla store/Jim Beam distillery/marijuana dispensary/strip club.

      I’m too cheap to buy a Model S, that check is a bit on the large side as I don’t finance car purchases. I write a check for the price I see online, and return to the dealership only to buy another car.

      • 0 avatar
        thelaine

        “And if you go by the recent study comparing Prius to Tesla owners, there just might be for an opportunity for an, er, _joint_ Tesla store/Jim Beam distillery/marijuana dispensary/strip club.”

        :)

  • avatar

    @ bunkie

    I’ve watched Apple go from the penthouse to the outhouse and back and I’ve never called them junk. From the early days with high quality SCSI and 1394 interfaces, they have been high quality in terms of design and internals. They are currently flying high. More power to them. Maybe the best is yet to come but I tend not to buy when the market is at the top.

  • avatar

    RE: “So all these tactics are fine to you? It is just the way to do business? “Buyers are liars” anyway, right? If you don’t like it, get out. We’re making plenty of money.”

    What tactics do you refer to. I have specified a number that should merit legal action. Making a profit? No Problem. Who will pay it if not the consumer? Buyers are liars? Often. They’ll lie about their trade in. Their income. Their credit. The price they say they got from another dealer. Consumers don’t have the restrictions on them dealers have.

    RE: “The burden of all knowledge is completely on the customer and if the dealer makes stuff up and the customers believes them then it’s the customers fault for not doing enough research?”

    Being a knowledgeable buyer is helpful. Prove a dealer is lying and give him a problem over it.

    Tell me again how dealers are good for people.

  • avatar

    RE: “Closing dealerships was part of the “Way Forward” plan.”

    What on earth are you talking about. You have your eras confused. What factory owned dealerships do you think Ford closed as part of that plan? Even IF you are right about this, which you aren’t, why would they close succcessful stores.

    RE: “In most cases, it was cheaper/easier to close company owned stores.”

    You REALLY have your facts mixed up here to the point that calling them “facts” is a distinct error on my part.

    RE: “Why would I listen to Maryann Keller?”

    Because she has forgotten more about the issue than you know.

    RE: “Although she is an analyst, she is on the board of two dealership groups, one a BHPH group. Of course she will side with the dealerships.”

    Of course, she will side with the facts. If she didn’t she wouldn’t be the respected analyst she is. Who do you think Alan Mullaly turns to when he wants real insight? A shill for dealers? In fact, what do you think Mullaly thinks about owning his own dealerships? I can answer that one for you. “Never Again.”

    • 0 avatar
      bball40dtw

      You are right, I have my details mixed up with the timing of the Ford Collection. It was late 90s until 2001. The Way Forward plan still cut dealerships though.

      Is part of the problem with having corporate stores for cars is that Americans are so used to haggling for cars now? Its ingrained in our culture that you wheel and deal for a car purchase.

      As intelligent and educated as Ms Keller is, she has a vested interest in dealers continuing to exist. It’s just like Mark Fields coming out and saying that it is important that people buy Ford products or David Axlerod suggesting people vote for Barrack Obama.

  • avatar

    RE: “So what? What good is a salesperson if they only have rudimentary knowledge that I can read off the window sticker?”

    Not much good. Find another one.

    RE: I should feel bad for the salesperson because what they are selling is complex?”

    Find another one.

    RE: “If you’re trying to sell me a $40000 Ecoboost Ford, the salesperson should know what a turbocharger and direct injection is.”

    Find another one.

  • avatar

    RE: “Well, we already know that the Tesla Model S has a high profit margin, and that hasn’t stopped the tens of thousands that have already purchased them…”

    So what’s your point? Are you trying to say people bought them because of the car, or the sales process? Maybe you want to say Saturn was a success to because they had happy customers?

  • avatar
    z9

    Tesla delivered their first Model S a year ago.

    A little patience perhaps?

  • avatar

    RE: “Probably, there are never rules you don’t agree with? Rules are put in place by men, nobody is perfect, rules sometimes need to be changed.”

    What rules are you talking about? It would help if you would register what you are responding to, but generally, most rules exist for good reason. Anyone want to tell me why dealer franchise laws were passed, after I’ve explained it repeatedly?

  • avatar

    RE: “Just like the Apple store, Tesla’s model prevents you from haggling. In other words, you get to overpay. Perhaps it comforts some people to be overpaying in the same amounts as everyone else, but I’d rather get a lower price, thanks.”

    Now here you’ve nailed it!!!

  • avatar

    RE: “And I’m sure NADA wouldn’t complain at all about new rules that don’t allow them to use returning lessee and military discounts in their advertised prices.”

    The LAST group the FTC or DOJ would consult on this is NADA. I don’t speak for NADA as all members don’t have the same opinion, but dealers would prefer clearly stated rules and a level playing field.

  • avatar

    RE: “Dealers don’t want to give you blue book trade in value for your trade in.”

    Why should they? They can’t sell your trade in to BB.

    Anyone ever go to a REAL auto auction, the heartbeat of the car business? Probably not since you have to have credentials to get in. And this is why you don’t understand what a guidebook is. It is only a guide. The books are mostly for bankers, not car guys.

    • 0 avatar
      bball40dtw

      I don’t expect them to buy it for Blue Book. You missed my point. I don’t think most people expect to get retail for their trade. I do think they sell my trade in for significantly more than what they gave me for it, but I’m okay with that, its business.

      I’ve been to multiple Manheim auctions.

  • avatar

    RE: “I had the auction price of the specific vehicle,”

    Auction price?

    RE: ” knew what they did to bring it to CPO quality,”

    How could you possible know what the dealer doesn’t know before he runs it through the shop?

    RE: “knew the cost of the CPO warranty to the dealership, and I was going to leave them $2500-3000 in profit.”

    There is a lot more to CPO than an extended service plan.

    • 0 avatar
      bball40dtw

      They showed me the paperwork of what they did after they purchased the vehicle. I also had an OASIS report pulled. I am well aware that there is more to a manufacturer CPO than just the warranty.

      The car was purchased by the dealer from a Manheim auction in the Detroit area. I have a friend that can pull the sale prices from that auction.

  • avatar

    RE: “The better price is essentially the dealer that’s going that’s going to take the least amount of skim from the transaction.”

    SKIM? After I wade through a few more of these I’ll school you on “skim.”

    RE: “Many of these dealers are mega-dealers with multiple dealerships, so how do you go between different dealerships when one guy owns almost every dealership for a particular make in your area?”

    One guy? Like who? Mega dealers are either public companies are have MANY investors.

    RE: “One of our local mega dealers is a billionaire. Give me a break!”

    Exactly who would that be? There are a few… not many.

  • avatar

    To certain members of the group – you’ll know who you are. Instead of attempting to refudiate the elements of Keller’s comments, you find it much easier to dismiss her with “she’s a shill for dealers.”

    This is intellectually lazy and inherently dishonest. She cites the litany of costs that dealers sustain on every new vehicle deal. These costs would be sustained by the auto maker if they owned the point. SO my way of addressing this to the “geniuses” is to ask you to tell us what the average transaction profit is on a new vehicle deal. Then subtract all of the selling costs to see what is less. That amount of money is what the consumer is paying for all of what the dealer does for them.

    Do you really think the auto maker gets to display $5 million in inventory at no cost so the consumer can choose from a wide selection without ultimately paying for it? Would the automaker avoid the cost of the facility, the employees, the property taxes, utilities, advertising, etc. etc.?

    None of this will make any sense until you decide what the dealer gross profit is. Let’s start there.

  • avatar

    RE: “I believe anyone should operate a business anyway they want, so long as they don’t steal, lie and cheat.

    If someone can come up with a better model to sell, why not?”

    That’s why I think Tesla should be able to own ALL of its own outlets.

    RE: “Just because a system exists doesn’t mean it’s the best possible system and protecting that system can only reduce the benefits to the consumer. It called protectionism, a very inefficient tool.”

    But you don’t get rid of something before you first understand it. We have a group here who could be learning, but choose to argue something they have an opinion about, but know only enough to be dangerous.

    If the franchise model is no longer relevant in providing the consumer with the best possible price, then adopt and change.

    The existing franchises can come up with an agreement for the manufacturers to buy them out or whatever.

    I mean how secure are these franchises? How many were closed down after the GFC?

    Evolve or perish.

  • avatar
    ajla

    Mr. ruggles,

    Have you ever met Remar Sutton or Earl Stewart? Do you have any opinion on those folks?

  • avatar

    RE: “Have you ever met Remar Sutton or Earl Stewart?”

    Remar Sutton is older than both dirt AND myself, and is probably still a legend in his own mind. He has been the “consultant” for the American Airlines credit Union in Dallas for decades. I’m a member of that CU.

    RE: “Do you have any opinion on those folks?”

    There are a number of Earl Stewarts. You might be talking about the guy with a radio show and a blog. I don’t know them personally, although I think I understand Remar Sutton. He carved out a niche for himself with AAFCU and has been hanging on for dear life for decades.

    I’d like for both of these guys to go through the arithmetic I’ve suggested for this group, beginning with what they think the average dealer gross profit on a new vehicle is. I’d prefer to discuss issues one by one rather than to characterize either…. other than my observations about Remar.

    Sorry to be so far behind. Instead of asking salient questions this thread is being carpet bombed with less than knowledgeable opinion and emotion. I’m having to wade through a lot of chaff to find any wheat.

  • avatar

    RE: “Well, you’re an editor for a dealer publication, so show us the research.”

    No.

    RE: “Read Keller?”

    What’s your question?

  • avatar

    RE: “I wish Musk luck in getting rid of the independent dealers,”

    Musk isn’t trying to get rid of the independent dealers. He has NO INTEREST in that.

    RE: “but I am not very optimistic that it’s going to happen.”

    I wouldn’t worry about that.

  • avatar

    @ mcs

    RE:

    http://rugglesreport.wordpress.com/about/

    Actually, I didn’t put that up. I don’t edit anything. I didn’t even edit the Ruggles Report, a project from years back. I had to abandon it, except for a few bulletins, when the auto industry cratered and the publications I contribute columns to preferred I didn’t serve too many masters. I write for an auto industry publication which is NOT a dealer publication. I also write for Auto Finance News, and occasionally contribute to Automotive News, the WSJ, the Daily Post, and the NYT. I mostly do consulting for the auto industry in various fields, primarily in the field of finance and leasing. I write on economics and lecture at certain universities and for a variety of groups. I have an undying interest in economics which led me to join up with Professor Mike Smitka on AutosandEconomics. For those who want to learn, it might be a good place to visit. I find many here think they already know everything.

  • avatar

    @ Grunt

    RE: “so you suggest that the dealer spend a few million to establish a dealership that customers can purchase and maintain their vehicles for free? Your prices for all that add-on crap are obviously over the top to simply attempt to justify your disdain for auto dealers. As many know you can simply decline on that bs. Oh and a car is not an I-Phone.”

    Thank you for comment. It is gratifying to find nuggets among the… well, whatever.

    • 0 avatar
      bball40dtw

      The Jim Click dealerships in Tucson, AZ charge $995 for the desert protection package and $399 for window tint on EVERY SINGLE VEHICLE. I suppose you can ask for them to take it off, or go to another dealer, but he has a monopoly on some brands in Southern Arizona.

      These kinds of add ons should be offered as an additional cost item, not put on the window sticker of every vehicle like its something that is factory installed.

  • avatar

    @ Quentin – RE: “The car buying experience I want apparently exists in Japan. Supposedly, Japanese dealerships are set up to where you have the basic vehicle in the showroom and the normal thing to do is pick the options, place the order, and pick up the car a few weeks later rather than buying out of dealer stock.”

    Interesting you should mention this. In Japan, there is a mixed system with factory owned stores along with franchise stores. But the have rules that prevent the factory stores from competing with their investor’s stores. You will probably receive a higher price quote from a factory store. Franchises are granted by state or regions…. a prefecture is a “state” in Japan. Dealers hold no inventory. Not because they don’t want to, but because there is no space. Besides the government collects tax immediately when the dealer takes delivery. Imagine the dealer having pay sales tax upfront on $5 million worth of inventory. So the dealer may have a few demos, which is what you drive. You cannot drive the car you buy because it won’t be built for a few weeks. Americans would never tolerate this having been spoiled, except for a few. When I first started selling cars that’s how many care were sold. We had customer who would order their new car every spring, and pick it up in the fall.

    I consulted in Japan for 18 years. My wife and I have a home in Nagano, in the Japanese Alps. I probably know more than the average American about the Japanese auto business. And my blog partner is an expert on the Japanese supplier base. He is fluent in Japanese. I am not.

  • avatar

    RE: Japan

    We have a group of kids here who act like they invented texting. It has been going on in Japan for almost 20 years.

  • avatar

    bball40dtw
    Comment:
    Hopefully its not a glimpse into the future. On the other hand, it’s nice to see all the TTAC regulars on the same page. It has taken a great evil to unite us.

    Except for the occasional bright light, this is an amazing uniting of collective ignorance.

  • avatar

    RE: “Musk is open to letting others sell his cars.”

    I don’t think so. It would destroy his long term plan to do so. At some point he will embrace the franchise model, and will make enough money to buy Mars when he does.

  • avatar

    RE: “They showed me the paperwork of what they did after they purchased the vehicle. I also had an OASIS report pulled. I am well aware that there is more to a manufacturer CPO than just the warranty.”

    Good

    RE: “The car was purchased by the dealer from a Manheim auction in the Detroit area. I have a friend that can pull the sale prices from that auction.”

    As I have mentioned, it helps to be able to interpret data. Its a help to have access to MMR. BUT if 50 identical vehicles were sold that day, the prices they brought would vary widely, depending an a variety of factors. MMR does NOT include the “sale fee.” OR the fee to the buyer for the dealership. It doesn’t include transportation home to the dealership. It doesn’t include sales commission or the marketing costs each vehicle has to sustain. Its not like you could say, charge the next vehicle twice because this one isn’t paying it.

    Did you buy it? How much do you think they were making?

  • avatar
    Beerboy12

    WhoTF is ruggles, a troll? Verbal diarrhea extreemis…Seems like Ruggles has an agenda here.

  • avatar

    RE: “I don’t expect them to buy it for Blue Book. You missed my point. I don’t think most people expect to get retail for their trade.”

    You’d be surprised.

    RE: “I do think they sell my trade in for significantly more than what they gave me for it, but I’m okay with that, its business.”

    You are miles ahead of the rest of this group.

    RE: “I’ve been to multiple Manheim auctions.”

    So are you a dealer? Do you have an Auction Access card? Or do you sneak in?

  • avatar

    RE: “You are right, I have my details mixed up with the timing of the Ford Collection. It was late 90s until 2001. The Way Forward plan still cut dealerships though.”

    Thank you for the acknowledgement. The Ford Collection experiment was a lesson to all auto makers, but the execs of that day are mostly retired and the new guys think the world began yesterday. The Way Forward was a much different deal. Those dealers were NOT “cut.” They were bought out.

    RE: “Is part of the problem with having corporate stores for cars is that Americans are so used to haggling for cars now? Its ingrained in our culture that you wheel and deal for a car purchase.”

    First, let me say I appreciate your tone. Second, Americans HAVE been trained to haggle. There is no such thing as a best price. In some parts of the country bartering is part of the culture. An example would be farmers or ranchers buying trucks or farm equipment in rural areas. That’s what they do. We have some folks in the country who come from countries where they negotiate a head of cabbage at the grocery store. Keller tells of the company that bought cars from dealers and sold them for a loss to try to establish themselves. Consumers still tried to hassle. Auto Makers have cut the markup leaving so little gross profit left they have forced dealers into all sorts of things.

    RE: “As intelligent and educated as Ms Keller is, she has a vested interest in dealers continuing to exist.”

    She doesn’t give a rat’s ass. She’s 70 years old and doesn’t need any more money. She cares only about the facts. Not commonly known is thather husband negotiated the deal that ended up being the NUMMI joint venture in Fremont CA. I think we all know who is in the facility these days.

    RE: “It’s just like Mark Fields coming out and saying that it is important that people buy Ford products or David Axlerod suggesting people vote for Barrack Obama.”

    No comparison. Maryann is as intellectually honest as anyone I’ve ever known. You don’t get to be the world’s most respected auto analyst by showing or having bias of any kind.

    • 0 avatar
      mcs

      >> . You don’t get to be the world’s most respected auto analyst by showing or having bias of any kind.

      Serving on the board of Lee Automotive is showing bias. Both of you are delusional and trying to support in your mind a failed model that’s on it’s way out. You’re out of touch with the buying public and the activities that occur within the confines of the dealerships that support your livelihood.

  • avatar

    RE: “I do hope that you are of the opinion that reasonable people can disagree with each other.”

    Certainly, on opinion, but the facts are the facts. If your opinion is due to being mistaken on the facts, as most on this thread are, that’s a whole nuther thing.

  • avatar

    RE: “WhoTF is ruggles, a troll? Verbal diarrhea extreemis…Seems like Ruggles has an agenda here.”

    WTF is a BeerBoy? Someone who pisses and farts a lot? And is proud of it?

  • avatar

    i DO appreciate the occasional bright light. And I write for WARDSUTO.COM. If they publish something of mine in WARDS DEALERS BUSINESS they get it from the other division. Wards is an automotve publication with special emphasis on the supplier base. I DO write a lot about dealer issues. This writing thing began over the arbitrary dealer terminations in 2009 when I locked swords with Rattner and company.

  • avatar

    bball40dtw
    Comment:
    My friend and former employee is a dealer and does a lot of import/export to the Middle East.

    Why can’t you buy yourself a car through him? He’s a dealer, right? Why even involve another dealer?

  • avatar

    RE: “Actually, in Tesla’s case. Going with a dealership would put financial burden on the company.”

    Actually, the money they spend to fund each showroom could be plowed into something else. But Musk has a plan FBOW. Musk hasn’t yet experienced how fast cash can burn in the auto business yet. I am rooting for him, but he has some lessons to learn. He’s a really stubborn guy. I asked him to address an industry conference next year, and his assistant flatly said, Our company doesn’t believe in stuff like that.” And I’m a known booster of Tesla, having roasted NADA on their opposition an automaker owning all of its own outlets.

    A friend with a big leasing company in Dallas who has delivered 6 Models S has been trying to reach Tesla to find out how they can better work together. Tesla won’t even return his calls. This guy leases cars to a HOST of pro athletes. But Musk thinks he knows better then everyone, so we’ll just watch him do his thing. But the terms arrogant does come to mind.

  • avatar

    RE: “Serving on the board of Lee Automotive is showing bias. Both of you are delusional and trying to support in your mind a failed model that’s on it’s way out.”

    Failed model? On its way out? So make that case, why don’t you. How has it failed? If so, why is it thriving? So any evidence it is on it way out. This is the kind of ignorant crap one encounters on amateur boards.

    Can you back it up with facts and data, or are you just complaining about something you don’t understand?

    RE: “You’re out of touch with the buying public and the activities that occur within the confines of the dealerships that support your livelihood.”

    I don’t have a livelihood these days. I mostly have hobbies. How would YOU know anything about the buying public? I visit dealerships weekly. How about you? You think YOU are typical?

    • 0 avatar
      ajla

      Information asymmetry is decreasing for customers. How long until dealers are negotiating on the margin itself? Right now they already have to blow someone out of the water to make things average out. Your own website talks about the issues with the CFPB. People do more of their negotiating from the safety of their home computer. Good luck on 10%.

      Everything I’ve read about new car sales says that profit margins have seen major compression and most of the money these days has to be made in used cars and service.

  • avatar

    Keller does analysis for OEMs to. What conclusion do you want to draw from that? Who do you think Wall Street asks? Big investors? She was on the board of Dollar/Thrifty too. What do you get from that?

    But what kind of intellectual laziness prompts someone to try to label the messenger rather than attempting to refute the facts she has laid out. I know its easier to make a wild accusation, especially if you have NO ACTUAL experience and nothing but blind opinion. What I am referring to specifically is the math that itemized the costs dealers sustain on each new vehicle subtracted from the average gross profit per transaction. Not one of this group who wants to abolish car dealers can give any data on the issue. All you know is you got your feelings hurt at a dealership in a previous experience and you want a guarantee you’ll win your next negotiation. Welcome to the world of business, sonny.

  • avatar

    RE: “The Jim Click dealerships in Tucson, AZ charge $995 for the desert protection package and $399 for window tint on EVERY SINGLE VEHICLE. I suppose you can ask for them to take it off, or go to another dealer, but he has a monopoly on some brands in Southern Arizona.”

    Tell them you want a vehicle without it and if they don’t, walk and write a letter to Jim Click, ex All American Center for Okalhoma State who graduate the year before I went there as a freshman. Blocked for a guy name Walt Garrison. Father in law was ambassador to the UK.

    I drove from LV to Phoenix for my last vehicle. Use the Internet.

    These kinds of add ons should be offered as an additional cost item, not put on the window sticker of every vehicle like its something that is factory installed.

  • avatar

    RE: “These kinds of add ons should be offered as an additional cost item, not put on the window sticker of every vehicle like its something that is factory installed.”

    When you own your own dealership, you can run it anyway you want.

  • avatar

    @ mopar4wd

    You just gave a great explanation about inventory buffering provided by franchise dealers, on THEIR nickel.

  • avatar

    RE: “Actually, what lets people shop for a better price is competition between oems, not competition between dealers.”

    You are wrong. Cometition among auto dealers enhances the price competition of the OEMs.

    RE: “The problem with middlemen in general is to account for them, oems have to raise MSRP to create enough margins.”

    We’re not discussing middlemen in general. We’re talking about the franchise dealer network. If you want to know the cost to the consumer of the dealer network, begin with telling all of us what dealer gross profit per transaction is. Then subtract all of the costs an OEM would have to pay anyway if they provided the same value. Come up with a figure and prove it to us. You’ve opened your mouth. Now back it up with real numbers, not whining.

    RE: “It also unfortunately kills competitions between oems. This is why car prices in general keep going up and not down. Lack of competition.”

    You flunk econ 101 here. You have made the arbitrary assertion that auto dealers kill competition between automotive OEMs. You want to prove that?

  • avatar

    RE: “So buggy makers should have been allowed to shut down the first car dealers, beacuse they had already invested a lot of capital in making buggies? Time moves on.”

    Contract law doesn’t. My ancestors in the horse collar business were convinced cars wouldn’t catch on because they scared the horses. It is really quite naive to think the billions of dealers invested by auto dealers, based on contractual agreements and laws in place, could be wiped out on a whim.

    RE: “I can’t think of anyone who has said they enjoyed going into a dealership fre the car-buying experience.”

    So? Is that your reasoning behind arbitrarily wiping out the franchise dealer body. I repeat. IF an OEM wants to get rid of their franchise dealers, they can buy them out. That’s how business works.

  • avatar

    @ Weapon – I just want to know what experience you have had in your life to make such off the wall assertions? And what makes you think you have some kind of inside knowledge on Tesla?

    Based on your broad experience, what is the average sales commission paid. And where can one find a technician working on salary? A decent tech would NEVER work on such an arrangement.

    • 0 avatar
      Weapon

      I have no clue which post you are replying to so it is hard to answer some of your questions without context.

      But to answer your question, according to indeed website, average salary of a car mechanic is 38k. Average salary of a car salesman is 66k.

  • avatar

    @ ajla

    RE: Comment:

    Information asymmetry is decreasing for customers. Right now they already have to blow someone out of the water to make things average out. Your own website talks about the issues with the CFPB. People do more of their negotiating from the safety of their home computer.

    Information asymmetry decreasing gives consumers an advantage. In addition, they DO have the advantage of using the web to negotiate. But what does follow is your statement, “Right now they already have to blow someone out of the water to make things average out.” This makes no sense.

    RE: “Everything I’ve read about new car sales says that profit margins have seen major compression and most of the money these days has to be made in used cars and service.”

    TRU DAT. Most of the service profit comes from warranty work and a major portion of used vehicle profits come from cars purchased at wholesale,not trade ins. Increasingly, tradeins are to beat to be reconditioned because the Great Recession caused people to keep cars longer.

    • 0 avatar
      ajla

      “Right now they already have to blow someone out of the water to make things average out.” This makes no sense.

      I mean if they only make 3% on two buyers, they need to hit someone with 24% to average out at 10%.

  • avatar

    RE: “Boeing, Airbus both sell far more complex machines direct to the customer.”

    So? If their business needed dealers, they would have them. Auto makers needed dealers badly, and there they are.

  • avatar

    RE: “I mean if they only make 3% on two buyers, they need to hit someone with 24% to average out at 10%.”

    You got it. That’s how business works. In negotiation, if neither party get their feathers ruffled, someone left money on the table. Facts of life.

    You must have read the Moral Motors column at our blog?

  • avatar

    I use the box that says “Leave a Reply.” So I do. LinkedIn either allows you to reply direct from the email or go to the thread and reply in the box. If TTAC wants something done differently, all they need to do is tell us.

  • avatar
    highdesertcat

    I wonder if Ruggles is using a Unix system. WordPress has some difficulty appending with U2U systems like those at Universities, Newspapers and editorial pools.

    Ahhhh, LinkedIn. Never considered that one.

  • avatar
    oldyak

    how does Tesla handle trade in`s?????

  • avatar
    Big Al from Oz

    @Ruggles
    I have noted that some have asked you to use the reply tab that lies on the bottom right of the blog you want to reply too.

    So, if you want to ‘converse’ with a fellow blogger regarding a particular blog you use that reply tab.

    This allows for a more logical path for your debate, argument, etc.

    The ‘Leave a Reply’ box at the bottom of your page is used if you want to add a comment/blog that isn’t directed at an individual comment.

    Not rocket science.

  • avatar

    Tesla uses AutoNation generally, but consumers can also use TradeIn Marketplace or CarMax. What isn’t clear is how the consumer might retain any tradein credit for sales tax.

  • avatar

    Author: Weapon
    Comment:

    RE: “Read the article and there really isn’t anything useful in there.”

    So you say? Are you some kind of an authority on the auto business and Tesla? Do people buy your books. Pay you consulting fees? Or you just another genius waiting to be discovered?

    I think you should work on your reading comprehension.

  • avatar

    RE: “Why not let manufacturers sell at MSRP. And let dealers bring down prices below MSRP ;)”

    Because manufacturers don’t want to be in the retail business. And they don’t want to wake up some day and find out that their dealers are selling competitive models because they started trying to own their own dealerships. Now they have to come up with the capital to do that. The money isn’t there PLUS they have a record of failure in retail.

  • avatar

    RE: “But to answer your question, according to indeed website, average salary of a car mechanic is 38k. Average salary of a car salesman is 66k”.

    Not even close.

  • avatar
    Beerboy12

    The premise of this artificial is partly correct, Tesla, when they become mainstream, will have to have a dealer network. This much is clear. Does the network have to be independent? Absolutely not! Many motor manufacturers around the world (read other countries) have successful, privately owned dealers and, surprisingly, live happily together with independant dealers. So… It seems the the argument for independent dealers is one that belongs only to them… “you can’t have your own dealers because… we say so -> enter 200 pages of dry, droll, one sided arguments”.
    Right now, Tesla is making money on their current business model. Success breeds demand. What will happen when all those wealthy people, denied a dealer in their state, get fed up with those state laws? No one has asked that question yet…

    • 0 avatar
      highdesertcat

      “Tesla, when they become mainstream, will have to have a dealer network”

      If that were to happen, I can see why Dave Ruggles would have an interest in this opportunity to train the people of the new dealerships.

      Although he wouldn’t remember me from Adam, I met Dave Ruggles in Vegas many years ago at a regional dealer meeting I attended with my brothers. Seems to me, he had more hair back then. So did I.

      If this is really the Dave Ruggles I met, then we can all benefit from what he brings to the discussion. OTOH, I have noticed that the more exuberant commenters of ttac have stayed away from this hot topic.

      The bottom line remains, if ruggles’ comments bug you, don’t read them, don’t respond.

      I, for one, will vote to let him have his say. Isn’t that what ttac is all about?

      • 0 avatar
        Beerboy12

        Sorry, do you see Ruggle’s name in my comment? This comment is for this post alone and has eff all to do with Ruggles. So, if my comments annoy you, don’t read ‘em…

        • 0 avatar
          highdesertcat

          Your comments don’t annoy me. I find them quite informative.

          But you did write,

          “WhoTF is ruggles, a troll? Verbal diarrhea extreemis…Seems like Ruggles has an agenda here.”

          Agenda or not, he has a right to his say.

          I learn something from most comments, even yours.

    • 0 avatar
      Pch101

      “Tesla is making money on their current business model.”

      The financial statements say otherwise.

      The only profit was during the first quarter, and that was a one-time paper profit that was created via the warrants issued to the Department of Energy.

      Tesla keeps producing operating losses. It’s astounding how many people have come to believe that the company is profitable, even though the numbers don’t support that position.

      As I noted above, the dealership model probably can’t work for Tesla because the sales potential isn’t high enough. But that’s an indication that Tesla isn’t a particularly great business, not that the direct sales model has been a success.

  • avatar

    RE: Demo cars stolen – “That is not a problem unique to Tesla. It can happen to existing dealers too. Safeguards are in place like holding the borrowers drivers license.”

    This IS the point. Tesla hasn’t had any issues yet. Their volume and activity is so small the law of numbers hasn’t caught up with them yet. Its bad enough when a sales person from a traditional car deal gets hurt or killed, quite another when it happens the first time for a Tesla employee who goes with a car to an address and has an unpleasant experience. It will make national headlines. Another new company, Tred, hasn’t experienced it yet either. The kind of thieves who would steal a Tesla will know what they are doing.

    I don’t understand the “holding the drivers license” thing. You can have someone scan and attach or fax a drivers license before sending someone out to do a test drive, but you can’t “hold it.” The person driving has to be carrying it on their person. Requiring a credit application and check before providing a test drive has ramifications that might not be pleasant for Tesla. They are to young to have encountered many issues, and they have avoided people with actual auto retail experience and insist on making their own mistakes. I will be watching with great interest. I’ve watched people try to reinvent the wheel before. I am hoping the car succeeds. Its a knock out. And I’m anxious to see how long Tesla goes with owning its own dealer network.

    For a student of the business there will be a lot learned in the Tesla experiment. I hope Tesla is successful to the point that they are forced to make a decision. Either sell their dealer network to franchise dealers, or compromise their growth potential. The potential income available to Tesla when selling out their dealer network would be irresistible.

  • avatar

    RE: “Either way, the manufacturer still has to pay for the repair.”

    Yes.

    RE: “Is it cheaper for the manufacturer to do the repair work themselves or pay the dealer, the same dealer that expects to make a profit every minute the car is in their garage?”

    The purpose of being in business is profit. Anyone who think Elon Musk is in it for altruistic reasons needs to think again. A franchise dealers already has a facility to come to. Tesla has to send someone out with a roll back, trailer, or flat bed. Easy call here.

    • 0 avatar
      RussellL

      “Anyone who think Elon Musk is in it for altruistic reasons needs to think again.”

      “I’ve told the Tesla service division that their job is never to make a profit,” Musk said. Most auto dealerships make a large portion of their profits from the service department which, Musk pointed out, creates a conflict of interest when it comes to product quality.
      “I hate the idea of making money because our product broke,” said Musk. “That’s just wrong.”

      “A franchise dealers already has a facility to come to.”

      And Tesla has service centers where owners can go to.

  • avatar

    RE “The customer decides what they deserve via shopping and if they can’t get what they think they deserve, the either give in or go without.”

    So it’s “My way or the highway”?

    And you still can’t understand why people don’t like car dealerships and their salesman?”

    In the final analysis, if the dealer stand firms and the customer doesn’t buy, that’s exactly the case. What is the customer saying to the dealer in the same circumstance, “My way or the highway?” Or do you suggest the dealer keep dropping his price so as not to appear inflexible? Its my damn car. If you want it fine, if not…. NEXT.

    I DO understand why SOME consumers don’t like dealers or sales people. I have written at length about it. Yet, you continue to say I don’t realize the situation. Nothing could be further from the truth. What YOU don’t get is that the auto retailing world only cares to a point that customer become unhappy. The new car business will piss off 16 million buyer this year.

    What consumers are really saying is that they don’t want to have to negotiate the price or if they do, they think they should have a guarantee they will win the negotiation. So there will be dealers who accommodate these namby pambies. Find yourself a One Price store. OR do some research and find out why the Ford Collection and Saturn failed miserably. The reason? Consumers largely don’t know what they want except a feel good feeling when they buy.

    So what do you suppose happens when a customer comes into the showroom, identifies a vehicle, and tells the sales person, “I’ll take that one if you sell it to me for $30K. ANd the customer says, OK.

    WHAT HAPPENS NEXT!

  • avatar

    RE “most people are reluctant to enter the arena if there is a chance they might lose, EVEN IF the cards are stacked in their favor.”

    Car dealerships where multiple high-pressure sales people “work” on a single customer?

    That is not in our favor. Swindlers.”

    So why are you whining? Don’t you have transportation to go to one of the consumer friendly dealerships? You have the Internet. You have all the information. You can lie about the price you got at the competitor. What’s your problem? Are you afraid to venture out in to the big bad world of business? What do you think business is if not negotiation.

  • avatar

    RE: “I’m advocate for Tesla being able to own its own dealerships as long as it owns all of them.”

    Finally! A logical, straight forward response.”

    You really need to work on your reading comprehension. I’ve lost count of how many times I’ve said this. I went on at great length about my conversation with Dave Westcott on the issue. Its on my blog. My blog partner has been saying the same thing. You might want to get your head out of your aaaaaaa

  • avatar

    RE “Most people NEED a dealer’s help”

    “Didn’t last long. I don’t want a traditional dealer’s help. I only want the manufacturer’s help for warranty work or recalls.”

    The Rolling Stones song again? By a used car and get it from a private owner. OR but a TESLA. Those are your options unless you want to buy your own dealership and show its how its done. I think you eat like an elephant and poop like a parakeet. I’d suggest Pollyanna stay home and hide under her mama’s skirts.

    “Makes you wonder why AutoBids Online didn’t get off the ground.”

    It wasn’t the right time or they didn’t do it right. They didn’t convince enough consumers.
    Tesla is doing it right. Consumers believe in them.

    “Its a solution in search of a problem.”

    Deceitful salespeople & dealerships are the problem. Tesla is our best solution.

  • avatar

    RE: “Some do by purchasing Tesla vehicles or TSLA stock.”

    Excellent. But I was talking about running a dealership with the objective of happy customers first.

    RE: “Others educate the public as well as pressure our senators to create laws to allow direct sales.”

    As I have pointed out repeatedly, Tesla has showrooms in many states. You should be talking about the states where they have not been allowed to place a showroom that can transact business. There is no way the U.S. Congress is going to enact any law that subverts auto dealer franchise law, which is somewhat different from state to state. OR Tesla only does business in the states where they can.

    I have visited the Tesla showroom in Austin TX. They aren’t allowed to transact business there. Yet, one of my best friends has delivered 6 Model S types to TX customers. He’s trying to get a Model “demo” to park in from of his leasing company. He’d be happy to pay for it. Tesla HQ won’t return his call. I guess they think they know better in all things.

  • avatar

    RE: “Yes, there is a reason why gallup poll places car dealers below lawyers, spammers and congress in terms of honesty and ethics.”

    So what is more important. A poll, or the 17 million?

    Why don’t YOU GUYS buy a dealership so you can show us how it should be done? Stop whining and show us.

  • avatar
    BobinPgh

    But Ruggles, why so many games at car dealers compared to other retail? The stalling for time, the trips to the sales manager, the keeping of the customers keys, the guilt trips, and once, my brother and I had a sales manager treat us like we were in the junior high principal’s office. It also seems the salespeople know very little about the car, compared to, for example, a heating and air conditioning salesperson. If it wasn’t for these things happening, people would think better of car dealers. After all, I don’t have bad things to say about my mother’s Estee Lauder lady. No wonder Elon Musk wants a better way and I hope Tesla is able to do it.

  • avatar

    RE: “Tesla, when they become mainstream, will have to have a dealer network”

    “If that were to happen, I can see why Dave Ruggles would have an interest in this opportunity to train the people of the new dealerships.”

    God no. I am long past that.

    RE: “Although he wouldn’t remember me from Adam, I met Dave Ruggles in Vegas many years ago at a regional dealer meeting I attended with my brothers. Seems to me, he had more hair back then. So did I.”

    Give me a hint. My memory hasn’t gone completely yet. I can’t tell you what I had for breakfast, but I can tell you who sang lead for the Boxtops in 1966.

    RE: “If this is really the Dave Ruggles I met, then we can all benefit from what he brings to the discussion. OTOH, I have noticed that the more exuberant commenters of ttac have stayed away from this hot topic.”

    Thank you for the kind words.

    RE: “The bottom line remains, if ruggles’ comments bug you, don’t read them, don’t respond.

    I, for one, will vote to let him have his say. Isn’t that what ttac is all about?”

    I really don’t recall how I ran across this board. It was probably through a post I read in a LinkedIn Tesla discussion. So I run across these guys who are afraid to go into a dealership for a straight up negotiation. At first, I thought they were girls…. so afraid of the big bad car dealer. Then I thought they might be Gen Y types who think they should be able to order a car over the net from Amazon. I’ve settled in the fact I may have run across a mix of these types. They think Elon Musk is going to be instrumental in abolishing the current dealer network. While he is obviously a forward thinking guy he doesn’t know everything and is still learning. I’m sure it came as a surprise to him when his was stopped cold in certain states. SO now we’ll have lawsuits between the millionaires (car dealers) and the billionaire (Musk). It will be interesting to see how it goes.

    While it doesn’t thrill many of my friends and associates, I think Musk should be allowed to own his dealer network as long as he owns all of them. He should be allowed to learn the same lessons Ford learned when they tried to own certain markets and do business based on customer comments in focus groups. If he decides to remain a boutique OEM, he might ge successful. I just think he has other plans.

    Thanks again for the kind words. Send me an email at ruggles@msn.com

    • 0 avatar
      Vulpine

      @Ruggles:

      Re: “He should be allowed to learn the same lessons Ford learned when they tried to own certain markets and do business based on customer comments in focus groups.”

      Here’s the point where I think you are wrong. But let me work in towards it if I may.

      Automotive sales has fallen into a rut. It has been run just one way for well over four decades, with only ONE exception that actually worked, until it was suppressed. General Motors’ Saturn division did not use the typical negotiation system; the company set a price on their cars and for about 15 years the sale was based almost exclusively on that price. No pressure. No games. I purchased a first-year Saturn Vue through that system and the vehicle I purchased proved well worth the price I paid and more–being almost $5000 cheaper than the next nearest SUV I had considered and almost $12,000 cheaper than some of the ones I had first looked into. The really interesting thing is that Saturn built reliability into that vehicle (using the Opel drivetrain, not the Honda one). I never had any engine problems, transmission problems or fit & finish problems. I put over 130,000 miles on that car in less than 8 years. Unfortunately, in ’05 or so, GM decided it didn’t like the way that worked and shut it down–reverting assembly and sales to the “traditional” methods. A few years after that, they shut Saturn down, along with Oldsmobile and Pontiac, two other favorite brands of mine. I blame GM and GM alone for these serious failures in the industry.

      Meanwhile, another company in a different industry had been trying to play that industry’s game for over 15 years–between 1984 and 1997. That particular company nearly went bankrupt because the ‘game’ simply didn’t work for their products. Along came a man who said, “We must think differently,” and within 2 years set the industry on its ear–succeeding with a device every analyst called a “toy” and “incapable of doing real work”. Not 3 years later his company introduced a new product completely outside of the typical industry line and analysts said, “It will never work, there’s better and cheaper on the market,” yet for some strange reason it did not only work, but it became the dominant device of its type. Five years after that the company releases another out-of-band product and set an entirely different industry on its ear. Again analysts said, “It will never work”. They said, “(Other company) has that market sewn up.” Even that other company said, “It’s a toy. It will never compete with our product.”

      Ok, I’m sure you’ve guessed who and what I’m talking about. But what you may not know is that the CEO of that company did NOT do business based on customer comments in focus groups. He quite famously said, “These people will not know what they want until they see it.” Tesla is doing the exact same kind of thing. Tesla went completely out of the box to create an all-electric sports car that blew past any existing electric car technology–except maybe for Oldsmobile’s demonstrator test beds of the late ’80s that were blatantly recalled/STOLEN, and destroyed. Elon Musk saw a very visible demand for something different and he used what he had learned in two different businesses and the advice of some very canny people to fill that demand. Musk is trying to drive the automotive industry in new directions–breaking the mold across the board to offer something he believes people really want and it seems to be working; he’s sold thousands of cars without the need for a traditional dealership and those buyers in nearly every case are VERY happy with their purchase.

      If you wish, think of the Tesla as a “niche” automobile. His mentor’s product has been called “niche” for decades and is among the most profitable brands in the world. Maybe. Just maybe. Change is good.

  • avatar

    If study groups were worth a flip, groups around the time of the invention of the car wouldn’t have requested a car. They would probably ask for faster horses that eat less.

  • avatar

    RE: “But Ruggles, why so many games at car dealers compared to other retail?”

    Because the price has to be negotiated if the customer doesn’t pay MSRP and has a trade in. While consumers might like everyone paying MSRP, the FTC his a HIGE problem with it.

    RE: “The stalling for time, the trips to the sales manager, the keeping of the customers keys, the guilt trips, and once, my brother and I had a sales manager treat us like we were in the junior high principal’s office.”

    If there are business practices that go on that are unsavory to consumers, won’t the market take care of that when consumers no longer patronize those bad dealerships? This stuff is highly overblown and has been a thing of the past for a couple of decades, with rare exception. The CSI systems in place these days make over the line antics quite costly to a dealer. A bigger problem for dealers is consumers who think they’ve been wronged, but haven’t.

    RE: “It also seems the salespeople know very little about the car, compared to, for example, a heating and air conditioning salesperson. If it wasn’t for these things happening, people would think better of car dealers.”

    All true. The key is for a consumer to find a sales person who has been in the business for a while. Worry as much about selecting a sales person as the vehicle. But the bottom line isn’t whether or not consumers like negotiation or not. Most don’t. I ain’t going to change. There are artful negotiating strategies and those that aren’t so artful.

    I would say to some of this group, the “know it alls” with all the complaints about dealerships…. once you give a sales staff a reason, like going in to a store with an attitude, they CAN screw with you. I’m not saying they should, mind you. Screw with some of them, and they aren’t helpless.

    RE: “After all, I don’t have bad things to say about my mother’s Estee Lauder lady. No wonder Elon Musk wants a better way and I hope Tesla is able to do it.”

    As long as Musk is able to fix prices, consumers will be happy, right? That’s what they want, I guess.

  • avatar

    I see you can now rent a Model S from Hertz at LAX and SFO. Critics are saying this is a bad sign for Tesla, that they need rental car sales to fill production holes. That may be, but I tend to think it is more about exposing the vehicle to more people The car is jaw droppingly beautiful. My wife made me drive around the block twice to get another look at the one my neighbor bought. She has never done that over a car.

  • avatar

    Comment:
    Net income as a percentage of revenue:
    RE:

    “Typical car dealership (per NADA, pre-tax): 2.2%
    General Motors: 4.1%
    Ford: 4.2%
    Toyota: 4.4%
    Volkswagen AG: 11.4%

    Apple: 26.7%

    Not really a contest there.”

    Makes one wonder what consumers are whining about. They go to Apple and pay up. They don’t make a lower offer then sulk when they hear a “NO” – you know, “my way or the highway.”

    There are some differences, however. The dollar volumes for the automakers are MUCH higher, making the smaller percentage still a very large number. But the biggest issue is that Apple’s success on its ability to innovate. We don’t generally need their products until they create one and we WANT it. We NEED cars. We don’t NEED an iPhone.

    But I still don’t understand anyone trying to make a comparison between Apple and the auto business. They call vehicles “big ticket items” for a reason. Apple products are gadgets. The former requires negotiation, trade ins, and financing. The latter requires some open credit on a credit card.

  • avatar
    jetcal1

    I find the arguments made by the B&B and Mr. Ruggles to both have some truth to them. Having been around the periphery of the business for over 3 decades, and having helped numerous shipmates’ buy cars while in the Navy as well as my own purchases I have seen the front end of the business change.

    Mr. Ruggle’s brings up valid points about the costs to maintain and operate a decent store of any kind regardless of the franchise.

    I am very aware of how the OEM’s play the dealer against the consumer and ultimately screw both of them. No party has really addressed that from I have read thus far. Many times, the OEM will screw the dealer. Particularly GM.

    IMHO, Mr. Ruggles has not purchased a car for many years especially if he lives in the DFW area. The front end has changed and for the worse. I suspect he has not been through the wringer, but has bought directly from friends.

    I have bought 5 vehicles in the DFW area in the last 11 years and it has been a trial each time. And I understand the dealer need to make a profit.

    But, I do not need the games. It shouldn’t take but 45 minutes to buy a car, not 4 hours. I don’t mess with the hold back and make a offer that s profitable for the dealer……and then the games begin.

    Using the same formula for trade, etc. I used to go in, and be out in under an hour. Not in the DFW area. Maybe Mr. Ruggles can suggest a dealer that is ethical.

  • avatar

    RE: “The premise of this artificial is partly correct, Tesla, when they become mainstream, will have to have a dealer network. This much is clear. Does the network have to be independent? Absolutely not!”

    All true. But in this country, it needs to be one way or the other…. factory owned or franchise investor/operators. Economics will dictate this, not ideology. The choice Tesla will have is whether or not to remain boutique, or attempt to go mainstream volume.

    RE: ” Many motor manufacturers around the world (read other countries) have successful, privately owned dealers and, surprisingly, live happily together with independant dealers.”

    I suspect, between the two us, I know a little more about this than you do. You can either try to tell me about it, or ask me the way it really is. You decide.

    RE: ” So… It seems the the argument for independent dealers is one that belongs only to them… “you can’t have your own dealers because… we say so ->”

    Of course, I never said that. I don’t control it anyway. But you must really have you head someplace south. NEWS FLASH!!! Tesla DOES have their own dealers. If you visit their website you can find a list.

    RE: “enter 200 pages of dry, droll, one sided arguments”.

    What do suppose an argument is? You can have my so called 200 troll pages, or the emotional opinion of an inexperienced pollyanna inexperienced in the real world of business. Readers can decide what to read or not read.

    RE: “Right now, Tesla is making money on their current business model.”

    This might be up for debate. Why don’t we see how things look after more than a few quarters of “profits.”

    RE: Success breeds demand.”

    A couple of quarters of success and YOU declare success. Hell, JD Power declared Saturn a success 20 years ago. You must still be of the age where you think histroy started last year.

    RE: What will happen when all those wealthy people, denied a dealer in their state, get fed up with those state laws?”

    Good luck with that. You must not be too proficient with arithmetic. This calculation doesn’t even involve math. People don’t usually become wealthy without some business acumen, something you lack.

    Business people intuitively understand the franchise system. Many wealthy people in a state got wealthy from a franchise. However, I am one who might complain about a state that doesn’t allow a Tesla dealership. I would do so on principle, if asked. But I wouldn’t get my shorts bunched up to the point of carrying a picket sign round the state capitol.

    Any TX resident who wants a Tesla can get one. I’ll put them in touch with a leasing company, who will get the car and lease it to them using Musk’s guaranteed value program.

    The idea that people will lobby in favor of Tesla out of principle is laughable wishful thinking.

    RE: “No one has asked that question yet…”

    Appears you have. But others don’t seem to have your imagination.

    • 0 avatar
      Beerboy12

      Thank you for taking the time to dissect and annalize my opinion. I am not sure if I should bow to you vastly superior knowledge or just crawl back under the rock I came from. At least you give me credit for having an imagination.
      “But in this country, it needs to be one way or the other”, no free market then?
      “I suspect, between the two us, I know a little more about this than you do”… possibly true but let not make assumptions. My observation is based on real life.
      “must not be too proficient with arithmetic” I do suck at Math, sort of…

      Look, at the end of the day it’s just opinion and such. TTAC is an enthusiasts site with all types of people. We are free to express our thoughts and you yours. It is a truly great site and much of that greatness comes from the commenter. It is unwise, on this site, to try to brow beat every one into submission, something your prolific commenting has lead me to believe you are attempting. I am not going to change my opinion, just so as you know.
      Come back again, comment a bit less, please, and learn to use the reply button. The reply button makes it easier for us knuckle draggers to follow the threads ;-)

  • avatar

    RE: “IMHO, Mr. Ruggles has not purchased a car for many years especially if he lives in the DFW area. The front end has changed and for the worse. I suspect he has not been through the wringer, but has bought directly from friends.”

    I haven’t bought a car for 5 years, live in Las Vegas, and have a wholesale dealers license and an auction access card. But I drove to Phoenix to pick up my current ride. I don’t buy new cars. In fact, the book I’m working on will be entitled, “Everyone Drives a Used Car.” You heard it here first.

    RE: “I have bought 5 vehicles in the DFW area in the last 11 years and it has been a trial each time. And I understand the dealer need to make a profit. But, I do not need the games. It shouldn’t take but 45 minutes to buy a car, not 4 hours. I don’t mess with the hold back and make a offer that s profitable for the dealer……and then the games begin.”

    So why don’t you find a dealer you like, that does things more YOUR WAY? I lived in the DFW area for years and know a lot of people there and have a business relationship there.

    RE: “Using the same formula for trade, etc. I used to go in, and be out in under an hour. Not in the DFW area. Maybe Mr. Ruggles can suggest a dealer that is ethical.”

    I take issue with the term “Ethical.” There is a feeling out period with negotiation. Big ticket items with negotiated prices, trade ins and financing involved are complicated transactions that can’t be rushed through. The paperwork needed when I began was about 7 forms max: Sales tax, sales agreement, warranty, registration, title, bank contract, credit insurance. Now its about 60. You DO read the paperwork before you sign, right? You can’t do just that in 45 minutes.

    But contact me at ruggles@msn.com and I’ll send you to a good dealer… or at the very least, broker with connections for every brand.

  • avatar

    Maryann Keller Speech to the NADA/JD Power Conference, NYC, March 2013

    For the over four decades I’ve been involved with the auto industry, first as an investment analyst and now as a consultant and director serving on the boards of both automotive companies and auto dealers. Over those four decades, I’ve heard many arguments made against the franchise dealer system…which dealers never fail to disprove time and time again.

    One myth promulgated in the 1990s – and now resurfaced by Tesla – is that factory stores save money by reducing distribution expenses wrongly estimated at 30% of total expense. Let’s put aside for the moment that the percentage itself is nonsense, Ford’s ill-fated Auto Collection experiment proved conclusively (as told to me by a former Ford executive last week) that corporate guys are not risk takers and lack the entrepreneurial spirit to manage dealerships. Big corporations control from the top but selling cars requires street smarts and adapting to local market and competition. Ford ended its experiment after a couple of years of market share losses amid mounting evidence that factory stores do not deliver a better customer experience nor reduce costs, in fact they proved to be bad at both. GM, perhaps after watching Ford’s travails, and despite repeating the same nonsense about reduced costs through factory ownership, canceled its plans to buy 10% of its dealers, plus the Saturn stores, and operate them in through what it called GM Retail Holdings. Ford’s failed experiment demonstrated that, franchise laws notwithstanding, dealers are essential partners in the long process of a car’s journey from the factory to a customer’s garage. Franchise laws protect dealers from arbitrary actions by automakers and given the financial commitments they continue to make in response to factory demands in image programs, equipment, training and even vendor selection, the laws are entirely reasonable. Given the intense competition in auto retailing, it’s hard to understand how anyone could suggest that franchise laws hurt consumers.

    Franchise dealers’ cumulative investment in land, equipment and facilities easily exceeds $100 billion. Dealers fund 60 days of inventory and another month of inventory in transit that would otherwise fall to the car maker. The inventory buffer allows automakers to adjust future production levels. For a company like Ford US inventory funding equals about $15 billion at any point in time.

    Tesla may be the first start up to launch a car and change the retail process as well but it is definitely not the only company that saw dealerships as a costly impediment to customer bliss. A few years ago I was involved with one such company funded by venture capitalists, and led by a non-automotive executive, that invested in a small car promising to build to order sold though mall-based stores. The car never made it to production and the company folded after consuming the investors’ capital. . Despite evidence to the contrary and lacking any real world understanding to the business, a journalist writing on Yahoo Autos last year stated “Instead of building cars and selling them to dealers who hawk them to shoppers, Tesla wants to build only cars to customers orders, eliminating part of the auto industry’s massive overhead costs in inventory. By selling cars directly Tesla’s executives believe they can make their customer happy, and eventually sell more cars for less money.” Well we will see if it is fact is more economical for the factory to pay the rent, salaries, delivery and service or have someone else do it using his or her own capital. And build to order works only as long as there is an order bank…what happens when the orders dry up…do you send the assembly workers home, tell your suppliers to send to stop producing until you call?…..unfortunately auto assembly really doesn’t lend itself to build to order. It is capital and labor intensive even when work is farmed out to suppliers.

    Every dealer knows that the vast majority of customers want their car that day not a date convenient to a manufacturer. The dealer has always been the buffer with the automaker facilitating inventory management through various incentives and production adjustments. It is the dealer who finds the market-clearing price for a vehicle even at the sacrifice of his or her profits. Others have tried experiments in selling away from the traditional retail dealer location on the notion that a big box retailer or mall would mitigate advertising expenses by placing cars where the customers are.

    Early in the 2000s, Asbury struck a deal with Walmart to sell used cars in the parking lots of Walmart stores. Asbury would take the cars to where the retail customers were at America’s busiest retailer. A few dealers have experimented (as Tesla is now doing) renting inline space in large shopping malls as storefronts to sell cars. So far, the history of non-dealership settings to sell cars – with perhaps the exception of the infrequent offsite tent sale – hasn’t worked. The Asbury/Walmart experiment ended in less than two years when both parties discovered there were too few car buyers among the static population of regular customers who shopped for food and other necessities at their local Walmart each week.

    I suspect that once the novelty associated with Tesla wears off, it too will also discover that mall locations aren’t ideal places to market or sell cars. The enclosed shopping mall typically has several large anchor stores – Nordstrom, Macy’s, Neiman Marcus, etc. – and perhaps eighty to one hundred or so “in line” shops like GAP, the Limited, Zale’s, Sunglass Hut, Apple, etc. A large successful mall might have more than a million or more visitors a year – and that’s about 3,000 folks per day. Those big numbers can dazzle but they aren’t what they seem. Much of this traffic represents repeat visitors, as it did at Walmart, coming each week or so to see the changing merchandise at her favorite stores – new fashion and seasonal clothing, makeup, shoes or the latest Apple gadget. Everything can be purchased on a credit card. I used the pronoun “her” deliberately because the vast majority of mall stores are dedicated to women and children not the men who would be the targets for an expensive, high tech performance car.

    Furthermore, new car models are only really new only every four to six years. The merchandise doesn’t change very often – so on the second or third visit to the mall, the car store looks exactly as it did last month or even the month before. What was fresh once is now stale with the passage of time…so visitors to the mall just skip past that new car display.

    What the uninformed forget – or figure out after an attempt or three – is that automotive retailing is very different from traditional retailing. The product car dealers sell is expensive, generally requires financing, and often involves a trade. It often includes helping shoppers match their budget to a car that might not be their first choice but rather one they can afford. The process is slowed by required disclosures and regulations resulting in a pile of documents that have to be signed even for the most straightforward transaction.

    A car weighs 4,000 pounds and takes up 50 square feet of space. It can’t be delivered overnight to one’s front door by Fedex. And most folks don’t have a big enough credit limit on their Visa card to pay for it. And what do they do with their trade? Or get it serviced?

    While we are talking about myths, how about the still repeated one that people hate dealers so, if given the chance, they will buy a car online. I almost don’t know where to start in taking this one apart…..In the early days of the Internet, Silicon Valley funded and lost hundreds of millions, maybe even a billion dollars, on ill-fated ventures that promised to do just that. CarOrder.com, Greenlight.com, and CarsDirect.com (in its original configuration), among others, all promised to avoid the dealership experience. A few actually did that by buying cars from dealers and then reselling them at lower prices to customers until they blew through their capital. Build to Order.com proposed that you would place your order for a fully customized car while lounging in a company-owned showroom entertainment center. Again here the premise was to build these cars using an automaker’s parts and technology but avoiding high labor costs and dealerships and give the customer the exact car they wanted. Build-to-order.com never built anything for anyone. In 1999 and 2000, I ran priceline.com’s experiment with selling cars online, which like most others of the era no longer exists. The essential elements of the priceline model were replicated by TrueCar.com and of course they too ran afoul of franchise laws for the same reasons as priceline. What I learned then – and this is still true today – we could connect buyers with dealers and that the price of a vehicle was the easiest part of a deal. The other elements are harder to control and often the cause of frustration for the customer and the dealer. People don’t like to hear that their trade isn’t worth the value they saw online or that their poor credit doesn’t qualify them for the no down payment, zero percent loan. There are few people who would think about buying a house online from a few photos taken make rooms seem larger than they are or the neighbors Beware of dog sign. Buying a car is comparable to buying a house, why should we think it should be as easy as buying a pair of shoes from Zappos with a return receipt in the box in case they don’t fit.

    Although many automotive websites claim to have “sold” millions cars, even today twelve years after priceline decided to concentrate exclusively on travel, automotive websites link a buyer to a dealer who actually sells the car. The Internet has mostly replaced the newspaper as a source of information about cars and dealers but it has not reduced advertising expense per vehicle or made buying a car as easy as buying a book.

    Add up all the monthly traffic to all automotive sites, including automakers, dealers and independent sites – and you’d get more than 100 million possibly close to 200 million unique visitors using the web to get information about buying or selling a new or used car. Except there’s one problem if this traffic is somehow suppose to represent potential sales…the total number of new and used cars sold by dealers at retail and excluding fleet each month is only about two million units, and that is probably generous given that not all retail customers go online..some might just release the same brand of the leased car they are returning to the dealer. So the real shoppers – however you want to define that number – are only a small fraction of the total visitors. So just like newspaper, radio, or TV advertising, dealer spend on the internet is likely no better targeted – once again dispelling the notion that the internet would solve the age-old problem of knowing which 50% of a dealer’s advertising works.

    And what was once promised as to the beauty of the Internet for used cars…listings of available cars with pictures, even videos, and stated pricing would make it easy for shoppers to find the best car at the best price. But what has happened is that for any given vehicle, within a similar bandwidth of age, mileage, trim, the price range for specific models is usually within a few hundred dollars, not enough to make price the deciding purchase factor. The Internet hasn’t created a pricing advantage for any seller and customers simply have confirmation that similar cars within a market are priced the same. With the exception of hard to find cars, the differentiating factors are having the car the customer wants, proximity of the dealership and the dealer’s reputation in providing a good customer experience.

    In summary, technology is a wonderful thing…and dealers have adopted it nearly full tilt. Sophisticated software to manage every aspect of the business is now de riguer…BDC’s to support internet sales…and eDocuments will eventually become the norm. But the point is that the system of franchised dealers – using their own risk capital to fund their businesses and guarantee millions of dollars of inventory, promote their own brand and that of their OEM, provide the expensive tools needed in their service departments, and manage the endless headache of a workforce – will not be superseded by technology or factory owned mall stores. Factories have learned that they cannot do a better job than independent businessmen at the retail level. And new start ups – many of whom will come and go – with new systems of selling and servicing retail automobiles will all reach the same conclusion: the dealer network is the best way.

  • avatar

    Shared from AutosandEconomics

    by Mike Smitka, Phd Yale, Economics Professor, Washington and Lee University

    Tesla’s Distribution Challenge

    …the issue isn’t whether Tesla’s distribution approach is legal, it’s whether it’s sensible…

    Tesla is distributing its battery electric cars directly, rather than through franchised dealers. That’s raised a hulabaloo from NADA and dealers about legality. Texas is one large market in which Tesla may be stymied for several years; its attempt to get legislation that would permit direct sales is dead this legislative season, and the next session isn’t for two years, until 2015.

    Barring judicial support, that’s a long wait in a large market. There may be room to do so, since the firm has no franchised dealers in any state, hence the idea that it is undermining dealers protected by franchise agreements has no merit. Be that as it may, taking the issue to the courts takes time, and Tesla would like to become a volume manufacturer sooner rather than much later. Time will tell, but time is not in their favor.

    The real issue, however, isn’t whether Tesla’s distribution approach is legal, it’s whether it’s sensible. In his visit to Lexington to speak to my Economics 244 students, David Ruggles posited that it’s ultimately unworkable. Let me make a few points in that direction; interested readers might find the Dicke chapter cited below of interest, and hopefully David will add his thoughts.

    For a firm seeking to expand, dealerships are the cheapest available source of finance. We can ignore the up-front fees to purchase franchise rights (at issue in the failed attempt of Mahindra & Mahindra – or maybe primarily the serial entrepreneur Malcolm Bricklin – to set up a dealerships to sell trucks imported from India). That’s really small stuff, from the perspective of the financial needs of a car assembler. Much more important is that a dealership pays for new vehicle inventory, signage and replacement parts inventory and provides the necessary real estate. That is a crucial source of working capital for a manufacturer, because the factory is paid cash when a car rolls off the assembly line, whereas parts suppliers are paid a month or three (and workers a week or two) in arrears. Remember, too, that dealerships frequently hold two month’s of inventory. Under its current structure Tesla will need to fund that directly.

    It may not be a big issue when they restrict themselves to a low volume of hand-assembled cars. It won’t be trivial when they want to run a proper assembly operation.

    Moving to volume business will also require making provision for repairs. That may not be a big issue when its market is limited to a handful of states and is of high-end cars. They and their cars’ owners can wait for a technician to be dispatched, or the car transported. That won’t work if they want to move away from the supercar end of the market, because their vehicles will be means of transport, not playthings. Would-be purchasers won’t want to wait a week or more to get a problem looked at.

    I think Tesla underestimates the challenge (cost!) of directly developing a dense network of repair facilities. n the old days, the local mechanic could do the actual work. But as Kevin Borg (a historian of the independent service station at James Madison University in Virginia) emphasizes in recent work, even the most skilled of independent service technicians lacks the training and equipment for working with the computers and high-voltage electrical systems of a vehicle such as a Tesla. To put it simply, they are fundamentally mechanics, experts in traditional mechanical systems, and a Tesla lacks much of the appurtenances of an internal combustion engine powered vehicle.

    Historically the “factory” has been abysmal at controlling inventory and even worse at handling trade ins. Think of Ford’s disastrous attempt [1998-2001] under Jacques Nasser at Ford to buy up independent dealers and run their stores directly in several markets where state franchise law allowed direct sales (eg, Oklahoma City). Dicke’s history of the early days of automotive distribution tells the same story. The bottom line is that the factory bleeds, and the longer it tries, the more money it loses.

    Now the rise of multistore dealership groups suggests that at least some people have figured out how to run stores under hired general managers rather than owner-operators. So maybe there is more know-how available. However, such dealership groups – the AutoNation and Penske’s of the world – still account for but a small share of total US vehicle sales. I remain skeptical.

    Ford in its early days had time to experiment; it wasn’t until the early 1920s, after DuPont took over GM, that Ford faced a serious rival. They had time to recover from missteps. Tesla won’t have that luxury.

  • avatar

    @ Beerboy

    RE: “Thank you for taking the time to dissect and analize my opinion. I am not sure if I should bow to you vastly superior knowledge or just crawl back under the rock I came from. At least you give me credit for having an imagination. But in this country, it needs to be one way or the other”, no free market then?”

    There are no free markets. There ARE market forces. Without regulation there are no workable markets. The Tesla debate has nothing to do with any free market discussion. We have contract law. We have laws against interfering with a lawful business relationship. We have a host of regulations to facilitate business, which is what allows business to thrive. From the beginning, OEMs need franchise dealers. The made accommodations to get them and their investment money. Contracts exist between the two. OEMs do NOT control their dealers. An OEM that is caught giving favoritism to one dealer over another are subject to all sorts of legal actions. Yet, the do have some discretion. As I have mentioned repeatedly, I support Tesla’s bid to own all of its own dealerships despite the fact that I think Musk will learn some long term lessons. AND if other OEMs want to own all of their own dealerships, all they have to do is buy them out. What won’t be allowed is an OEM, who has already benefited from the dealer agreements it entered in to, establishing a pattern of installing factory owned stores to compete with private capital dealers. Attorneys would love them to try. Imagine the factory store getting all the hot inventory while the private cap store gets the dregs. Imagine the factory store under selling the private cap dealer to run him/her out of business so they can raise prices without competition once the provate cap dealer folds. Any one who is engaged in business understands unfair business practices and restraint of trade.

    RE: “I suspect, between the two us, I know a little more about this than you do”… possibly true but let not make assumptions. My observation is based on real life. “must not be too proficient with arithmetic” I do suck at Math, sort of…”

    I have made the assumption that after 43 years in the business I know a little more than those who are non participatory theorists. And I have a quite a bit of that “real life observation.”

    RE: “Look, at the end of the day it’s just opinion and such.”

    It is not to be straight on the facts first. I can understand why those with little experience might hope Musk changes the way people buy cars. He already has for a few. Saturn did for a few. The Ford Collection did for a few. PriceLine gave consumers a shot. AutoBids Online did the same. There are hundreds of opportunists out there trying to reinvent the wheel to make a buck for themselves. Why? Because SOME consumers whine about their car buying experience.

    RE: “TTAC is an enthusiasts site with all types of people. We are free to express our thoughts and you yours.”

    Yes, I’ve been involved in “boards” since Prodigy.

    RE: “It is a truly great site and much of that greatness comes from the commenter.”

    Any forum for expression is great, IMHO. That doesn’t mean one has to suffer fools and abuse without retort.

    RE: “It is unwise, on this site, to try to brow beat every one into submission, something your prolific commenting has lead me to believe you are attempting.”

    Define brow beat. Are you suggesting amateurs be given a pass? Does that do them any favors? There is a difference between a comment and a reply. I had a lot to reply to, didn’t I.

    RE: “I am not going to change my opinion, just so as you know.”

    Of no concern to me.

    RE: “Come back again, comment a bit less, please, and learn to use the reply button. The reply button makes it easier for us knuckle draggers to follow the threads ;-)”

    What is the Reply Box for? Its clearly labeled “Leave a Reply.” I’m looking as I type this. Our own blog uses a Reply Box. LinkedIn uses a Reply Box, but also allows one to reply by return email. If TTAC wants things done differently they need to be clear about it, don’t you think? What do they think one expects to do when looking squarely at a “Reply Box.” I have no idea what anyone else is seeing on their own PC. All I know is I get replies via email. From my first years on the National Bureau of Asian Research Forum, I have cut and paste the comments I am replying to to attempt to maintain context.

    So now I hit the Submit Comment button which is directly under the “Leave a Reply” box. How would anyone else read that?

    I get the impression that there might be a group of like thinking types who believe that this thread is kinda theirs? Is that true? If so, this thread operates like none I ever seen over many years.

    • 0 avatar
      ajla

      Here is a screenshot of the interface I have when commenting on TTAC.

      http://i.imgur.com/ANmM4OJ.png

      If you click on that gray box I have circled then you will be replying directly to a commenter (like how I am doing right now). Your comment will then be nested directly under the one that you wish to reply to. It makes things easier to follow.

      If you just type in the “Leave a Reply” box then you are leaving a reply to main story in general and the comment fall to the bottom of the thread.

    • 0 avatar
      Beerboy12

      I have not encountered another site like it either. Spend some time here, read more “reply” less, you might learn something.
      http://www.thefreedictionary.com/Browbeating

  • avatar

    RE: “Is that a joke? Sell $70K Teslas beside sub-$20K Scions?”

    I thought their plan was to sell them in a corner at Best Buy.

  • avatar

    Where did the thought that Teslas would be sold next to Scions come from? This is news to me.

    • 0 avatar
      Vulpine

      @Ruggles: “Where did the thought that Teslas would be sold next to Scions come from? This is news to me.”

      Someone much earlier on mentioned a partnership Tesla currently has with Toyota for an all-electric vehicle (a van or crossover, I believe under the Toyota brand). That person went on to suggest that selling the Tesla through the same dealerships that sell Toyotas would be fitting since there is already some interaction between the brands. That poster (whoever it was) did NOT say they would be sold together, only that they should. Apparently somebody else picked up on that and assumed it was fact, not suggestion.

  • avatar
    Big Al from Oz

    After reading a lot of the Ruggles :-)

    All I can tell anyone who is out to buy/lease a new vehicle is there are only two things that are important.

    1. Do your research, it isn’t hard to out smart a salesman. Don’t let him control the transaction.

    2. I’ve heard a lot on ‘how much I got for a trade in’ or how cheap I drove off the lot with a car. The only cost that matters is the change over cost, nothing else. But make sure you can pay for it.

    Whether its a ‘factory outlet’ or a franchise doesn’t matter, America is ‘free’ so how you sell should be up to the people. That’s my view on a franchise.

    Franchise’s were great at allowing a business expand cheaply and rapidly, using other people’s money. That why they started.

    • 0 avatar
      Big Al from Oz

      I should have added.

      Times have changed, retail can be done online.

      Servicing a vehicle (in Australia) can be done by any licenced mechanic, not just by the car manufacturers. Warranty is different.

      I can even service my vehicle, all I have to do is show that I’m competent, (if something goes wrong).

      I don’t know if this is the case in the US/Canada.

  • avatar
    Kenmore

    Interesting that a silverback of the industry would put this much time into a car blog. Is this merely someone inflicting his retirement upon others or can there be real concern?

    I just want to buy cars from an app, not an ass.

  • avatar

    RE: Author: ajla
    Comment:
    Here is a screenshot of the interface I have when commenting on TTAC.

    I appreciate the screenshot. But if this is a discussion board, why would one want to reply to an individual rather than to the entire group? Especially when there is the obvious Leave a Reply box available without having to make an extra click? This is different from any other blog I’ve ever been involved with.

  • avatar

    RE: “Automotive sales has fallen into a rut.”

    That’s an opinion. Not a fact.

    RE: “It has been run just one way for well over four decades, with only ONE exception that actually worked, until it was suppressed.”

    Not true. There are MANY different approaches used by many different dealers. Saturn NEVER worked. It wasn’t suppressed. It was cut because it was a loser from the beginning. You seem to forget the purpose of being in business.

    RE: “General Motors’ Saturn division did not use the typical negotiation system; the company set a price on their cars and for about 15 years the sale was based almost exclusively on that price.”

    And they consistently lost money doing it that way. In the beginning, Saturn dealers made good money because the cars were priced about $1500. below the market for that size and type of vehicle. GM lost that $1500. on each car.

    RE: ” No pressure. No games. I purchased a first-year Saturn Vue through that system and the vehicle I purchased proved well worth the price I paid and more–being almost $5000 cheaper than the next nearest SUV I had considered and almost $12,000 cheaper than some of the ones I had first looked into. The really interesting thing is that Saturn built reliability into that vehicle (using the Opel drivetrain, not the Honda one).”

    So if Saturn was such a success story, why didn’t people flock there to buy? Saturn never did any real volume. It was a haven for namby pamby types who were afraid of the business world. The Saturn Aura was a pretty good car. It didn’t sell. Where were the folks you say should have bought that car because of the consumer friendly selling methods. I’ll tell you where they were… over at the Toyota store buying the crap out of Camrys while being abused by negotiating tactics.

    RE: I never had any engine problems, transmission problems or fit & finish problems. I put over 130,000 miles on that car in less than 8 years. Unfortunately, in ’05 or so, GM decided it didn’t like the way t
    hat worked and shut it down–reverting assembly and sales to the “traditional” methods.”

    Because while making a FEW happy consumers they lost TONS of dough.

    RE: “A few years after that, they shut Saturn down, along with Oldsmobile and Pontiac, two other favorite brands of mine. I blame GM and GM alone for these serious failures in the industry.”

    I blame GM for Saturn, a debacle from the git go. They starved Oldsmobile, once their most profitable division, to try this new way of selling cars. It turns out, consumers DO want the opportunity to negotiate in MUCH larger numbers than those who want to pay a fixed price. The FTC even looked into the Saturn model for price fixing. I still have info on that on my desk. At the time, JD Power was telling us all how successful Saturn was and how we should all switch over to “One Price.” AND they were glad to charge you plenty to install the system in your store. My happiest days in retail were when my competitors went to One Price.

    RE: Meanwhile, another company in a different industry had been trying to play that industry’s game for over 15 years–between 1984 and 1997.”

    Selling process is a dealer by dealer decision. The OEM doesn’t control it. If a dealer wants to go One Price, there is NOTHING to stop him/her.

    RE: ” That particular company nearly went bankrupt because the ‘game’ simply didn’t work for their products. Along came a man who said, “We must think differently,” and within 2 years set the industry on its ear–succeeding with a device every analyst called a “toy” and “incapable of doing real work”. Not 3 years later his company introduced a new product completely outside of the typical industry line and analysts said, “It will never work, there’s better and cheaper on the market,” yet for some strange reason it did not only work, but it became the dominant device of its type. Five years after that the company releases another out-of-band product and set an entirely different industry on its ear. Again analysts said, “It will never work”. They said, “(Other company) has that market sewn up.” Even that other company said, “It’s a toy. It will never compete with our product.”

    Ok, I’m sure you’ve guessed who and what I’m talking about. But what you may not know is that the CEO of that company did NOT do business based on customer comments in focus groups. He quite famously said, “These people will not know what they want until they see it.” Tesla is doing the exact same kind of thing. Tesla went completely out of the box to create an all-electric sports car that blew past any existing electric car technology–except maybe for Oldsmobile’s demonstrator test beds of the late ’80s that were blatantly recalled/STOLEN, and destroyed. Elon Musk saw a very visible demand for something different and he used what he had learned in two different businesses and the advice of some very canny people to fill that demand. Musk is trying to drive the automotive industry in new directions–breaking the mold across the board to offer something he believes people really want and it seems to be working; he’s sold thousands of cars without the need for a traditional dealership and those buyers in nearly every case are VERY happy with their purchase.”

    Musk is NOT trying to change the industry. He doesn’t want the industry to change. He wants his deal to be successful and for the others to stay doing things they way they are. Frankly, I have no idea who are are talking about. I suspect you might be trying to compare vehicles and gadgets again. Apple was formed in 1977, BTW. At one time, automakers needed a distribution network. They didn’t have the capital to do it. They enlisted private capital for the job. Those entrepreneurs didn’t and don’t work for the automaker.

    RE: “If you wish, think of the Tesla as a “niche” automobile.”

    It doesn’t make any difference what I think. The numbers speak for themselves. Tesla is an automaker with two models, selling small volume, with no “refueling infrastructure” in place to speak of. Mass market is exactly what the words mean. “Niche” or “boutique” is what Tesla is currently. So far Telsa has had some great ideas, although some are better than others. The idea of owning the outlets initially is a good one. But it can’t take Tesla to mass market status.

    RE: “His mentor’s product has been called “niche” for decades and is among the most profitable brands in the world. Maybe. Just maybe. Change is good.”

    Change isn’t always good. And good businessmen start of with a plan, and adapt when Plan A doesn’t work. You can make lofty predictions for Tesla. Some might come true, although he will not change the dealer network model industry wide. I could claim you would find my grandmother in orbit around Mars, and you couldn’t “prove” me wrong. Talk is cheap. Lets wait awhile before declaring Tesla a success. It may well become a true success. Its a little early now.

    • 0 avatar
      ajla

      “Saturn never did any real volume.”

      What number do you consider “real” volume?

      I don’t think the Saturn brand is a success story, but there are a few years where the S-series was GM’s best selling car. Even if it never met GM’s optimistic projections.

    • 0 avatar
      Vulpine

      Let’s take your rebuttals in order, Ruggles.

      “… Saturn NEVER worked.”
      If not, why did Saturn continue for over 15 years? Saturn DID work and people who bought Saturns kept coming back to that brand. Well, until it reverted to conventional methodology.

      “So if Saturn was such a success story, why didn’t people flock there to buy?”
      For one thing, until the Vue Saturn didn’t really make the kind of car the “enthusiast” wanted. They were very generic in shape and performance–never excelling except in one area: reliability. People who bought a Saturn almost never wanted another brand. On the other hand, because of that reliability, people also didn’t trade until they effectively wore out their cars. I personally know two people who put more than 350,000 miles on their first Saturn cars before trading for a newer model. The Aura, by the way, was NOT a Saturn-designed car, but rather a conventionally-built Opel Aura with only minor badging differences from the German model. Same thing with the Astra and the last three years of the Vue–both direct German imports rather than built in Springfield, Tennessee.
      I am NOT a “namby pamby type who is afraid of the business world”. I have sold cars at traditional dealerships and I have purchased from them. I found the experience at Saturn FAR more enjoyable–especially since I custom-ordered the specific model I purchased. I have personally purchased five brand-new vehicles from dealerships and four used. With the exception of the Vue and my current Jeep, I’ve had every one of those high-pressure techniques used on me just as I was trained to use them when I was selling–back in the early ’80s. As far as I’m concerned, some of those tactics border on illegal incarceration and even theft by holding your keys and preventing you from leaving when YOU choose. I’m honestly surprised nobody has tried to sue them for such tactics.

      “Because while making a FEW happy consumers, they lost TONS of dough.”
      Actually, they made very MANY happy customers, though I agree they lost money–because they made their cars TOO GOOD. Dealerships make their money on service, more than sales. And if a car doesn’t break, they don’t come in for service.

      “I blame GM for Saturn, a debacle from the git go.”
      No, Saturn did not starve Oldsmobile. GM so changed the brand that it had almost no relationship with the models that made Oldsmobile famous. They so changed established models that they were in no way comparable to their predecessors and then generating so many different models with almost no level of longevity because they were abandoned even before they could earn a following meant the company basically killed itself–and most of these issues spawned at the chief executive level. The same sort of thing happened with Pontiac–no longer an individualized brand, but simply a re-branded Holden or Opel, depending on model. The only real exception was the newest sport model–which was shared with Saturn. Now GM is using a Holden as the newest Impala SS. No other Chevrolet car is truly a Chevrolet any more, but rather a re-badged import–with the exception of the Volt which is an over-engineered, under-capable, over-priced status symbol.

      “Selling process is a dealer by dealer decision. The OEM doesn’t control it. If a dealer wants to go One Price, there is NOTHING to stop him/her.”
      True, but there is risk involved and conventional dealerships don’t want to take that risk. They’re not going to change until they have to change. On the other hand, if a NEW dealership were to open using that policy, the other dealerships would do everything they could to drive that dealership out of business because it makes them look bad. They’ll do anything they can to make sure the new dealer “conforms” or is shut down. HOWEVER, my example points out that if a new system is given a chance–and it works–they garner more animosity from the established market… as well as copiers.

      “Musk is NOT trying to change the industry. He doesn’t want the industry to change.”
      You say that as though you know what he is thinking. Interestingly, Musk has stated otherwise, saying that the industry NEEDS to change. The simple fact that the Tesla cars are so different and yet priced similarly to equivalent-class conventional cars proves that current automotive technology no longer needs to be so hide-bound in fossil-fuel energy.

      “Frankly, I have no idea who are are talking about. I suspect you might be trying to compare vehicles and gadgets again. Apple was formed in 1977, BTW.”
      Sure, Apple was founded in 1977, but around 1984 hired a ‘traditional’ CEO at which point the company started foundering–taking twelve years to fall from a near 50% market to a mere 2%. And computers, at that time, were almost as expensive as cars. They were NOT a “simple credit card purchase” as you said previously. Some models cost over $10,000 then and some go as high as $20,000 today, though they have become so commodity that the typical PC only costs about $1,000 or less. Now, I’m not saying cars should fall to commodity pricing, but I do believe they are overpriced and pickup trucks even more so. But if you want quality and reliability, you have to expect to pay a little more.

      “The numbers speak for themselves. Tesla is an automaker with two models, selling small volume, with no “refueling infrastructure” in place to speak of.”
      Actually, the numbers do speak for themselves and Tesla IS selling cars as fast as they can build them. There is a “refueling infrastructure in place”, though I admit it’s somewhat limited at the moment. Then again, electric cars have only been on the market for about 7 years, plus or minus. The Tesla Model S can be recharged at any of thousands of public charging stations around the country and Tesla itself is installing SuperChargers that can recharge a Model S in about an hour as compared to the 6 to 12 hours other stations take. More, he has already demonstrated a system that can literally swap the Model S’ battery in less than two minutes that he intends to install at Tesla SuperStations. He is building the infrastructure right now rather than waiting for conventional gas stations to accommodate electric cars.

      “Change isn’t always good. And good businessmen start of with a plan, and adapt when Plan A doesn’t work. You can make lofty predictions for Tesla.”
      True, change isn’t ALWAYS good, but when it is, it does change the game. If this system works, he may encourage a lot of other ‘niche’ players to adopt a similar system. Cars that are typically sold in small enough numbers that they don’t warrant a full dealer network might see an opportunity to sell to a particular kind of enthusiast. Maybe the Mahindra truck, for instance, could be special-ordered online and delivered direct to your door.
      In fact, I am aware of an industry that follows a vaguely similar system as Tesla. You may not know of a company named Advanced Expedition Vehicles–a company that directly purchases Jeeps (and other vehicles) direct from the manufacturer, modifies them, then sells direct to consumers as well as dealers. The dealer in their case is no more than a customer–not part of an AEV franchise. I believe it CAN work–if it is allowed to even try.

  • avatar

    To be clear:

    I support Musk’s efforts to establish his own dealer network as long as it doesn’t take advantage of any partners current or future.

    I support the current franchise dealer system. It wouldn’t make any difference if I didn’t and contract law and franchise law trump my opinion, or yours. OEMs can own their own dealer network by buying out those who made a HUGE investment for the OEM. They can try experiments like the Ford Collection under certain circumstances. For example, they cannot and will not be able to establish an “order direct from the factory” model to undercut the thousands of franchise contracts they have in place. Keep in mind, dealers exist because the OEMs NEED them.

    I do NOT defend unscrupulous tactics like lying and hiding keys. If this is still going on, which it is NOT to any great degree, it is the fault of consumers. They are the ones who continue to patronize bad actors, not excoriate them in CSI surveys and online rating sites.

    I am astonished at the helplessness of some on this blog. One would think these people members of the web enabled generation. They have tools available consumers 30 years ago couldn’t even dream of. And still they whine while dealers barely break even on new vehicle sales.

    No one has yet answered the question of how much a dealer should be entitled to make selling a new car. I’ll even accept a percentage. How about 10%? What say you?

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