By on October 23, 2013
YouTube Preview Image

A working-class song, “Lawyers, Guns And Money” pierces my mind like a mantra as I wander around a place known here in Georgia as “The Gold Dome.”

Everything around me is marble and exquisite, with the exception of the Romanesque D.C.-styled dome on top, which is gilded in gold leaf. Expensive suits are ubiquitous. Formalities are only surface-deep, and the money passes from corporation, to lobbying group, to lobbyist, and finally to the congressman’s election campaign quicker than an auctioneer like me can say all these words.

This swarm of money is designed to enshroud the legalities of big people screwing the little people. Forty-nine state legislatures have prostrated themselves to franchise dealer lobbies. The faces bow and the rears spew out the stink that is government-sanctioned, legalized theft.

You want a new Tesla? You pay the gatekeepers, shitheads that they are. The good ol’ boys that want to pass down the elixir of exclusive wealth to the silver spooned next-gens and are prepared to fight tooth-and-nail to keep the creators of product away from the final consumer.

Cell Phones. Guns. Computers. Real Estate. Even the clothes we wear and the medicines we take can be bought without the legal blessings of a franchise. Cars? Well, for that you obviously need a “skilled professional,” who advertises low, low prices with eight lines of gotchas and loop-holed legalese.

Not all dealers are bad. In fact, I try to be one of the good guys. 100% Positive Ebay feedback. A long, long list of happy customers. To me, the work of a “dealer” enables me to live out the life of a George Bailey in a small town where seemingly every other street corner has a title pawn or a finance company designed to keep people in Pottersville.

I know plenty of good guys in my business as well. But these folks aren’t the ones who lobby for the laws that are designed to remove you from your rightful decision. Independent dealers are to franchise dealers what David is to Goliath… without a slingshot or any form of big man backing.

We don’t have the luxury of exclusive market channels, overpriced plastic parts, or $1,300 service regimens that only truly require $200 worth of parts and labor.

Our world is simple. We buy cars. We fix cars. We sell cars. If we do a good job of it, we get to repeat this process thousands of times and build a successful business. If we don’t, the marketplace makes the decision for us.

The same should be true for a franchise dealer. The guys that work hard and put in the hours and sweat equity needed to make their businesses a success should enjoy every single ounce of it. But it shouldn’t come at the expense of the consumer and the greater marketplace. Choice is not only essential to the evolution of a market; it is the one equalizer that allows those who are building the better product the opportunity to re-invest in their employees, their customer’s needs, and the products that make it all possible.

So what’s my advice? Six words with two links. Petition and email your local congressman.

Yes, really. It’s boring compared with other forms of protest,  and direct access to congressional ears for Mr. John Q. Public is a rare thing in a country with over 300 million voices.  Let’s face facts, we’re the Samsons when it comes to lobbying influence and to have any effect in the year 2013, you need a slingshot in the form of keystrokes and a rock in the form of mass protest.

If you want to win a battle to change an unfair law, any unfair law, you have to show that you want to fight for it.

No one should be forced to pay more money for no reason. Contrary to my good friend Mr. Kreutzer, and that well-oiled lobbyist who visited us a few weeks back, I see no reason, zero reason, to kow-tow to a special interest group that is only interested in siphoning off your investment in an automobile.

It’s your money,and they already have enough of it.

The new car marketplace for now only has two big political players that want exclusive access to your savings whenever you shop for a new car. The well-connected franchise dealer on the state level, and the manufacturer on the federal level. Bogus fees, deceptive selling tactics, big legal loopholes, and big campaign contributions have yielded higher costs for you; not them. The franchise laws have created a conscripted mediocrity that is new car manufacturers cribbing each other’s notes, and passing plasticized overpriced products to a public that should have the right to alternatives.

You are getting screwed by those in power (surprise?) and the present manufacturers are as much a part of the problem as a few well-connected franchise dealers.

This game can be changed for good… but only if you help change the rules by clicking a few links and showing the special interests that the greater good is far more important than their golden rules. So go do it. Right now. Click here and here. Then save your money and buy used instead. I’m seeing lower prices at the wholesale auctions these days… and the big boys in this business don’t want to give you access to that buying channel either.

 

Get the latest TTAC e-Newsletter!

146 Comments on “Hammer Time: Lawyers, Guns And Tesla...”


  • avatar
    jmo

    “Then save your money and buy used instead.”

    He says entirely as a disinterested third party, not from the perspective of a used car dealer.

    • 0 avatar
      FreedMike

      He has a point, nonetheless.

      • 0 avatar
        jmo

        Not really. To have a point, he’d have to explain why he thinks the used car market is inefficent.

        • 0 avatar
          FreedMike

          His point is that dealer franchises are using their lobby power to continue their monopoly on new car sales, and that’s a valid point.

          • 0 avatar
            Pch101

            Unless all of the dealerships are owned by one company, there is no dealership monopoly.

            Oh, wait a minute, I can think of one company that matches that description. It’s called Tesla.

          • 0 avatar
            jmo

            Yes, his point about dealer franchise laws is stop on!

          • 0 avatar
            FreedMike

            You misunderstand my point.

            As a GROUP, new car dealers have a monopoly on new car sales, and they keep it that way by pushing for state laws that basically prevent consumers buying new cars through any other channel (i.e., direct from manufacturer to consumer) than dealerships.

            This can be unfair to consumers. That’s Lang’s point, and I believe it to be valid. Whether it’s politically actionable or not is up to voters.

          • 0 avatar
            Pch101

            I understood the point. I’m noting a more accurate point, namely that the definition of “monopoly” is being abused here.

            Unless all of the dealerships are owned by one firm, there is no monopoly. As noted, the only party with a monopoly for the purpose of this discussion is Tesla.

            The state dealership organizations help to support lobbyists. They are not monopolies, period.

            And to be more accurate, even Tesla doesn’t have a monopoly, as Tesla isn’t the only brand of vehicle in this country. Tesla has a monopoly on Tesla cars, not on all cars, so it doesn’t hold monopoly power in the car industry.

            This seems to be one of those cases when people are tempted to throw around terminology because it sounds good. “Monopoly” has a particular definition, and this ain’t it.

          • 0 avatar
            arun

            “I understood the point. I’m noting a more accurate point, namely that the definition of “monopoly” is being abused here.”

            Now you know you are just being pedantic here..

          • 0 avatar
            Astigmatism

            Would “cabal” work better for you, PCH? More precise wording, perhaps, but the underlying point is still valid.

          • 0 avatar
            FreedMike

            PCH, would you prefer the term “oligopoly”?

            Either way, the point is that the distribution method for new cars is controlled, whether it’s one business or a group of businesses doing it.

            Geez…

          • 0 avatar
            Pch101

            Auto manufacturers arguably have an oligopoly. Dealerships do not.

            Step back and try to understand the irony of your argument. You claim to be upset about retail monopolies, yet you support Tesla, which is the only retail monopolist here. Your position is completely inconsistent.

            Again, you’ve fallen in love with a buzz word that doesn’t accurately describe what upsets you. You dislike car dealers because they’re rude and untrustworthy, not because of their franchise agreements.

          • 0 avatar
            danio3834

            Your agrument really is contradictory, Freed. You believe that franchised car dealers hold a monopoly on new car sales, so you think that laws should be changed to allow even fewer individual powers to control distribution, because you don’t hate those individual powers yet. It doesn’t make much sense, and the argument comes off as incoherent dealer-haterade.

          • 0 avatar
            FreedMike

            Well, at a state by state level, franchised car dealers control the sale and distribution of new cars among themselves, and they pay big money to keep it that way, so, yes, I’d say that at a minimum, that’s an oligarchy of sorts.

            As far as Tesla’s proposed direct-to-consumer method is concerned, I’ve given no indication I’m “in love” with it. You assumed that. There may be issues with it for consumers.

            But I certainly see nothing wrong with a manufacturer setting up its own local distribution and service networks if it chooses to. That’s their preferred business model, it’s their money, and there’s nothing illegal or unethical about it. Thousands of businesses distribute their products in the exact same way, and no one gets their undies in a bunch about it. If they do, then I suppose they can buy their goods from franchised manufacturers’ reps.

            In any case, Tesla isn’t hiding anything about its distribution methods from its customers, and there’s nothing fraudulent or illegal about it, so if those potential customers don’t like Tesla’s business model, they can buy something else.

            But I do see something fundamentally unfair about states dictating to carmakers that all their new car sales have to be done by franchised dealerships, and the fact that those franchised dealers are paying off the state politicians to keep that system in place tells you all you need to know.

            If a manufacturer chooses to market its products through licensed franchisees, then fine – they’re executing their own business plan the way the see fit. But if that manufacturer would rather set up its own local distribution system, there’s nothing wrong with that either, and the states should respect that.

          • 0 avatar
            Astigmatism

            “Step back and try to understand the irony of your argument. You claim to be upset about retail monopolies, yet you support Tesla, which is the only retail monopolist here. Your position is completely inconsistent.”

            PCH, your definition of “retail monopolist” is, charitably, an odd one. Tesla is trying to sell _its own product_ (a tiny slice of the new car market), which it is legally prevented from doing in many states unless it goes through the franchised dealer structure, who, collectively, control 100% of the distribution channels for new cars.

            Nobody is trying to ban franchised dealers; they’re trying to keep franchised dealers from being able to prevent anyone else from selling new cars other than them, which the franchised dealers are currently able to do thanks to decades of legislative capture by car dealers. It has nothing to do with who is “rude and untrustworthy,” and nothing to do with “dealer haterade.” It has everything to do with a cartel of wealthy businesses using government coercion to entrench their position. A free-marketer should hate that more than anyone else.

          • 0 avatar
            Pch101

            Tesla wants to use a vertical integration model.

            The Supreme Court has a track record of looking unkindly at vertical integration, as it tends to push up prices and restrict trade, i.e. issues that one would associate with monopoly power.

            Be consistent: If you hate the idea of monopoly, then you should really, really hate Tesla, as Elon Musk so proudly aspires to use a vertical integration model. He’s doing everything that you claim to dislike.

            And now, be honest: You don’t really have a problem with monopoly power. You just don’t like car dealers. While I don’t blame you for disliking car dealers, their franchise agreements aren’t the problem.

          • 0 avatar
            Astigmatism

            “While I don’t blame you for disliking car dealers, their franchise agreements aren’t the problem.”

            You’re still arguing against a straw man. The franchise agreements aren’t the problem, and nor is a general dislike for car dealers. The problem is franchised car dealers lobbying state legislators to prohibit anyone from selling new cars in their state unless they go through franchised car dealers. This is not complicated.

          • 0 avatar
            FreedMike

            @danio:

            What is this, “put words in Mike’s mouth day”? LOL…

            What I’m saying is that businesses have the right to set up their own distribution networks. If every other manufacturer other than Tesla wants to distribute its product exclusively through franchised dealers, then bully for them. It’s their money, it’s their product, and they can distribute it whatever way they see fit.

            Ditto for Tesla. If they want to set up a company owned and operated distribution system, then bully for them too. It’s their money, it’s their product, and they can distribute it whatever way they see fit.

            As far as consumers are concerned, I don’t know if Tesla’s business model is going to be more or less fair to them than the current “system.” But that’s up to consumers to decide, isn’t it? If they like the way Tesla does business, then Tesla will succeed; if not, it will fail.

            And I believe laws that would force Tesla to market through licensed franchisees unfairly inhibits the company from marketing its products the way it wants to. The fact that dealers are paying big money to prevent Tesla from executing its business model is not a positive, in my view. If they were “capitalists,” as most car dealers like to think themselves to be, they’d welcome Tesla’s different sales and distribution model to the marketplace, and say “let the best company win.”

            But that’s not what they’re doing, is it? And that deserves scorn, as far as I’m concerned.

            And this has nothing to do with “Tesla love,” or some liberal PC wish to see electric cars succeed. I’d make the same argument if this were “Duck Dynasty Motors,” selling up-armored, camouflaged, three ton pickups powered by 3-mpg supercharged Hemis, with “Obama sucks” and a confederate flag emblazoned on the side. Yes, the liberal in would shake his head at this, but I’d never presume to tell that company it couldn’t distribute its product the way it wants to. Hopefully they’d go out of business all on their own. :)

          • 0 avatar
            Pch101

            “What I’m saying is that businesses have the right to set up their own distribution networks.”

            Only to a point. For example, you may have noticed that the companies that make films don’t own the theaters in which you watch them. There’s a reason for that — the Supreme Court ruled that that sort of vertical integration was illegal.

            Essentially, you want to undo decades of public policy that sought to limit monopoly power and motivate competition, all while claiming that you dislike monopolies.

            We already know what Elon Musk wants to do with vertical integration: He’s aspiring to use it to command high prices that will permit Tesla to have some of the highest gross margins in the business.

            In effect, he wants to inflate the price of his product by several thousand dollars. How is that a good thing for the consumer?

          • 0 avatar
            FreedMike

            @PCH 101:
            “For example, you may have noticed that the companies that make films don’t own the theaters in which you watch them. There’s a reason for that — the Supreme Court ruled that that sort of vertical integration was illegal.”
            That case wasn’t just vertical integration – the real problem was that the five movie studios colluded to either own or control all movie theaters to only show their films. They also forced the theaters they didn’t own to do the same, along with other practices that didn’t pass constitutional muster. This locked anyone but the five studios named in the suit out of the movie production business.

            http://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures,_Inc.

            Last I checked, Tesla’s not locking anyone out of the car business by owning its own dealerships.

            “Essentially, you want to undo decades of public policy that sought to limit monopoly power and motivate competition, all while claiming that you dislike monopolies.”

            Tesla does NOT have a monopoly on the automotive industry. It doesn’t even have a monopoly on the electric car business. And setting up a distribution system in which it sells its cars directly in no way, shape, or form changes that.

            What they COULD possibly have a monopoly on is their system of charging stations. Time will tell if this is the case, but for now, I see nothing monopolistic or anti-competitive about what Tesla’s doing.

          • 0 avatar
            Pch101

            “the real problem was that the five movie studios colluded to either own or control all movie theaters to only show their films.”

            Tesla doesn’t intend to sell any other make of cars at its dealerships.

            In any case, you’re still missing the point: Vertical integration raises prices. It doesn’t lower them, it raises them.

            Price competition and vertical integration don’t mix. You keep arguing against monopolies, while supporting a monopoly out of Silicon Valley. Your position is rather incoherent.

          • 0 avatar
            J.Emerson

            “You keep arguing against monopolies, while supporting a monopoly out of Silicon Valley.”

            Completely sidesteps:

            “Tesla does NOT have a monopoly on the automotive industry. It doesn’t even have a monopoly on the electric car business. And setting up a distribution system in which it sells its cars directly in no way, shape, or form changes that.”

            Vertical integration is not the same thing as monopoly power. Nor is vertical integration a guarantee of price increases. Vertical integration just describes a type of business model. It has nothing to do with market share or market control. In order to exercise monopoly power, Tesla would have to completely control a market or at least a market segment, and they don’t. Saying that Musk wants a “monopoly” is baseless.

          • 0 avatar
            Les

            “The Supreme Court has a track record of looking unkindly at vertical integration…”

            Right, that Supreme Court decision banning Apple Stores across the nation should be coming out any day now.

  • avatar
    FreedMike

    Cue Ruggles in 5…4…3…2…1…

    Actually, if state laws prevent direct sales of Teslas, I don’t know how writing Obama or the US Congress would help anything – even if they were somehow able to pull their heads out of their asses and do something, they’re pretty much powerless to change state laws, unless they’re outright unconstitutional.

    • 0 avatar
      jmo

      “they’re pretty much powerless to change state laws, unless they’re outright unconstitutional.”

      Um…no.

      “Article VI, Clause 2 of the United States Constitution, known as the Supremacy Clause, establishes the U.S. Constitution, federal statutes, and U.S. Treaties as “the supreme law of the land.” The text provides that these are the highest form of law in the U.S. legal system, and mandates that all state judges must follow federal law when a conflict arises between federal law and either the state constitution or state law of any state.”

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

      • 0 avatar
        FreedMike

        The Supremacy Clause applies to state or local laws that violate the Constitution, federal laws, or court rulings. But unless I’m mistaken, there is no such federal law or court ruling when it comes to dealer franchises, and the Constitution doesn’t mention this outright.

        Therefore, the applicable Constitutional law here wouldn’t be the Supremacy Clause – it’d be the Tenth Amendment, which leaves the question to the states.

        The state laws in question may or may not make sense, but that’s a political question, not a constitutional one. Since these laws aren’t unconstitutional or in conflict with federal law, and in the absence of such conflicts, the federal government has little reason to act. This will need to be resolved at the state level.

        • 0 avatar
          jmo

          As people often buy cars in one state and sell them in another, under the commerce clause, Congress could allow sales directly to consumers.

          “there is no such federal law or court ruling when it comes to dealer franchises”

          That would be the point of the petition, to get congress to pass a law allowing sales directly to consumers.

          I believe this is the relevant SCOTUS case:

          http://en.wikipedia.org/wiki/Wickard_v._Filburn

          • 0 avatar
            FreedMike

            Franchise arrangements were entered into freely by the manufacturers and dealers, such arrangements don’t violate federal law or the Constitution, and are covered by state laws, so Congress would have no reason to act on these arrangements under the Commerce Clause.

            I suppose if there were some huge groundswell of public opinion in favor of outlawing these relationships at a federal level, Congress might act, but I don’t see that happening.

            This will need to be resolved state by state.

          • 0 avatar
            jmo

            “Franchise arrangements were entered into freely by the manufacturers and dealers, ”

            That is totally untrue! The agreements were mandated by state law.

          • 0 avatar
            Pch101

            There are two basic paths for getting the feds involved in this: Either get Congress to pass a law, or else have the Supreme Court rule that state franchise laws are unconstitutional.

            Neither of those is going to happen. There is no compelling reason for the federal legislature to rewrite state law, and there is no reason for the court to find franchise laws unconstitutional. States rights and all that.

          • 0 avatar
            jmo

            “There is no compelling reason for the federal legislature to rewrite state law”

            Sure their is – to break up a crony capitalist system that harms consumers.

          • 0 avatar
            FreedMike

            You misunderstand my point. No one forces a seller / servicer of cars to be a new car dealer, just as no one forces a hamburger restaurant to be a McDonalds.

            A car dealer can sell and service used cars without entering into a franchise arrangement, just as a restaurant can sell its own hamburgers without becoming a McDonalds.

          • 0 avatar
            danio3834

            “That is totally untrue! The agreements were mandated by state law.”

            It wasn’t always that way, yet franchised dealers still became the preferred method for distributing cars.

          • 0 avatar
            FreedMike

            “Sure their is – to break up a crony capitalist system that harms consumers.”

            That’s Lang’s point. And perhaps it does harm consumers (there’s a case for and against that argument).

            My point is that if this is to be done, it should be done at the state level, because 1) there’s no compelling reason (Constitutional, Supremacy Clause or Commerce Clause) for Congress to get involved, and 2) even if someone did propose such legislation, I can’t see it going anywhere in the current political climate.

            Untwist your undies, please. :)

          • 0 avatar
            jmo

            “No one forces a seller / servicer of cars to be a new car dealer, just as no one forces a hamburger restaurant to be a McDonalds. ”

            No, what they are saying (to use your metaphor) is all beef must be sold through franchised slaughterhouses – if you want beef you need to buy though them. Ranchers can’t sell directly to McDonalds or any other restaurant.

            That’s how alcohol franchise laws work as well. Coors can’t sell directly to your local bar or grocery store. State law mandates that all booze needs to flow through state liquor distributors.
            .

          • 0 avatar
            DC Bruce

            Actually Wickard v. Filburn deals with the scope of the federal power under the Commerce Clause (virtually unlimited). The case that is on point is Exxon v. Governor of Maryland, decided in 1978 if memory serves. Like lots of states Maryland also has laws protecting independent gasoline retailers. Maryland’s law goes so far as to prohibit “company stores.” Exxon claimed that law interfered with interstate commerce, but the Supremes said otherwise. Obviously, Congress has the power to preempt such state laws by legislation . . . but it will be a cold day in you-know-where when that happens.

        • 0 avatar
          Pch101

          I understood your point. It wasn’t a good point, for the reasons that I provided.

          It’s not a monopoly. Period.

        • 0 avatar
          FreedMike

          @jmo:

          Yes, McDonalds franchisees can’t buy their beef or other ingredients through anyone but McDonalds. But that’s what they signed up for when they agreed to become a franchisee. No one forced them to do so.

    • 0 avatar
      Vulpine

      And don’t forget that each state also has its own House and Senate which have direct control over state laws. If you don’t like what’s going on in your state, contact your STATE representatives, not your state’s representatives to the Federal Congress.

      • 0 avatar
        Astigmatism

        This is what I understood Steve’s point to be. Writing your Senator or US Rep. has a much smaller chance of success than writing your local state rep., who has many fewer constituents, is much more likely to be responsive to a petition of local residents, and has a far smaller hill to climb in passing a state law to change the dealer franchise structure in his state than a backbench congressman would in trying to rally the US House, Senate and President to support such a change nationwide.

        • 0 avatar
          jmo

          That’s totally not true. It’s far cheaper and easierfor the dealership lobby to buy off a state rep than a congressman. Consumers, Telsa, GM, Ford, Honda etc. would be on a much more even footing at the national vs. state level.

  • avatar
    NN

    well said, Steve. Thankfully, Mr. Musk has the type of drive, character, and visibility to be heard. Small battles are being won, as has been recently here in Virginia.

  • avatar
    Jeff Waingrow

    Until you got to the specifics of your business and the manipulation you see there, I’d say that you wrote a pretty accurate description of how big money calls the shots and manipulates the more credulous part of the electorate with demagogic blather designed to stir up and misdirect the average person away from the actual knowledge of who truly is out to screw him, all the while pretending to be his friend, if you know what I mean.

  • avatar
    racer-esq.

    Manufacturer owned dealers are going to have even more power to overcharge for parts and service because there will not be a competitor across town. Althouhgh I do agree Tesla should have the right to own dealerships, it is not necessarliy going to be good for consumers.

    If you really want something to get mad and write your state representative about it is three tier alcohol distibution. Only Washingnton state has gotten rid of that. Liquor distributors are the real parasitic scum.

    • 0 avatar
      jmo

      “because there will not be a competitor across town.”

      Huh? How doesn’t have anything to do with independent repair shops?

    • 0 avatar
      SCE to AUX

      “Manufacturer owned dealers are going to have even more power to overcharge for parts and service because there will not be a competitor across town.”

      I don’t think that’s correct.
      1. Most mfrs charge the same for parts no matter where you go. Labor rates are similar, too.
      2. One form of ‘competition’ is to not buy their product to begin with. For example, someone who buys a German car knows they’re also getting into a lifetime of expensive parts and labor. Nobody has to do this.
      3. The aftermarket parts mfrs and independent garages are good competition, particularly for out-of-warranty cars. Warranted repairs are often covered by the mfr anyway.
      4. If you want or need OEM, you’re still stuck with paying OEM prices.

      • 0 avatar
        danio3834

        “I don’t think that’s correct.
        1. Most mfrs charge the same for parts no matter where you go. Labor rates are similar, too.”

        It is correct to a point. MSRP is generally the same, but that isn’t set in stone, independent dealers can sell at whatever price they want. Invoice pricing from the manufacturer to the dealer isn’t always effectively the same either, volume bonuses, promotions and allocation deals can give one dealer an advantage over another.

        When it comes to car deals, it’s extremely common for consumers to pit two same brand stores against each other to compete on price. An exclusively factory owned distribution network ensures there is no room for negotiation. If someone hates negotiation, they can always pay sticker price, but that person would only feel good about that if everyone also had to pay sticker.

        I’m not advocating legally sanctioning one business model over another, consumers should have choices. I prefer the franchise model.

    • 0 avatar
      Pch101

      “Althouhgh I do agree Tesla should have the right to own dealerships, it is not necessarliy going to be good for consumers.”

      Yep. People hate car dealers so much that they’ll swap one problem (the dishonest dealer) for another (the higher prices that result from vertical integration.)

      People get upset because (a) dealers are often rude and manipulative and (b) they feel cheated if someone else paid far less than they did. The best way to address some of that is with clear, easy to read standardized disclosures that make it harder to hide and manipulate the numbers, not to give exclusive retail rights to the producer of the product.

      • 0 avatar
        Landcrusher

        Without the mandate, you can still have dealers, and likely still would. It just wouldn’t work like it does today.

        In the end, what works best under the new legal restrictions would likely prevail, and in a world where most other products are not sold direct, why would you assume cars would have to be?

    • 0 avatar
      Vulpine

      Anything that can be used can be abused. Just as the dealer associations were once created to prevent manufacturer abuse, these associations are now abusing both the consumer AND the manufacturer.
      Anybody happen to think it odd that GM intentionally jacked up the MSRP on their trucks to drive DOWN dealer profits? You do realize that dealers have seriously jacked up truck prices for decades, after all. At one point you could find 75% markup on trucks and even now trucks are selling for almost double that of the ‘equivalent’ sedan.

    • 0 avatar
      Dr. Kenneth Noisewater

      There is no qualitative difference between liquor distributors and car dealerships. Both are either good or evil.

      The US is no longer beholden to 3 big automakers, there’s plenty of competition amongst brands foreign and domestic, therefore there’s no more need for a parasitic oligopoly of middlemen keeping innovators out.

      Anyone who thinks otherwise is on the teat and can’t think of life without it.

      A good car dealer would be able to survive on service and relationships, as the free marketplace of used car dealers shows.

      • 0 avatar
        danio3834

        So you’d rather an oligopoly of even fewer and bigger business interests keeping the smaller competition out as a solution?

        Yes, brands compete with each other, but dealer franchises also compete with each other. 2 levels of competition is better than one, and shifting the control of retail over to an OEM doesn’t simply make the costs of retailing evaporate.

        • 0 avatar
          carrya1911

          The key problem with your argument is this: Consumers manage to buy any number of goods and services without going through a legally mandated dealer. There’s absolutely no reason why a consumer shouldn’t be able to buy a Honda vehicle directly from Honda the same way they buy a cell phone directly from Apple or Samsung.

          Cars are not some mysterious and mystical consumer good that requires a legally mandated intermediary to sell.

          There’s no reason why consumers should be barred from buying direct or why manufacturers should be barred from selling direct.

  • avatar
    SCE to AUX

    I agree with Steve’s article, but I think Tesla is only getting traction in this argument because they build cars people want. Musk’s persona helps, but consumer interest in the car is even more important.

  • avatar
    JD321

    Excellent Article! I assert that almost all franchise dealerships are owned and operated by criminal sociopaths…As they are in bed with the political terrorists in the Statehouses. You can sense this every time you walk into one…Maggots look at you like a lion eyeing a gazelle. Jeannie needs a shooter.

  • avatar

    Here we go again. The lack of understanding of this issue here is off the charts.

    RE: “You want a new Tesla? You pay the gatekeepers, shitheads that they are.”

    In most states, Tesla is free to own its own outlets. They SHOULD be allowed to own all of them in all the states. What isn’t going to happen is a “mixed system” where OEMs compete with their own dealers. Sorry if the entrenched few here can’t understand why OEMs are NEVER going to back stab their own dealer network.

    RE: The issue of no consumer access to wholesale auto auctions: Does the word “wholesale” have any meaning? There are plenty or retail auto auctions. Visit one of those. If you want to visit a wholesale auto auction, acquire a dealer license and some liquidity and go play. We’ll welcome you as a participant. Be prepared to pay cash. There is no financing at a wholesale auction. Feel free to get a floor plan so you can maintain an inventory… don’t forget about insurance for your inventory. And now that you are a dealer, you can be prepared for a raft of FTC, Moss Magnuson, and other regulations that you dare not ignore, not to mention potential liability that comes down harder on dealers than real consumers. Then there is that pesky sales tax issue. You’ll need a get certified by the state. Oh yes, then there is the bond that you have to get. Then the state, depending on which one you are doing business in, might want to inspect your premises to make sure you aren’t operating out of a PO Box or a garage.

    In short, when one lacks the understanding of an issue one can come up with some pretty hair brain ideas.

    • 0 avatar
      DC Bruce

      Actually, you are wrong about OEMs “stabbing their dealers in the back” by having dual distribution (i.e. through company stores and franchised dealers). In the 1960s, Chrysler Corporation opened a number of company stores. The reason that I know this is because, those acts were the subject of a number of antitrust lawsuits, which, at some point in my career, I have read. I do not know why Chrysler did that, but I assume they felt that some of their dealers were not giving customers the “quality experience” that Chrysler expected and, consequently, were hurting sales.

      I’m pretty much of an agnostic on this issue. In my car purchasing career, I have purchased new cars from dealers, used cars from new car dealers, used cars from small operations apparently not unlike Mr. Lang’s and used cars from individuals. Based on my own limited experience, I can’t make any generalization that one group was or was not better than another. The only truly bad experience I had was at a Mazda dealer in the early 1970s; I was 24 and they put one over one me.

      Given the fragmentation of today’s automobile market in the U.S. (unlike in the 1960s and earlier, when it was, essentially an oligopoly), I think dealers’ and manufacturers’ interests are pretty well aligned, which pretty much obviates the need for company stores, in my opinion.

    • 0 avatar
      Steven Lang

      Sorry, but your are intentionally distorting the reality of the situation.

      1) In most states, Tesla does not have the right to do all the things that a dealership can freely do. I’ll be glad to reference a recent article that highlights the restrictions which, in essence, puts these outlets at a severe disadvantage in the marketplace.

      http://www.greencarreports.com/news/1087815_tesla-underground-texas-franchise-rules-make-model-s-owners-skirt-the-law

      2) I agree with you that a manufacturer should not compete with their own dealers in accordance with the agreements that are established between the manufacturer and the franchisee. At the same time, this should be a matter of contract law between the parties, and not a state law that is primarily designed to restrict competition.

      3) The only distribution channel that should be closed to the public, are ones where the seller (any seller) prefers to restrict access to certain buyers, or where there is a contract between a dealer and their franchisee that allows them exclusive (or first) access to the inventory.

      Again, that should be a matter of contract law between the parties. Not a matter of state law.

      4) The wholesale markets would function infinitely better if they were open to those who have the time, means and interest in going this route. Notice that I mentioned all three factors.

      I know countless members of ‘the public’ who know far more about a given type of vehicle than most dealers. In fact, I would personally rather do business with an enthusiast, than someone who has simply paid the state, and sells everything from Acura to VW.

      5) Everyday folks should not be forced to pay money up the yin-yang for the right to buy a vehicle at what is now called a dealer auction. You can overcome the sales tax issue by simply making it a title tax that is payable upon the immediate purchase of the vehicle. The title transfer could be done electronically at the auction along with the registration of the vehicle. The individual could simply get everything they need in terms of driving the vehicle right on the spot.

      However, a buyer should be able to show that they have the means to buy a vehicle before they have access to the marketplace.

      If that person wants to become a dealer and sell vehicles for a living, then they absolutely should be in compliance with those state and local laws. But that’s their decision alone. The laws of the land should not be used as an encumbrance that essentially creates an artificial two-tier system which, strangely enough, substantially lowers the returns of those who own the product.

      6) Finally, if you ever want to be educated on a hare brained idea, I would suggest reading up on the Smoot-Hawley tariff bill of 1929. What we have today in the car business is a restricted market that inflates the cost of purchase for the general public. It should not remain in place.

      • 0 avatar
        Pch101

        “this should be a matter of contract law between the parties, and not a state law that is primarily designed to restrict competition.”

        It’s up to the individual states to decide what they want to legislate. States rights are just awesome, until the states disagree with us.

        In any case, the dealers would argue — in this case, rightfully — that the franchise laws are designed to protect the dealership from multi-billion dollar automakers that could otherwise steal lucrative territories that were cultivated by the dealer. Suing Ford, GM, etc. wouldn’t be easy, and a franchisee’s business could be destroyed during the many years that it would take to get to trial.

  • avatar

    Forget about dealer franchise laws in the various states. Let’s pretend they don’t exist. What motivation do OEMs then have to sell direct to consumers and undermine their dealers? How would that work.

    Yes, dealer franchise laws exist in all states with varying degree of “teeth,” and with good reason given OEM abuse of dealers over the years. But those franchise laws have purpose outside of protecting dealers against direct sales by their OEM. OEMs have many reasons not to do that franchise laws or no.

    • 0 avatar
      redav

      “What motivation do OEMs then have to sell direct to consumers and undermine their dealers?”

      Bad question–you incorrectly tie selling direct and undermining their dealers. I believe this is an assumption based on lack of business creativity.

      I believe there is room in the market for both corporate-owned dealerships, privately-owned dealerships, and privately-owned non-dealerships (and maybe even more options). They just have to differentiate themselves and offer a unique product.

      For example, a corporate dealership may bank on premium service and selection–accountable straight to the corporation. They would obviously be the best informed, best equiped, best stocked, and get preferential products. They would more than likely charge MSRP without haggling. However, car companies are not in the business of running dealerships, so these would few and far between and exist more as showrooms. They would be flagship dealerships located only in the biggest cities and most premier locations (like stores on Times Square). Consumers who want something very specific, and are willing to pay for it will shop here, but everyone else will still go to their local, traditional dealership. The official Lego store doesn’t undermine every other toy store that sells Legos, so neither would these undermine traditional dealerships. Odds are, many car makes would not even want to set one up because it would require an entire new business division to run properly.

      Non-corporate dealerships would be as they currently are–they can wheel-and-deal, sell multiple makes, offer lower prices for service, they will be located all over the country, etc. They would still be official channels for warranty work and have full access to company diagnostics/tools, etc. But we all know that sometimes they get stumped and have to call in a corporate expert–who would happen to come from a corporate dealerships.

      The way I see it, if I can think up such a business model off the top of my head, then there certainly must be viable options where everyone gets along, benefits, and still delivers better options to the customer.

  • avatar

    For the record, independent used vehicle dealers are true small business men AND probably smarter than new vehicle dealers. AND the have their own lobbying group, the NIADA. I attend their yearly conference.

    RE:”We don’t have the luxury of exclusive market channels, overpriced plastic parts, or $1,300 service regimens that only truly require $200 worth of parts and labor.”

    AND in return for that independent dealers don’t have the tremendous overhead to drag around as new vehicle dealers. Be grateful for what you have, or don’t have.

    As a independent used car dealer, why would you want every Tom, Dick, or Harry clogging up the wholesale auctions, operating out of PO Boxes and garages, while you are trying to operate a REAL business?

    • 0 avatar
      28-Cars-Later

      “As a independent used car dealer, why would you want every Tom, Dick, or Harry clogging up the wholesale auctions, operating out of PO Boxes and garages, while you are trying to operate a REAL business”

      I see, don’t want any auction competition eh? Even if a state relaxed its dealer requirements to the point you had folks running “dealerships” out of PO Boxes, I still don’t think you’d have that many more takers. Indy used car sales is a complex business dealing with alot of BS from customers, repair shops, and gov’t. Heck after trade it doesn’t even have the highest reward vs the overall business risk. If you want to make it in that business you have to hustle at least six days a week to succeed. Someone like me would be pleased as a pig in sh** to be able to buy/sell 1 car a quarter at the auction without the huge overhead the dealer license demands.

      • 0 avatar

        And what do you suppose happens when you have private citizens at the wholesale auto auction?

        • 0 avatar
          28-Cars-Later

          When I worked in the business we used to take the junk we couldn’t sell at Manheim’s BAA or TriState to the public auctions, so I’d say they get robbed without realizing it.

          If the random public could get into a Manheim auction they’d have to learn the rules of the game in order to fill an account, bid, and deal with titling. Then you’d prob have a week or two of wannabes driving up prices and dealers holding back bids until the wannabes blew through their money. I don’t think it would be as chaotic as you’d think because 75% of the general population makes less than 30K a year and could not raise the capital necessary to bid on real cars in the first place, they require financing. Folks who could raise the capital, but don’t understand the business, wouldn’t last long.

          • 0 avatar

            If they understand the business, let them get a business license, a dealer’s license, a bond, insurance,etc. and knnock themselves out.

          • 0 avatar
            28-Cars-Later

            The original point I was responding to was your wit in implying how chaotic and detrimental to dealer business if Tom Dick and Harry were on the block bidding with you. If John Q Public intended to compete with your legitimate reselling operation I totally agree they play on the same field and go through the same endless regulation, business taxes, and bond issues.

            However the way the industry really works, is if a person desires a half decent used car for themselves, with or without financing, the public has almost no choice but to do business with a registered dealer. Public auctions, where they exist are most certainly going to be filled with junk, I know since I used to help fill them. Dealers do not hold not a true monopoly on used auto sales but its damn close. I honestly do not believe the general public would have the skills to go to a dealer auction, fund an account, pick out, bid, buy, and title a vehicle and that indy dealers (as a whole) serve a valuable purpose to society so please don’t think I’m bashing the dealer system. However I and others do have the skills to do what you do for ourselves but without connections to registered dealers we would be unable to do so, and that was my counter-point… its not in the financial interest of registered dealers to have ordinary people on the block with them.

  • avatar

    “Cell Phones. Guns. Computers. Real Estate. Even the clothes we wear and the medicines we take can be bought without the legal blessings of a franchise.”

    While that is technically true, with the exception of Apple stores and private transactions, the vast majority of cell phones, guns, computers and maybe even real estate is sold through some kind of independent agent or dealer. Even some new construction real estate is sold or leased through brokers and agents. In most cases it’s just not practical for manufacturers to sell retail. You’re adding all sorts of handling and transaction costs for individual sales.

    That’s why a lot of big companies that do “sell” directly use outside fulfillment companies to handle the actual deliveries.

    There are a total of three Apple stores in the Detroit metropolitan area of about 4 million people and that’s if you include Ann Arbor, 40 miles away. Hardly convenient for consumers. Yes, they do sell a lot of iPhones, but do they sell as many as Samsung, Nokia, Motorola, Huwai etc. combined? Everyone likes to tout Apple’s business model but they forget that a lot of Apple’s business model, going back to when Jobs wouldn’t license the Mac OS, is about having 100% of a fraction of the market.

    It just seems to me that the realities of manufacturing, distribution and retailing means that there’s going to be a need for middlemen.

    Also, having been in a situation where the dealership helped resolve warranty issues with the manufacturer, it’s nice to sometimes have someone with some skin in the game whose interests theoretically align with yours.

    At the same time, I don’t think there should be laws that prevent car companies from selling directly. That’s just another case, as with taxis and food trucks, of established businesses using lobbying and legislation to keep barriers to competition high.

    • 0 avatar
      Astigmatism

      “At the same time, I don’t think there should be laws that prevent car companies from selling directly. That’s just another case, as with taxis and food trucks, of established businesses using lobbying and legislation to keep barriers to competition high.”

      This is precisely it. If Apple wants to restrict their sales channels and put themselves out of business, God bless. Tesla should be no different.

    • 0 avatar

      RE: “At the same time, I don’t think there should be laws that prevent car companies from selling directly. That’s just another case, as with taxis and food trucks, of established businesses using lobbying and legislation to keep barriers to competition high.”

      So what do you think happens when OEMs sell direct to consumers? What do you think the dealers do? What do you think happens to the immense capital investment dealers have made on behalf of those OEMs? Which OEM wants to go first?

      • 0 avatar
        aristurtle

        “Which OEM wants to go first?”

        Tesla, obviously.

        • 0 avatar
          mcs

          >> “Which OEM wants to go first?”

          >>Tesla, obviously.

          I think there are others as well, they’re just being sneaky about it. You start with taking internet orders for the dealer. Next you do something nice for them like relieving the dealers of the burden of dealing with Scion and start setting up corporate outlets for Scion. Then you add Yaris, Corolla and on up. Then you leave them with Lexus.

          The trick is to make it a gradual process so no one notices.

          • 0 avatar

            As a matter of fact, Tesla has NOT attempted to transition from a privately owned dealer network to a factory owned one.

            There is no initiative for auto OEMs to take Internet orders for dealers. And there won’t be.

      • 0 avatar
        azmtbkr81

        “What do you think the dealers do?”

        They sue the pants off of the OEM for breaking the LAW, not a contract, which is why this doesn’t happen often. The problem is laws aren’t meant to insulate businesses from competition that’s the job of contracts which are much more easily changed and re-negotiated. These laws exist under the guise of protecting consumers from monopoly, all they really do is protect the consumer from getting a fair deal on a new car.

        Steve’s suggestions are a good start but most of these anti-competitive laws are at the state level so sending an e-mail to your state representative(s) will likely be more effective.

        • 0 avatar

          They could certainly sue any OEM for whatever reason. What laws would be broken if an OEM began selling direct to undermine its dealers? The first thing that would have to happen for an OEM to sell direct in a state would be for that OEM to get a license from the state. I guess they could allow the buyer to arrange transportation AFTER buying the vehicle. If a consumer is buying directly from an OEM located in some other state, how does the financing take place? Trade ins? Sales Tax? License and title?

          IF an OEM showed a commitment to such a policy, dealers would have recourse available under their franchise agreement. But in the real world, dealers would be looking for another franchise to handle with the idea of dumping the OEM stupid enough to undermine its own dealer body. This would be the death knell for that OEM. Follow the TrueCar saga if you want to know what can happen when dealers band together. All dealers would have to do to bring an OEM to its knees would be to refuse to order any vehicles from that OEM for a period of 90 days.

      • 0 avatar
        Beerboy12

        ” What do you think happens to the immense capital investment dealers have made on behalf of those OEMs”… cry me a river. That’s business for you.

    • 0 avatar

      You seem to forget how happy auto OEMs are with their dealer networks. Why would ANY auto OEM undermine that?

  • avatar
    olddavid

    Be careful what you wish for. There is a reason Warren Magnusen was elected so many times. Were the OEM’s to be able to compete with their own franchisee’s, how would you protect their sometimes generational equity from predatory pricing practices? Would you advocate a method whereby the manufacturer refunds the investment the principle has in his store – a la Oldsmobile? Who decides the “blue sky” value? Too many variables to consider throwing out this business model for what amounts to a boutique niche manufacturer. Musk has visions of grandeur that will not be sustainable. The day will come when seeing a Tesla will evoke “I wonder what happened to ….”.

    • 0 avatar

      People love their own dealer, but hate yours –

      http://autosandeconomics.blogspot.com/

      I believe Elon Musk is a smart guy and knows he can’t go mass market to achieve economy of scale without a dealer network financed by private capital. He will build a factory owned network and sell it out for large multiples when he sees the need for more capital to invest in product development. There won’t be enough money available for Tesla to do both.

      • 0 avatar
        Pch101

        When purchasing a car, the dealer asks/begs that the buyer give them top CSI scores. (These days, many of the luxury car makes tie holdback to CSI scores, as you well know.)

        Even I gave the dealer a top score, because that was part of our negotiation. Don’t mistake my willingness to honor my end of the deal with a bromance with the dealer. I would hope that JD Power and the industry would know better than to take those surveys too seriously.

        • 0 avatar

          So how would a dealer even know if you didn’t provide a good survey? Why would YOU, of all people, be concerned about a dealer asking you for a good survey?

          Perhaps a better question might be, “What makes YOU think you know what is in everyone else’s mind?”

          • 0 avatar
            Pch101

            “So how would a dealer even know if you didn’t provide a good survey?”

            Customers aren’t just surveyed in a vacuum. Dealerships coach and cajole customers to get top CSI scores, and will make efforts to placate the customer in order to get that top score.

            Surely you must have already known that. Are you pretending not to know, or are you really that naive about what car shopping is like from the customer’s side of the table?

      • 0 avatar
        olddavid

        Same with congressman. I guess it’s the devil you know syndrome.

      • 0 avatar
        gmichaelj

        @ruggles:

        “He will build a factory owned network and sell it out for large multiples when he sees the need for more capital to invest in product development. There won’t be enough money available for Tesla to do both.”

        Why can’t he fund both? If he can send rockets to space while building a car company, why can’t he build a dealer network?

        Is there some magic financing he can’t possess?

        If the investment can be made by others, why can’t Mr. Musk marshal those resources as well?

        • 0 avatar

          I guess there is the possibility for Musk to pull it off. But you’d be better off betting on world peace.

          He CAN build a dealer network, but not a large enough one to become mass market while reserving enough capital for product development. The wealthiest auto OEM in the world is Toyota, and other than its factory owned stores in Japan, mostly in and around Tokyo, no other OEM has even contemplated the notion. They know how much money has to be invested in a comprehensive dealer network.

  • avatar
    azmtbkr81

    For everyone who claims that franchise dealerships are protected due to the fact that they increase competitiveness how do you explain the pricing policies of Scion and Saturn?

    Wouldn’t the corporate-mandated MSRP and no-haggle policies be considered anti-competitive and monopolistic? If I pay the same price no matter what dealership I purchase from how is this fundamentally any different from an OEM owned dealership?

    • 0 avatar
      Pch101

      In the United States, it is illegal for wholesalers to set prices for retailers.

      GM tried to get around this by granting regional franchise agreements to individual dealers, in order to reduce the level of direct competition among individual Saturn dealerships.

      With other products, manufacturers often tie some sort of minimum price floor to advertising support payments. If the retailer advertises too low of a price, the ad money goes away. When prices are advertised as being “too low to advertise,” they aren’t kidding — the sales price is below what the manufacturer will allow.

      • 0 avatar
        azmtbkr81

        “In the United States, it is illegal for wholesalers to set prices for retailers.”

        That’s simply not true. From the FTC website:

        “If a manufacturer, on its own, adopts a policy regarding a desired level of prices, the law allows the manufacturer to deal only with retailers who agree to that policy. A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a “take it or leave it” basis.”

        • 0 avatar
          Pch101

          No, price fixing is illegal in the United States.

          The Leegin case in 2007 allowed wholesalers to establish a minimum price. But wholesalers can’t set the actual transaction price.

          • 0 avatar
            azmtbkr81

            Price fixing is collusion with competitors, not agreeing with a re-seller on the retail pricing of your own product. Huge difference.

          • 0 avatar
            Pch101

            Again, the Leegin case allows for price floors to be set, not the actual price.

          • 0 avatar

            Yeah I just read the LEEGIN CASE seems to confirm what I experienced working with contracts at a power sports dealer. Back in the early 2000 we had several companies with MAP pricing (minimum advertised pricing)policies, we could sell under this but we could not advertise under it. I would say the same is true for say Scion. In our case we did get threats from the manf that some of our cost discounts below normal wholesale would be pulled if we made a habit of selling under MAP out of our normal business area, but in the end I think that was just because we ticked off a particularity large dealer in another state on one sale and nothing came of it.

        • 0 avatar

          RE: “A manufacturer also may stop dealing with a retailer that does not follow its resale price policy. That is, a manufacturer can implement a dealer policy on a “take it or leave it” basis.”

          UNLESS said manufacturer has reached a contractual agreement with its dealers that allows those dealers to maintain its own pricing policy. Ever read a franchise agreement from auto OEMs to its dealers?

    • 0 avatar

      The FTC took a hard look at Saturn when it first started doing business and decided to leave it alone.

      OEM owned dealerships still have to pay the same prices for their vehicles as other dealers. In fact, they are separate corporations with all or some of the stock owned by the OEM. The licensing is NOT in the name of the parent OEM, but in the name of the separate corporation that owns the dealership. I don’t know how Tesla structured their own dealerships.

  • avatar
    PrincipalDan

    Thanks, Steve. Good article although I haven’t seen you on eBay in a long time but perhaps I’m looking at the wrong sellers.

  • avatar
    George B

    Steve, I probably wouldn’t bother trying to get the federal government to outlaw state dealer franchise laws. The lobbying effort would be too expensive with low probability of success. Instead I’d urge Elon Musk to start a California Ballot Initiative to change the law for his state. That would require signatures from 5% of registered voters to get on the ballot, but a ballot initiative bypasses the legislature. The advantage is ordinary citizens hate car dealers while politicians like large sources of campaign contributions. 24 states have a procedure to get a direct vote from the people for a law.

    http://www.iandrinstitute.org/statewide_i%26r.htm

  • avatar
    DeWitt

    Used car dealers have their own lobby. To imply that used car dealers are innocent of lavishing their time and attention on our lawmakers is disingenuous. In Georgia we have GIADA, which stands for Georgia Independent Auto Dealers Association. This last legislative session they were able to pass a new title tax on vehicles purchased from private individuals. This was solely to level the playing field between one purchasing a used car from a dealer, or purchasing a used car from an individual. The intricacies of this new law not only leveled the playing field, but gave used car dealers an advantage over private individuals offering a used car for sale.

  • avatar
    korvetkeith

    I suppose TTAC should be proud of the number of obviously paid shills that are here defending the status quo. But damn are they annoying.

    • 0 avatar

      Some of us just state the facts and make observations. Fact is, auto OEMs aren’yt about to undermine their own dealer body regardless of state law. Fact is, Tesla is free to own its own outlets in most states. IMHO they should be free to do so in all states. Fact is, Tesla will find out quite difficult to go mass market while owning its own dealer network of a size that might allow for mass market volume.

      And there might be some here who think they know a lot more about the issue than they do.

    • 0 avatar
      danio3834

      The “shills” you speak of generally are those who have experience in the industry and have the best insight. The opinions I’d be concerned about are those advocating for something they have little understanding of.

  • avatar

    RE: “its not in the financial interest of registered dealers to have ordinary people on the block with them.”

    No shit! Consumers can buy from dealers or private individuals. Why should they be allowed to a wholesale auction? The wholesale auction exists because dealers make that market. Let a wholesale auction start admitting non dealers and watch what happen?

  • avatar
    oldyak

    so…the incompetent ’boutique’ is going to service my Tesla rather than an incompetent dealer???
    How is the cost for staffing and overhead going to be paid for?
    I guess it will be incorporated into the price of the Tesla.
    So…you will spend X dollars more for the car to include the price of maintaining the facility….or X dollars more or less operating a dealership….
    I cant see much of a difference
    my 2 cents

  • avatar

    RE: ” What do you think happens to the immense capital investment dealers have made on behalf of those OEMs”… cry me a river. That’s business for you.”

    Tru Dat. Dealers stop ordering cars and bring the OEM to its knees in short order. There is a shareholder revolt and the BOD and execs who instigated such nonsense are soon on the street looking for new gigs.

  • avatar

    RE: “Customers aren’t just surveyed in a vacuum. Dealerships coach and cajole customers to get top CSI scores, and will make efforts to placate the customer in order to get that top score.

    Surely you must have already known that. Are you pretending not to know, or are you really that naive about what car shopping is like from the customer’s side of the table?”

    Sure they do. But don’t make the stretch that the positive reviews are strictly the result of “cajoling.” Finlay says it well in the column I posted. Dealers all make an effort to reach an accommodation with consumers. Its all about the effort to do business at a profit. BUT if YOU have a better way to accomplish this it could be a windfall for you as a consultant.

  • avatar
    beefmalone

    Clearly Mr. Lang you have, in medical terms, lost your fucking mind. Here in Mississippi you can pay $100 and get a wholesale license that lets you go to auctions with the big boys. The broke-asses discovered this neat little feature a year or so ago now everybody has a wholesale license and it’s a complete clusterfuck. Auctions have turned into mob scenes plus they all lose their license as fast as they get them after they figure out they can’t just sign the title over to a retail customer (or themselves) OR they just can’t pay. Fact is, people are way better off buying from dealers where they can actually test drive vehicles and have them inspected versus an auction where most get suckered into buying too-good-to-be-true deals then discover afterwards the true meaning of that little red “as-is” light that was flashing when they raised their hand.

    Next, you rail against the so-called monopolistic stranglehold the many hundreds of individual DEALERS have so your answer to that to give the dozen or two MANUFACTURERS a chance to have a real monopoly. Yeah, that makes alot of sense. So much for being able to shop around and get the best deal from competing dealers. In your little fantasy world everyone can just pay sticker and be done with it. Pure GENIUS.

    • 0 avatar

      Actually, not commonly known is that MANY southern states allow for a “wholesalers license,” and have for MANY years. One needs to get a bond, pay some license fees, and obtain a business address. With the dealer license, they can probably get an Auction Access card to go to the dealer only auctions. And that is exactly where the trouble begins as Mr. beefmalone has observed. Many of these new participants are rank amateurs and create chaos.

      I watched one of these amateurs buy a car with one side completed wrecked. The amateur was standing on the good side of the car. The auctioneer announced “a little scratch on the passenger side that will probably buff out.” At real auctions, these are attempts at humor and not meant to be taken literally. At REAL auction, you are responsible to put your own eyes on the vehicle. You but it, you own it, save for certain things that are auction guaranteed, or not, depending on red lights, etc. The amateur was bidding against himself for the last few thousand dollars. When he got the car outside and bothered to walk around his bargain, he flipped out. He ran back in to pitch a bitch with the auctioneer to the guffaws of veteran auction buyers and sellers.

      I’ve seen these amateurs buy a car, then ask the auction to hold it while they go for financing. As beefmalone has also pointed out, they have no clue about sales tax and what happens when you sell a car to a retail buyer as a wholesaler.

      Remarkable to me how the general public thinks the car business is so simple. Of course, they have all the answers BEFORE ever working in the business at a level where they might achieve some measure of real understanding.

      • 0 avatar
        Steven Lang

        So what you have is a license that doesn’t allow you to register or sell the car. It just allows you to eventually, someday, sell it to another dealer or auction while you drive around with a wholesale license plate.

        Cute. Real cute. The type of cute that is actually far more common in Indiana than Mississippi.

        By the way, I didn’t write about that in the article. But I will agree with you that it represents a half-assed stupid way of doing things. The revenue generators who came up with that idea must be real proud of themselves.

        Ruggles, the straw man in your argument existed maybe 15 years ago. These days you have condition reports, multiple photos of the vehicle, Carfax and Autocheck histories, and unique guarantees provided by a long, long list of high volume sellers.

        There are AS/IS vehicles as well. And AS/IS most certainly means AS/IS. As in whatever falls off the vehicle after it crawls away from the block is yours as well.

        So what do you do about that? You do the same damn thing you do in real estate. You hire those who know more than you do. Let a mechanic inspect the vehicle. Pay a wholesale buyer a fee for their services. Heck, these two things have been around for decades on end.

        Ruggles, if you have to use an extreme example for your point of view, then chances are you have an extremist opinion that has no basis in reality. Basic common sense is something that can’t be taught, but that doesn’t mean that the overwhelming majority of folks who can exercise that judgment should be penalized.

        • 0 avatar

          What you have is a license to function as a wholesaler. What’s wrong with that? Its a legitimate way to make a living. I have immense respect for real wholesalers. They are the ones with the best understanding of the market. It isn’t designed to provide auction access to end users. Imagine auctions undermining their dealers. Imagine auctions collecting sales tax and doing license and title use for people who aren’t wholesale channel, but end users.

          Cute? Just business. Straw man? WTF? Extreme examples? I’ve provided the facts of the market. Sorry if you don’t like it. Reality? I live it. Fantasy, like end user sales tax payers gaining admittance to wholesale auctions? Is that what you are proposing?

          • 0 avatar
            Steven Lang

            No one said that Ruggles. Nice try though.

            So you ignore my points, and then twist a point made by the fellow above into something that doesn’t exist.

            1) Most wholesalers do not carry a wholesale dealer license. What the overwhelming majority of wholesalers do is buy under the name of the dealer they are buying the vehicle for. Wholesale dealers who operate under wholesale licenses do exist, but they are exceptions to the rule.

            2) I highly doubt most folks who get a wholesale license in Mississippi and Indiana want to become wholesalers.

            They just want to get access to the auction. This is how the state government has arranged it, and they are just playing the game the way it is now designed.

            3) “Imagine auctions undermining their dealers.”

            I laughed out loud when I read this because, guess what, auctions already do this. There are plenty of auction personnel who will gladly screw over their dealers for the benefit of a factory or fleet lease account.

            Don’t believe me? Try to arbitrate a vehicle sometime that comes from one of those sellers. It’s the only time in a dealer’s life where vehicles with bent frames are merely “kinked”, broken odometers are magically able to heal themselves, and check engine lights are less accurate than an auction mechanic who can somehow read into the diagnostic system using his finger in an ET fashion.

            The auctions want sales. That’s it. End of story. If they could figure out a way to circumvent the dealers altogether in favor of the interest of factory accounts, banks and finance companies, they will do it quicker than a Bill Heard bait and switch.

            The public is far less sensitive than dealers when it comes to auction fees and a lot of them come with cash in hand. Unlike dealers who usually pay with drafts and checks… which sometimes bounce, the auction gets the benefit of immediate currency in the palm of their hand.

            What auctions don’t want in terms of the public is the obvious sore thumb sticking out. I have been through well over 3,000 auctions at this point in my life and never have I seen an auction operator pull up to a public individual who is inspecting cars at a dealer auction without a dealer tipping them off first.

            If the public individual ends up in the building, there ass is grass. But I know plenty of dealers who apparently “change out” their drivers and mechanics on a weekly basis at the auctions.

            The fact that is the market largely serves as a tariff on millions of folks who have the time, means and interest in buying their own vehicle. That may be an uncomfortable truth for you, but that is the reality of this business.

          • 0 avatar

            Not to complain, but this blog is damn hard to follow. There are Reply buttons AND reply boxes. Then I see some of my posts awaiting moderation.

            RE: “No one said what?” What are you talking about?

            How would YOU know most wholesalers don”t hold a wholesaler license. You take a poll? I have more experience with this issue than you could know, having lived many years in that part of the country holding an Alabama wholesaler license and helping MANY obtain theirs… mostly those engaged in the collector car business. Sales tax on a $1 million car is a lot of money. Wholesalers are allowed to retail a few cars each year by just assigning the title. In fact, I was responsible for Alabama for adjusting their rules for that particular license.

            I know you think you are an authority on auctions and your piece on shills was right on until you went off on a tangent I still don’t understand. I can assure you that ADESA and Manheim know they have no business if not for buyers. There will always be some who smuggle into the auctions, FAR LESS wince the auctions created the Auction Access system. Yes, I have one of those. I’m sure you can cite anecdotes to support anything, but the auctions will always protect dealers over consignors. I’ve been an auction rat for over 40 years. I probably have a better idea what goes on there than you. My everyday life involves interaction with ADESA and Manheim daily.

            Circumvent dealers? Are you kidding? Who do you think buys the cars? There is no auction without the dealers. I have written at great length on auto auctions, urging dealers to support the auction and NOT sell directly off the lot to wholesalers.

            The reality of the business is that end users have no business at a wholesale auction.

          • 0 avatar
            Steven Lang

            “How would YOU know most wholesalers don”t hold a wholesaler license. You take a poll?”

            I know because I have been working the auction side of the business since 1999. Most wholesalers who have been at it for a while will use more than one number at the auctions. Each number they buy under represents a dealer who they wholesale to.

            There are some large operators who will develop a list of vehicles they have purchased and attempt to sell the inventory after the auction. But the primary way of purchasing vehicles for most wholesalers is to simply buy under the dealer name, or their own name using a regular used car dealer license.

            I think your experience has slanted you away from the realities of what actually takes place at the auctions.The public can already buy directly at salvage auctions, public auctions (which franchise dealers and finance companies already send their vehicles to), and even dealer auctions that will often times sell the same vehicles to the public as they offer to dealers.

            The last example typically happens with a second auction that takes place during a different day of the week. ADESA has already attempted to penetrate this space in the past and the two largest salvage auctions in the country have pretty much bent over backwards to try to get the public in the door.

            https://www.iaai.com/support/publicauctionmap.aspx

            http://www.autobidmaster.com/

            Manheim has recently developed a system that allows dealers to have a de facto car buying service that lets individuals buy the vehicles sight unseen. If the public buyer flakes out, or if the dealer decides he doesn’t want to retail the vehicle, Manheim will refund the purchase cost of the vehicle so long as the decision is made within 21 days.

            http://www3.dealermatch.com/

            In terms of experience, I started out as a driver in grad school. Then I did pretty much all the major day of sale positions at a nearby public sale before becoming established with half a dozen auctions here in the Southeast as a ringman and later, a relief auctioneer. I also did public auctions, But about 2 years after my start, Capital One Auto Finance offered to pay for 80% of my MBA and given that Duke is an expensive school, I decided to take them on that offer.

            I traveled the country appraising, inspecting, and liquidating about 10,000 vehicles a year. I also became a dealer, and since I was traveling the country, I got to speak with a lot of long-time successful dealers, auction managers and an endless number of entrepreneurs about their operations.

            I had already been buying my own vehicles under a small scale and once I got my dealer license, I expanded my work to a much larger degree. In 2005, after I met my tuition reimbursement requirements, I left Capital One to become a full-time dealer. Then about four years later, I started to operate a dealer only auction where I received 50% of the profits. We managed to beat IAA on a test and got all of the Titlemax business. But unfortunately, I picked the wrong partner. That experience taught me a valuable lesson on what NOT to do in this business.

            These days I operate a retail dealership a few miles from my home, and yes, I do wholesale a bit. But I’m one of those strange creatures that prefers the retail side of the business. I have a lot of good relationships in this business, and like you, I look at myself often times as a “connector” who tries to make two parties with similar interests have the opportunity to work together on a project. There are auction theory studies done by MIT and Duke that I helped get off the ground, and hopefully a young professor from Stanford, who is currently working with Ebay Motors, will get another opportunity to develop studies that are sometimes too sensitive or esoteric for the 800 pound gorillas in this business to develop internally.

            I disagree with you vehemently on the public issue. Auctions primarily represent the sellers and I see the larger operations moving gradually away from the dealer only model. It is already happening to a large extent. But I do realize your unique experience as a lobbyist in our industry, and I sincerely welcome your commentary here at the site.

          • 0 avatar

            I don’t know where to start. Scrolling to find this post took forever. It is much easier to copy and paste your post into the reply box and respond to it that way. But here we go.

            RE: ““How would YOU know most wholesalers don”t hold a wholesaler license. You take a poll?”

            I know because I have been working the auction side of the business since 1999.”

            I’ve been working it since 1970. I regularly have lunch with guys named Schwartz and Hallet. Guys like Webb, Kontos, and Carli are personal friends. Close friends have been auction owners over the years. I have an Auction Access card and visit auctions regularly. 20 years ago I wrote a book called “Everything You Wanted to Know About the Car Business, but Didn’t Know to Ask.” Yes, it was a “how to” manual on how to get a wholesale dealer license in MS, AL, SC, and TX. My little endeavor caused the dealer licensing law to be changed in AL. I sold the manual over Prodigy. I’m not a rookie to this issue.

            RE: “Most wholesalers who have been at it for a while will use more than one number at the auctions. Each number they buy under represents a dealer who they wholesale to.”

            There is a difference between a “wholesaler” and a “buyer.” Sometimes one person does both. I might go to the auction to buy cars for a particular dealership, while at the same time buying cars for my own account. I might buy 25 cars for a dealer and 5 for myself. I sure don’t want to there to be any confusion as to who’s account the cars should go on. Typically, when buying for a dealer, that dealer sends a check to the auction, unless they are late models and go directly on his floor plan. I sure don’t want 25 cars hitting my own floor line.

            RE: “There are some large operators who will develop a list of vehicles they have purchased and attempt to sell the inventory after the auction. But the primary way of purchasing vehicles for most wholesalers is to simply buy under the dealer name, or their own name using a regular used car dealer license.”

            Yes, this is certainly true but there are MANY pure wholesalers out there. Any wholesaler with a large operation has probably established a location and gone ahead and acquired a complete used car license.

            RE: “I think your experience has slanted you away from the realities of what actually takes place at the auctions. The public can already buy directly at salvage auctions, public auctions (which franchise dealers and finance companies already send their vehicles to), and even dealer auctions that will often times sell the same vehicles to the public as they offer to dealers.”

            Actually, I was operating my only bid only auction as a way to wholesale dealership vehicles as far back as 1992. I gave up the idea and figured out a MUCH better way. However, there is no doubt there are alternatives for consumers to buy here and there on a bid basis. But they will NEVER be a factor at the major auctions. I can guarantee that. So can Schwartz and Hallet.

            RE: “The last example typically happens with a second auction that takes place during a different day of the week. ADESA has already attempted to penetrate this space in the past and the two largest salvage auctions in the country have pretty much bent over backwards to try to get the public in the door.”

            I make no comment on the salvage auctions as I want nothing to do with them, and never have.

            RE: “I disagree with you vehemently on the public issue. Auctions primarily represent the sellers and I see the larger operations moving gradually away from the dealer only model.”

            Good luck with that. Despite your experience, I think you are dead wrong on that. Try having an auction without buyers. I have been a strong advocate for the auctions, writing regularly about the evils of wholesaling off the lot. If I really thought there was a movement to allow private individuals into the dealer auctions I’d make it my full time job to nip it in the bud. I see no danger of that.

            RE: “It is already happening to a large extent. But I do realize your unique experience as a lobbyist in our industry, and I sincerely welcome your commentary here at the site.”

            Lobbyist in our industry? Where do you get that idea? I’m a semi retired guy who stays busy doing things I like to do. I’m proud of our industry and want to improve it. I’m embarrassed for the negative things and want to improve those things to. If I catch a dealer breaking the law, I’ll turn them in in a heartbeat. I don’t care if it is fraudulent advertising, laundering money, spinning odos, or what. That said, I understand the relationship of private business people and their OEMs. I also understand there is a niche of consumers who will never be satisfied. But a lobbyist for the industry? Where did that come from? If anything, I lobby NADA in favor of common sense. I did speak out loudly on the dealer termination issue, but that was nothing but writing columns. I supported Tammy Darvish in print, but was not involved in her on the ground efforts. I helped on the TrueCar issue, which is ongoing, but I wouldn’t call that lobbying. Perhaps you bought into some baseless accusations some here stated as if it were fact?

      • 0 avatar
        beefmalone

        For a wholesale license you don’t need ANYTHING other than $100. You don’t even have to create a corporate entity or get a business license. You can get an Auction Access ID with it too.

  • avatar
    Landcrusher

    Much of our modern frustration is owed to a really dumb bit of misunderstanding of monopoly and free markets and what they really are. The courts have helped a lot, but also hurt a lot by not being quite good enough.

    Frankly, I don’t care if you have a monopoly on Hatch chili pepper sales on your block, and neither should anyone else except to care if it was obtained violently. There are other peppers, and I doubt you can stop people from going down the street to buy the Hatch ones. This may sound silly, but its worth remembering.

    There are now too many car manufacturers for any of them to have a monopoly. Furthermore, having a monopoly on sales of one sort of car is not a monopoly at all.

    If dealers lost their stranglehold on car distribution because the states stopped protecting them, they wouldn’t just go away. They know their business and bring value to both manufacturer and buyer. They would likely be forced to change, and become better actors, but they wouldn’t just disappear.

  • avatar

    RE: “There are now too many car manufacturers for any of them to have a monopoly. Furthermore, having a monopoly on sales of one sort of car is not a monopoly at all.”

    The FTC has a different view on this. They believe that competition among like models is in the consumer interest. Of course, they may or not be correct.

    RE: “If dealers lost their stranglehold on car distribution because the states stopped protecting them, they wouldn’t just go away. They know their business and bring value to both manufacturer and buyer. They would likely be forced to change, and become better actors, but they wouldn’t just disappear.”

    So if the states stopped protecting them, what on earth would prompt auto OEMS to undermine their dealers? What would they gain? What would they lose?

    • 0 avatar
      Landcrusher

      I give no special credibility to the FTC. I think the idea that a monopoly on Honda sales would harm the consumer is flawed.

      I think you missed my meaning on the second bit. I think most OEMs would stick with their dealers if the laws changed. I don’t believe most of them want to go direct. They might try various things, and likely a lot of them would try some of the same things in bad ways for themselves or the consumers because of externalities or regulations or whatever.

      The worst that would happen would be OEMs undermining their dealers in ways they don’t think will hurt the dealers, but in ways the dealers think does hurt them. It leads to bad behavior all around.

      Somebody, likely small, would go direct. The idea that it would hurt consumers in ways the dealers wouldn’t do is just warped. Any malfeasance by an OEM is of course more obvious and tragic, but seriously, the market responds. There are also all sorts of bad acts that we now accept as customary just because the dealers all do it. What’s the difference?

      • 0 avatar

        RE: “I think you missed my meaning on the second bit. I think most OEMs would stick with their dealers if the laws changed. I don’t believe most of them want to go direct.”

        What you don’t seem to get is that dealers wouldn’t stick with their OEM if that OEM began undermining them.

        They might try various things, and likely a lot of them would try some of the same things in bad ways for themselves or the consumers because of externalities or regulations or whatever.

        The worst that would happen would be OEMs undermining their dealers in ways they don’t think will hurt the dealers, but in ways the dealers think does hurt them. It leads to bad behavior all around.

        Somebody, likely small, would go direct. The idea that it would hurt consumers in ways the dealers wouldn’t do is just warped. Any malfeasance by an OEM is of course more obvious and tragic, but seriously, the market responds. There are also all sorts of bad acts that we now accept as customary just because the dealers all do it. What’s the difference?

        RE: The FTC – They don’t care if you or anyone else gives them credibility. They are running the show whether we like it or not.

        • 0 avatar
          Landcrusher

          Last bit first, who is running the show has nothing to do with right or wrong or optimal or practical. FTC is wrong on this stuff and has been a long while. They likely care even less about my opinion than I do theirs, but not much less.

          Now for undermining the dealers, I happen to have a lot of experience in this matter. What do you mean by undermine. I can tell you the likely response from the dealers.

  • avatar

    RE: “The “shills” you speak of generally are those who have experience in the industry and have the best insight. The opinions I’d be concerned about are those advocating for something they have little understanding of.”

    Shills can be agents of the seller, the seller himself, auction ring men, or no one at all. AND YES, there are MANY who don’t understand the business handing out advice.

  • avatar

    RE: “What motivation do OEMs then have to sell direct to consumers and undermine their dealers?”

    Bad question–you incorrectly tie selling direct and undermining their dealers. I believe this is an assumption based on lack of business creativity.

    I believe there is room in the market for both corporate-owned dealerships, privately-owned dealerships, and privately-owned non-dealerships (and maybe even more options). They just have to differentiate themselves and offer a unique product.”

    You incorrectly come up with an assertion that is certainly based on creativity, just not on facts on the ground. Many outsiders think they know better how to run a car store or the car business. They receive a rude awakening once they put their own money on the line and get a good look at how things actually are. Have you heard much from Michael Dell or Bill Gates after they actually bought into the car business? Have you followed the plight of all the companies funded by VC, or even the OEMs themselves, that have failed miserably?

    RE: “Odds are, many car makes would not even want to set one up because it would require an entire new business division to run properly.”

    No shit. And that’s just for starters. There are stockholders and their partners… you know, their dealer partners, the ones who finance and buffer their production.

    RE: “But we all know that sometimes they get stumped and have to call in a corporate expert–who would happen to come from a corporate dealerships.”

    A corporate expert? Are you kidding me? When has any factory corporate guy EVER proven they know how to retail cars? EVER? The corporate stores are always losers.

    RE: “The way I see it, if I can think up such a business model off the top of my head, then there certainly must be viable options where everyone gets along, benefits, and still delivers better options to the customer.”

    Anyone can dream up business models. The trick is getting the idea funded and working. This blog is full of geniuses who think they have the answers for retailing new cars.

  • avatar

    RE: “The key problem with your argument is this: Consumers manage to buy any number of goods and services without going through a legally mandated dealer.”

    Dealers weren’t legally mandated. They were sought out by auto OEMs. There are NO goods and services that can be purchased direct from a manufacturer that require the taking of trade ins, complex financing issues, and the maintaining of multi million dollar inventories AND servicing and warranty work. Even Tesla finds it necessary to have locations away from their factory, and they’re just getting started.

    RE: “There’s absolutely no reason why a consumer shouldn’t be able to buy a Honda vehicle directly from Honda the same way they buy a cell phone directly from Apple or Samsung.”

    There are all sorts of reasons and Honda knows those reasons. If you don’t know the reasons it tells us you have no experience in the field and are engaging in wishful thinking, not practical reality.

    RE: “Cars are not some mysterious and mystical consumer good that requires a legally mandated intermediary to sell.”

    Again, dealers exist because OEMs needed them and sought them out, NOT because they were legally mandated.

    RE: “There’s no reason why consumers should be barred from buying direct or why manufacturers should be barred from selling direct.”

    Only common sense.

    • 0 avatar
      Landcrusher

      Incorrect, AFAIK. My understanding is that many states mandated independent dealers a long time ago.

      • 0 avatar

        RE: “My understanding is that many states mandated independent dealers a long time ago.”

        HUH? Every state requires dealers to be licensed, bonded, and insured. OEMs established the dealer networks, not the states. If you’re talking about independent used car dealers, they also need to be licensed. IN fact, a private individual can’t sell over a certain number of cars each year without getting a dealer’s license. Besides, jumping title is frowned on.

    • 0 avatar
      Landcrusher

      Also, your response about Honda is just rude, and therefore suspect. If you are here to discuss the issue then discuss it, not just throw insults.

      • 0 avatar

        RE: “There are all sorts of reasons and Honda knows those reasons. If you don’t know the reasons it tells us you have no experience in the field and are engaging in wishful thinking, not practical reality.”

        This is rude? Insulting? Would it make you feel better if we let you pretend you know what you are talking about?

        The LAST thing Honda will do is sell direct to consumers in conflict with its dealer partners. What possible reason would Honda have to do such a thing?

        • 0 avatar
          Landcrusher

          Due to the fact that you keep jumping out of threads, you now don’t know who you were being rude to, but now you are being rude to me. I do know lots of those reasons. I don’t doubt you do, but your behavior here tells me I no longer should care what you know since it has become obvious you can’t have a civil discussion nor cogently argue.

          Goodbye

  • avatar

    FLASH: “Tesla has hired Doug Field to be its Vice President of Vehicle Programs, responsible for driving development of new vehicles. Doug is an accomplished leader and engineer of innovative, high-technology products, most recently serving as Vice President of Mac Hardware Engineering at Apple. Doug led the development of many new products at Apple including the latest MacBook Air, MacBook Pro, and iMac.”

    “Doug began his career as an engineer at Ford Motor Company.”

    This means Doug knows the difference between developing gadgets and developing new vehicles. I suspect he knows the difference in cost. When did they ever have to crash test a MAC, or pass EPA emissions and CAFE mileage standards?

    I also suspect Doug has mastered basic arithmetic and can quantify the cost of a factory owned distribution network and how that might conflict with funding to develop new vehicles at a time when established and really well funded OEMs have decided they want to play too.

    I sincerely doubt that Doug LED Apple development. I think Steve Jobs thinks Jobs did that.

    At any rate, time will tell and things seem to be developing rapidly.

    • 0 avatar
      mcs

      >> When did they ever have to crash test a MAC, or pass EPA emissions and CAFE mileage standards?

      Take a look at the back of your monitor or maybe the back of the power supply brick to whatever device you use. Notice the crap-load of little logos – all governmental or industry standards/tests. Mileage standards? Ya, I’m sure that CAFE is a real tough one for Tesla.

      >> I sincerely doubt that Doug LED Apple development. I think Steve Jobs thinks Jobs did that.

      Jobs served as a visionary. Putting together schedules and resources to design and grind out a product isn’t the same job necessarily. Usually takes a different mindset. Been there myself. The high level visionary has loads of ideas and a time frame. The head of engineering counters with what can be done in that space of time and what it’s going to cost. You negotiate, then execute the resulting plan.

  • avatar

    For those who want to claim consumers have no resource against bad dealers-

    http://usedcarnews.com/newsletters-sp-719629445/news-now/6955-bbb-warns-about-online-dealer?utm_source=contactology&utm_medium=email&utm_campaign=BBBWarnsAboutOnlineDealer

    Then there’s YELP, DealerRater, and a HOST of others. Consumers have NEVER had the tools they have today. They have proprietary information and the ability to shop. We have telephones that work, chat, and email. A consumer can get information and find inventory from dealers miles away. They are able to buy a car and pay a smaller percentage profit margin than at any time in history.

    But instead of being overjoyed, consumers are unhappier than at any time in recorded and surveyed history. That should tell you something about consumers and human nature.

  • avatar

    RE: Author: Landcrusher
    Comment:
    Last bit first, who is running the show has nothing to do with right or wrong or optimal or practical. FTC is wrong on this stuff and has been a long while. They likely care even less about my opinion than I do theirs, but not much less.”

    Trust me, they don’t care.

    RE: “Now for undermining the dealers, I happen to have a lot of experience in this matter. What do you mean by undermine. I can tell you the likely response from the dealers.”

    No OEM is going to go into competition with its own dealer body by selling direct. It won’t happen. Forget about the state laws, that vary from state to state. In OK Ford was allowed to own all of its own points in OKC and TUL. The stores were separate corporations, owned by The Ford Collection.” This was all completely legal, and was a grand experiment. Ford tried the same thing in Indy, SLC, and San Diego. They lost hundreds of millions of dollars. Dealers sat by calmly, after some initial dust up at the Federal level, and watched Ford fail. Ford failed so badly they won’t be trying it again any time soon.

    Other OEMs learned the same lesson. The stores were run be real car people, handcuffed as they were by Ford corporate bureaucracy and marching orders. The prices they tried to charge must have been to high, because the consumers took the Ford Collection prices to privately owned competitors a few miles out to beat the deal. So Ford kept lowering the prices at the company stores. The consumer behaviour never changed. They finally figured out consumers can’t be satisfied in an environment where the price is negotiated.

    So what would happen if Ford decided to buy every dealership in the nation? What would the FTC say about that? More importantly, where would Ford get the money? Better yet, WHY would they want to? Their dealers are their partners.

    • 0 avatar
      Landcrusher

      That was my point, I care what they think only because they are screwing things up. Little more than not at all. How you didn’t get that concerns me.

      As for the undermining, you are weirdly now taking my side. I started this pointing out most OEMs would keep their dealers. It’s you that brought up undermining. Still, your point is suspect. If you think no one would try it because Ford tried and failed you are much younger than you look. They will play games. They always have and always will.

      • 0 avatar

        Who is screwing things up? The FTC? Screwing things up for whom?

        Exactly how would Honda “keep their dealers?” Assume for a moment there is no FTC. No dealer franchise agreements, which are contracts by their very nature. Honda doesn’t own those dealerships. If Honda started direct sales what keeps Honda dealers from dumping the OEM? What business person would tolerate having to compete with its supplier after having made such a huge investment to handle its products? If that isn’t undermining its own partners, I don’t know what is.

        Who will play games. Business is not a game unless you’re playing with Monopoly money. I’ll say it again. No OEM will undermine its partners. WHY WOULD THEY? What would they gain? What would they lose?

  • avatar

    RE: “When did they ever have to crash test a MAC, or pass EPA emissions and CAFE mileage standards?”

    Take a look at the back of your monitor or maybe the back of the power supply brick to whatever device you use. Notice the crap-load of little logos – all governmental or industry standards/tests. Mileage standards? Ya, I’m sure that CAFE is a real tough one for Tesla.”

    Still insisting there is little difference between developing and selling gadgets compared to vehicles? Never said CAFE was tough for Tesla. It is an expense. You want to compare the costs of compliance between gadgets and vehicles? REALLY?

    RE: “I sincerely doubt that Doug LED Apple development. I think Steve Jobs thinks Jobs did that.

    Jobs served as a visionary. Putting together schedules and resources to design and grind out a product isn’t the same job necessarily. Usually takes a different mindset. Been there myself. The high level visionary has loads of ideas and a time frame. The head of engineering counters with what can be done in that space of time and what it’s going to cost. You negotiate, then execute the resulting plan.”

    I repeat, I think Jobs thinks Jobs led development.

  • avatar
    EchoChamberJDM

    Agree with the points regarding vertical integration as beneficial for Tesla, most dealers make a reasonable return on sales and profit margin. Elon Musk is sharp enough to realize he should keep profit for Tesla. If Tesla had independent dealers, that retail margin would then stay with the independent dealer…but the way Tesla operates now, that margin goes to Tesla corporate. Should that margin be carved away from Tesla’s financials, and handed over to independent dealers, look for them to raise prices another 15%.
    That said, Elon Musk is an virtuoso at marketing puffery and hype; notice whenever anything bad is said by the press (NY Times review, fires, false Q1 sales, etc) about Tesla there are immediately 2 or 3 positive news releases from the company to refocus Wall St. and keep the stock moving higher…..and the Tesla owners forum is an extremely effective filter for vetting of any problems with the Model S (that Tesla doesn’t want discussed in a public forum like Edmunds.com or other easily accessible site)….and the California DMV inquiry into misleading advertising, clear violations of FTC rules, etc. etc……..Just don’t look behind the Tesla curtain, you will find there’s nothing of substance there!

    • 0 avatar

      RE: “If Tesla had independent dealers, that retail margin would stay with the independent dealer…but the way Tesla operates now, that margin goes to Tesla corporate. Should that margin be carved away from Tesla’s financials, and handed over to independent dealers, look for them to raise prices another 15%.”

      Not only would the retail margin stay with Tesla if they owned their own sales and service points, so would the expenses. Consumers typically have no understanding of the expenses involved with operating a point. OEMs know. They get the dealer financials monthly. And they want no part of it. In addition, they don’t want the temptation that goes with having to own all of their own available inventory. That is a killer. They need the dealer financing of the production buffer.

    • 0 avatar
      Pch101

      “Should that margin be carved away from Tesla’s financials, and handed over to independent dealers, look for them to raise prices another 15%.”

      No, it’s more likely that average retail transaction prices would fall because consumers would be able to play off dealers against each other. Tesla corporate would have lower revenues per unit because it would have to sell cars for wholesale instead of at retail. As Tesla is too small to use volume to offset the lower margins, it would be even more unprofitable than it is now.

      • 0 avatar

        Tesla’s costs would be a LOT less as well in the case of them having a real dealer network, leaving precious capital available for product development.

        • 0 avatar
          Pch101

          Dealer networks require captive financing. Tesla is not in a position to pay for that.

          As a small company with an oddball niche product, Tesla has no choice but to sell its own cars. If the cars become more mainstream and volumes rise, then Tesla would almost certainly want dealer franchises at that point.

          If the company succeeds and is acquired by a major automaker, then I would expect that buyer to build that dealer network. But a small Tesla is better off without dealers.

          • 0 avatar

            Finally we mostly agree, but Tesla could arrange for a “captive” in the same way Chrysler has allied with Santander. In fact, Tesla already has numerous financing arrangements. But they have taken a dangerous step with guaranteeing their own residual values.

            But for now, I agree Tesla is better off factory maintaining its own dealer network.

  • avatar
    DeWitt

    I have been wholesaling going back to the early 90′s. I have been at the same location in Cleveland TN since 2002. I buy cars out of ADESA in York, PA and Bel-Air auto auction. Every single car I purchase is on my license. Once they are unloaded and stocked-in here in Cleveland I sell them to BHPH stores in the Chattanooga area, or to cash customers. I do not do BHPH. Additionally, the Chattanooga area requires emissions and that is something I don’t want to mess with. Up here in Bradley County we have no emissions required, and I can sell to the locals. My point is, I am a wholesaler and I am a licensed used car dealer. I see no other way that any legitimate wholesale operation can work without a license.

  • avatar

    I can’t speak for other states, but in AL it used to be you had to get a dealer business license from the state, about $15. Then you need a county license, $45. to $300. depending on the county. Before you start the process you have to get a bond, about $85. Dealer plates were $1 each. Then you get your Auction Access card to go to the dealer auctions. Along the way, you might need some cash or a floor line to pay for inventory.

    Is that typical in other southern states?


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India