By on October 23, 2014

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Tuesday, Michigan governor Rick Snyder signed into law a bill that included language reinforcing a direct sales ban established over 30 years ago.

Wednesday? Detroit billionaire Dan Gilbert — best known as the majority owner of the Cleveland Cavaliers who penned a letter in Comic Sans typeface in response to LeBron James making the decision to play for the Miami Heat — had a few words to say about this decision.

According to Detroit Free Press, Gilbert was interviewing fellow NBA team owner Mark Cuban while guest-hosting an episode of CNBC’s “Squawk Box” when he brought up the signing of HB 5606, now known as Michigan Public Act 354 of 2014, proclaiming the move “sends a bad message” as far as how much influence lobbyists — especially the auto dealer lobby — have over legislators. He added that Michigan dealers should “man up” and compete with Tesla instead of forcing the EV automaker to sell through a franchise network.

Morgan Stanley automotive analyst Adam Jonas agreed with Gilbert in a note to the financial giant’s clients, stating it was only “a matter of time” that the issue of direct sales — and Tesla’s link to them — would “likely mushroom into a national issue.” He also said legislation protecting the status quo “exist to support the weakest link in the network.”

On the other side, Detroit Regional Chamber of Commerce president Sandy Baruah believes Detroit “should have a business environment where all participants play by a common set of rules.” The chamber also supported the signing, and says it looks forward to the further examination Snyder called for in light of the reinforcement.

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83 Comments on “Gilbert Calls Out Dealers In Wake Of Reinforced Michigan Direct Sales Ban...”


  • avatar
    schmitt trigger

    Someone more knowledgeable about the new auto retail business can correct me if my assumptions below are wrong….

    I for one, would like to have an automotive purchasing experience similar to -to put an example- what Dell offers for computers. You can purchase via the web either a pre-packaged computer with certain features, or if you are willing to spend more money and wait a little longer, you can customize it yourself.
    That way, one could purchase the car one exactly wants or needs, and not to have to buy the one which the dealers have in inventory.

    Speaking of inventory, that would be a significant bonus for automakers. They would not blindly build model options that become lot queens, while being able -almost in real time- to predict exactly what models have demand and which ones do not.

    • 0 avatar
      jf1979

      Nearly every manufacturer will let you special order a vehicle, for example my brother just ordered a manual transmission 4×4 Jeep Patriot, a vehicle probably rarer than some Ferarri models. The only manufacturers that I know of that don’t let you special order are Hyundai and Kia.

    • 0 avatar
      Landcrusher

      This actually has little to do with dealer mandates. It’s really up to the manufacturer. If the manufacturer offers it you will can find a dealer to take a custom order.

    • 0 avatar
      tedward

      It would make for some interesting changes to the fleet mix that is for sure. There may be regulatory reasons for this being a difficult row to hoe for the manufacturers though. Psar or Pch commented once about certain options needing to be included in EPA testing once they achieve a certain proportion of the fleet mix. Heavy sunroofs for example, would have to be part of the fuel economy test if they went over 30% (or something like that.)

      I’d be interested in hearing specifics about that if anyone can chime in.

    • 0 avatar
      87 Morgan

      I think one of the biggest issue you have making a comparison to an online purchase of a computer vs a car comes down to the ease with which you can return the computer if for some reason it is not to your liking vs returning a car if it is not to your specific satisfaction leve. Once a ‘new’ car is sold it no longer has a MSO and now has a title the purchaser has or their lender more specifically.
      Even if a car has 15 miles on it and is titled you have an item that is worth vastly less than the same unit which has a MSO even if said unit has 987 miles on it from demo miles.
      The two primary reasons:
      1. The biggest issue: the inservice date is the day the car is sold. So you have a car that even though it has had little to no use and was returned immediately is now used. If the car sits for 8 months for the next buyer (largely due to the options selected by the original person who ordered the car specific to their needs/wants; if they wanted a car that was ‘normal’ they would have bought one of the many in the lot). The next buyer of the car does not get the 3 year 36k factory B2B warranty. They get, in this example, a 28 month 36k factory B2b warranty; using the example of the car sitting for 8 months for the next buyer. To those of here this is perhaps a non issue, but all of us would expect a discount due to the diminished value of the warrant. This becomes a money losing proposition for the factory and or the dealer. Hence why you can’t return a new car if you decide in a weeks time you don’t like it

      2. Factory incentives: you can only collect a rebate on a car once. Once the vehicle is ‘punched’ or reported sold there is ussually no going back. So, if the ride had a 5k rebate or what have you it is now worth less to the next buyer even if it is for intents and purposes still brand new.

      3. Factory financing: 0% as an example is no longer available for a used car unless the factory has some sort of CPO program.

      The whole flaw with the ordering process is in fact the customization facet of the transaction. You can seem similar examples in the custom home market. Athletes as an example are notorious for building amazingly custom homes for multiple of million dollars. They get traded to a new team and the home sells for half of the build cost even though it is only a few years old. Homes obviously wear out a lot slower than a car. The reason is the next owner knows they will have spend a load of dough to recustomize the home. Whereas the rest if us normal humans buys a second hand home and maybe puts in new carpet (new tires) and puts up some new paint (quality wax and buff detail) to bring the pop back and make the home look new.

      One guys thoughts in the retail auto industry….

    • 0 avatar
      mkirk

      You can get special orders but if you listen to the fast talk at the end of a car ad it usually ends with “must take delivery from dealer stock” so you won’t get all of that cash on the hood of nearly any new car sale.

    • 0 avatar
      challenger2012

      People please! Take a look from the dealers’ point of view. The reason the dealers need a monopoly to protect their businesses is that the cost of business keeps going up. Look at the vote tally for this bill. Do you realize how much it costs to buy an entire state legislature? It ain’t cheap you know.

    • 0 avatar
      Rnaboz

      This is exactly why I factory ordered a 2013 MINI Cooper S. I got what I wanted not some predetermined “packages”.

    • 0 avatar

      There is too much common sense in your suggestion to pass through US legislators. In Europe it is possible though.

  • avatar
    Steve_S

    Unless you work for our in some way owe your livelihood to auto dealers you hate them. At least that is the general impression I get. The only thing we really need is a place to see a few sample models, test drive them and a place to make warranty repairs. All dealers should be auto service centers for the brands they offer and have a small inventory on the lot.

    Other than that they help you pick the options you want and you order from the manufacturer. The manufacturer sells directly to the customer for about the same as they sold to the dealer, no holdback, floorplanning, hidden money etc.

    Cheaper cars for the customer, no dealer network sales force to worry about. No haggling other than your trade-in.

    Yes you have no haggle dealers but then you know they won’t be the best price.

    Wouldn’t it be nice to go buy a Challenger Hellcat for $55k or maybe even less? There is no invoice price, MSRP, no market adjustment. Just the manufacturers price unless they put it on sale if it’s moving slowly.

    • 0 avatar
      Astigmatism

      I for one eagerly look forward to ruggles’ reply asserting that removing an independent profit center in the middle of a supply chain will somehow raise prices because [competition?].

      • 0 avatar
        Landcrusher

        It won’t necessarily raise prices, but it won’t really lower them either. Also, the whole trade issue is sticky.

        I believe they have manufacturer owned dealerships in Europe. Perhaps we could get a story on that?

        • 0 avatar
          Pch101

          How many Mercedes staff does it take to sell a car? The answer, in the luxury carmaker’s German showrooms, is more than it takes to shift an Audi – just part of the cost gap Daimler wants to close with its premium rivals.

          Among the top three, Mercedes depends on its unprofitable company-owned dealerships for a bigger share of domestic sales than either Volkswagen’s Audi or BMW, which rely more on franchises…

          …”(Daimler CEO Dieter) Zetsche is no fan of own retail.”

          …Not including Smart, Daimler owns 98 Mercedes car showrooms (in Germany) that account for about half of all the brand’s German car sales.

          By comparison BMW’s 43 owned dealerships contribute only about a quarter of its volumes in Germany, and Audi’s 16 in-house outlets account for less than 10 percent.

          …Car dealerships are typically a 2-4 percent margin business at best, which drags down overall margins for luxury manufacturers.

          http://www.reuters.com/article/2013/05/22/us-daimler-mercedes-dealers-idUSBRE94L0AV20130522
          _______

          In the US, a typical new car dealership has pre-tax profits of about 2%. For an OEM that wants to make 4-8%, 2% is a terrible return and a waste of resources.

          There are plenty of local guys in polyester suits who will work for that kind of money, but that’s chickenfeed to a multi-billion dollar multinational corporation with expertise in manufacturing. As Zetsche apparently knows, the only thing that accomplishes is lowering the value of the stock.

          • 0 avatar
            DeadWeight

            Pch101 still doesn’t understand what a monopoly is.

            When 30+ manufacturers either produce and/or sell their vehicles in North America, in a very fragmented market, where no single manufacturer controls 90% of the market (let alone more than 19% as is now the case), and they all have to compete directly against each other for sales, THERE CAN’T BE A MONOPOLY, let alone oligopolistic conditions, REGARDLESS AS TO WHETHER VEHICLES ARE SOLD DIRECTLY BY THE MANUFACTURERS OR THROUGH MIDDLEMEN FRANCHISEES.

          • 0 avatar
            Pch101

            Go buy a Tesla for below sticker, then get back to me.

            Meanwhile, don’t mind me while I pound my head into this nice wall here.

          • 0 avatar
            DeadWeight

            Why are you limiting the discussion to Tesla?

            This is not the 1920s or 1930s, where one or two steel, railroad or oil companies control 100% of their respective markets, and have either pure pricing power, or can collude with their only competitor to fix prices in a stagnant, uncompetitive market.

            Consumers of passenger vehicles have massive choice and negotiating power in such a fragmented, competitive market, and in even in the case of Tesla, have countless choice if they can’t or don’t want to purchase a Tesla for the price asked.

            There are probably 300 different models of cars and trucks, if not more, manufactured by 30 OEMs, if not more, just in North America, and there are likely (inevitably) to be even more models and manufacturers competing for customers in North America in the years to come.

            Middlemen franchisees do nothing to diminish OEM pricing power; in fact, they are an inefficient retail layer and add unnecessary expenses for the end consumer.

          • 0 avatar
            Pch101

            It’s going to be difficult to read these posts if you keep making me pound my head into this wall. (I’m fairly resilient, but the wall is sure to win in the end.)

            “Why are you limiting the discussion to Tesla?”

            You are asking this of the same guy who made a reference to the US v. Paramount Pictures case on this very thread?

            “This is not the 1920s or 1930s, where one or two steel, railroad or oil companies control 100% of their respective markets”

            Were you able to buy that new Tesla for under MSRP?

            “Middlemen franchisees do nothing to diminish OEM pricing power; in fact, they are an inefficient retail layer and add unnecessary expenses for the end consumer”

            Did you not read the Reuters article that I posted above, or did you try to read it and not comprehend the points being raised in it?

          • 0 avatar
            DeadWeight

            Maybe if you pound your head enough you will realize that your rhetorical question regarding whether one can purchase a Tesla for less than asking price is a straw man and irrelevant.

          • 0 avatar
            Pch101

            The fact that the vertically integrated company with the retail monopoly won’t haggle because it knows that you can’t buy that product from anyone else is a good indication that what I am saying is correct.

            Your local Toyota dealer will haggle over a Camry or Corolla because he knows that you can give that sale to somebody else. The Tesla store doesn’t have to worry about that, obviously.

          • 0 avatar
            DeadWeight

            If you don’t want to pay the ask for a Tesla, there are literally many hundreds of other cars, including some pure electric vehicles, as well as hybrid vehicles, and ICE vehicles to choose from.

            Besides this fundamental point that you just refuse to acknowledge, which is central to the topic, how would mandating that only independent franchise stores can sell Tesla vehicles necessarily alter this whole inflexible price issue that you are obsessing over?

          • 0 avatar
            DeadWeight

            B.S.

            If you don’t want to pay the ask for a Tesla, there are literally many hundreds of other cars, including some pure electric vehicles, as well as hybrid vehicles, and ICE vehicles to choose from.

            Cars are commoditized goods and largely fungible, at this point.

            Besides this fundamental point that you just refuse to acknowledge, which is central to the topic, how would mandating that only independent franchise stores can sell Tesla vehicles necessarily alter this whole inflexible price issue that you are obsessing over?

          • 0 avatar
            DeadWeight

            If you don’t want to pay the ask for a Tesla, there are literally many hundreds of other cars, including some pure electric vehicles, as well as hybrid vehicles, and ICE vehicles to choose from.

            If the Tesla store won’t adjust their price, they will inevitably lose sales to many competitors.

            To the extent that a consumer “must have a Tesla,” even though there are many competitors to choose from, pay up or vote with one’s feet. If enough people do, Feels will be forced to alter its price structure.

          • 0 avatar
            Pch101

            The point remains that the retail monopoly allows Tesla to avoid reducing its price as a result of competition within its retail supply chain, since there is no such competition.

            This is not a difficult thing to see, except for the blind rage against car dealers that interferes with the vision of some who post here.

          • 0 avatar
            ect

            Tried to post this reply to Pch in another article, got caught in whatever posting affliction TTAC is suffering from.

            “…it obviously can’t end well for you.” For someone with so little real-world experience, you sure are full of yourself. For no apparent reason.

            You completely miss the point – whether or not OEMs would want to engage in direct sales, and to what extent, isn’t the issue. In a free market, they would have that option. They don’t, because dealers have lobbied furiously (and spent lavishly) to get states to legislate against it.

            You suggest that “low-margin retailing” should be an unattractive business. Tell that to Home Depot. Low margins don’t mean low profits. And you offer no evidence, that, taking into account all of the revenue sources available to car dealers, their business should be considered “low-margin”.

            In fact, a little bit of actual research would show you that AutoNation earned an ROE of 18-19% in each of the last 2 years. GM, by comparison, made 16.7% ROE in 2012, and 12.4% in 2013. Apparently, selling cars in the regulated environment the states have legislated can be more profitable than manufacturing them.

            Your puerile little snipes are vaguely amusing, in one sense. They reveal much more about your own character and insecurities than anything about your supposed targets.

          • 0 avatar
            ect

            You offer no evidence that auto dealers run a low-margin business, much less a low-profit one.

            Let’s look at real facts. AutoNation has reported ROE of 18-19% in each of the past 2 years. GM made 16.7% ROE in 2012, and 12.4% in 2013. It seems that selling cars in a market distorted by state legislation can be more profitable than manufacturing them.

            The real point is that whether or not, in what manner and to what extent OEMs should be interested in retail operations is beside the point. In a free market, they should have that option. They don’t because dealers have lobbied furiously (and spent lavishly) for legislation that bars OEMs from retail, and protects the privileged position of the dealers.

      • 0 avatar

        I am not Ruggles, nor do I have any connection with the new car industry.

        But I notice that most cars are sold significantly below list price, from dealers.

        Teslas are sold at precisely list price, with no wiggle room, from the factory.

        So it seems plausible to argue that with established wholesale pricing that’s public, it’s more likely for you to get a “deal” on your car from an independent dealer than the factory.

        That being said, I think Tesla should be allowed to sell cars as they wish. The best comparison is with Apple. Apple computers were trounced when sold by dealers with multiple lines, because salespeople were trained on DOS/Windows machines and had no interest in selling something strange for twice the price. When Apple computers were sold in Apple Retail Stores, market share increased, because the Apple salespeople in the Apple stores were dedicated to the products.

        Tesla is similar to this because the cars really are completely different value propositions from the competition and need different sales techniques to sell.

        David

        • 0 avatar
          Big Al from Oz

          @David Dennis,
          Your comment raises an important aspect of the US auto industry.

          If so much money can be offered as “cash on the hood” in the US retail market, why is it that each and every vehicle manufactured in the US is subsidised over $3 000 per vehicle.

          Tesla is one of the biggest receiver’s of government handouts.

          I do believe that maybe if all protection and subsidisation to all vehicle segments should occur. This would make for a fairer market.

          A manufacturer should decide on how his product is sold and not by some lobby group with a vested interest.

    • 0 avatar
      Pch101

      This notion that a monopoly retailer is going to provide lower prices is straight out of fantasyland.

      Having multiple retailers makes it possible to haggle. Prices would increase if there was no competition at the retail level.

      • 0 avatar
        MBella

        How would they be a monopoly? If Toyota was to expensive you would give Honda a try, etc. It’s a very competitive market dealers or no dealers.

        • 0 avatar
          danio3834

          So like an oligopoly.

          If you’ve decided on a Camry, you can go to multiple dealers to find the best value which might include a service contract, added accessories or options, better trade in value along with the negotiated price. Anything can be used to make a deal when competition between dealers is fierce.

          If manufacturers had sole control over retailing, pricing would be fixed, deals less flexible and they would still continue to charge the maximum the market would bear. The actual costs of retailing don’t magically disappear because the independent dealer is gone, the OEM would just assume them (which they really don’t want to) and pass them onto you.

          I get it, negotiating car deals is tough, and it comes down to the little guy consumer squaring off against the big bad dealer. However I don’t see how everyone getting screwed equally by a big corporation is a better alternative.

          • 0 avatar
            redliner

            At least the big corporation can reuse some of that profit for r&d and other practical expenses. (Those corporate jets don’t lease themselves, you know.)

            What is the dealer going to do with it’s profit? Hire a lobbyist and run adds during the 6pm news, most likely. “Free” oil changes for life?

            Pff, the whole system is broken, and either way there will always be winners and losers.

          • 0 avatar
            Pch101

            The car sales business is a low margin business. The total profit is acceptable to the retailer, but those margins are too low for a manufacturer.

            Retail is a drag on profits for a large producer. A company that can manufacture at a higher margin is better off sticking with the higher margin business that has less competition. (It is obviously easier to get into retail car sales than it is to get into the production side of the business, and the margins reflect that.)

            A car dealership can produce a nice income for your neighbor. But it’s a small potatoes, lousy business for a multibillion dollar multinational operating in the United States, where cars are sold cheaply and in a highly competitive environment.

          • 0 avatar
            Pch101

            The car sales business is a low margin business. The total profit is acceptable to the local or regional retailer, but those margins are too low for a major manufacturer that focuses on bigger and better things.

            Retail is a drag on profits for a large producer. A company that can manufacture at a higher margin is better off sticking with the higher margin business that has less competition. (It is obviously easier to get into retail car sales than it is to get into the production side of the business, and the margins reflect that.)

            A car dealership can produce a nice income for your neighbor. But it’s a small potatoes, lousy business for a multibillion dollar multinational operating in the United States, where cars are sold cheaply and in a highly competitive environment.

          • 0 avatar
            Pch101

            The car sales business is a low margin business. The total profit is acceptable to the retailer, but those margins are too low for a manufacturer.

            Retail is a drag on profits for a large producer. A company that can manufacture at a higher margin is better off sticking with the higher margin business that has less competition. (It is obviously easier to get into retail car sales than it is to get into the production side of the business, and the margins reflect that.)

            A car dealership can produce a nice income for your neighbor. But it’s a small potatoes lousy business for a multibillion dollar multinational operating in the United States, where cars are sold cheaply and in a highly competitive environment.

          • 0 avatar
            MBella

            Dealers buy their cars at a price set by the manufacturer. Whatever they sell it for over that is their profit. The manufacturer is still selling them for the same amount. When trying to make a deal, you are trying to get the price down as close to what the dealer paid as possible.

          • 0 avatar
            highdesertcat

            MBella, there are also factory incentives, floor plan incentives, hold backs, goal achievement bonuses, and quantity discounts with delayed delivery spread over six months of a production run.

            Each affects the actual cost to the dealer.

          • 0 avatar
            danio3834

            ” Dealers buy their cars at a price set by the manufacturer. Whatever they sell it for over that is their profit. The manufacturer is still selling them for the same amount. When trying to make a deal, you are trying to get the price down as close to what the dealer paid as possible.”

            Different dealers have different total cost structures for reasons that include those HDC pointed out. This is how higher volume dealers are able to blow out inventory at lower prices than low volume dealers. There are pretty juicy incentives to make volume targets and some dealers will sell at or even below invoice cost if it means the difference in getting the volume bonus.

        • 0 avatar
          Pch101

          It’s pretty obvious that there is a monopoly at the retail level if there is only one entity selling all of the product. You can’t haggle with a monopoly seller.

          Vertical integration and monopolies generally lead to higher prices. The Supreme Court already dealt with this issue and broke vertically integrated monopolies in the past (the film industry) for that very reason.

      • 0 avatar
        SCE to AUX

        Nobody is forced to buy a Tesla. You can always shop somewhere else.

    • 0 avatar
      Steve_S

      The manufacturer already makes a profit selling to the dealer at a much lower cost than the shopper gets.

      You don’t shop one Target to another you shop Wal-Mart to Target.

      Its been well documented that people don’t like going to dealers to buy cars. it’s not fun or exciting or pleasant. It’s how do I not get shafted when I buy this car and have to walk out to get a good price.

      Factory direct…ever heard of it?

      • 0 avatar
        Landcrusher

        Steve,
        While you don’t seem likely to be persuaded, I can tell you that in the light aircraft market you can go factory direct. It doesn’t save you any money.

        If there are dealers, the factory will not undercut them or they will lose them. If there are no dealers, then the factory has to have a sales program because the volume on never tried plane or car sales won’t cut it anymore. You will fail.

        The manufacturer can’t have it both ways. That might work for low cost stuff, but not cars. No way. No one will be a dealer only to get show roomed. The factory ends up setting up something very similar to the dealers and hires the same folks. Dealers are simply the worst set up except for all the others presently known.

      • 0 avatar
        danio3834

        “The manufacturer already makes a profit selling to the dealer at a much lower cost than the shopper gets.”

        Not as low as you think. The retail new-car biz is pretty thin on margins.

      • 0 avatar
        Pch101

        “Factory direct…ever heard of it?”

        A producer selling closeouts at a discount only proves that closeouts sell at a discount.

  • avatar
    Omnifan

    It’s the same Michigan dealer lobby that “legalized” the dealer prep fee as “document fees.” As in “we have to charge you because it’s the LAW!” It’s only permission to charge a maximum amount if the dealer wants to. Most do. I couldn’t get rid of these dealer bozos and their paid for legislators fast enough.

  • avatar
    CarPerson

    Tesla could open a showroom & service shop on the most visible corner in Detroit then loan courtesy cars to buyers to drive to the next state to actually sign the purchase agreement.

    Tesla won’t because they have too much class for that. They will do it with a lower profile…

    People buy cars in Europe and Asia and have them shipped here. Mine was purchased in Atlanta and shipped to Seattle in an enclosed trailer. Think some won’t cross a state line to buy a Tesla?

    This confirms the Michigan legislature, governor, and automakers are totally clueless about those who have decided to spend $90,000 on an electric vehicle.

    • 0 avatar
      redliner

      They can park a car in a very visible place with a banner that says “this car scares GM so much that they spent $xxxxx.xx (insert amount GM spent on lobbyist) to keep you from buying this car. Find out why, test drive today!”

      Or they can park a car across from GM headquarters that says “Prohibition… it never works.”

      Tesla actually benefits by being perceived as the underdog. They may lose in court, but they win in the minds of many consumers.

  • avatar
    Aquineas

    Corporate welfare at its finest.

    • 0 avatar
      Pig_Iron

      A corporation is a human life form under the law, and therefore entitled to the same tax loopholes and tax grants as the elite who own them. This of course does not seem to apply to small mom and pop shops, or regular citizens, who can be forced to give up their property under “eminent domain”, or their lives under “the draft”. Level playing field?

      A wise boss once told me: Give the customers /exactly/ what they want.

  • avatar
    Boxerman

    Some dealers are great some suck. At least with a lot of dealers around you get to choose. Some of the worst dealers are parts of corporate chains, and some corpate dealers are great. Some small indepedants are the best.

    The two worstd ealer experiences I have had are with a mercedes which was part of a local chain and a BMW owned store which was so bad that as a mtter of point I wouldnt buy their product.

    Given corporate culture and general arrogance/ineptitude of detroit automakers I would not expect a company owned store to be an improvement when it comes to service or price.

    My best dealer experience is at Chevy, but that is a family owned buisness.

    Personaly I have no problem shopping around within a 100 mile range to get the car I want at a great price. I also take into account servicing, so would be more likely to buy lexus/chevy over say mercedes/chrysler, that is purely based on delaer servicing experiences.

    As to tesla, they sell them out of a mall near me. Only thing is you cant walk in and test drive at a mall, its a whole appointment thing, and I have no idea where you would service one or what the service experience would be like.

    For my 02c tesla would be betetr served by havign a proper dealer, alebeit one that conforms to Tesla standards, shouldnt be too hard to do.

    My experience in the Tesla showroom was not great, when ia sked about awd the salkesperson told me that electrics have such good traction you dont need awd in the snow. An old style buick dealer could not have told more Bs than this guy. All you gte at a tesla showrrom is some clown giving you a corporate script. i seriously dont see tha advantage at all.

    Now most upscale dealers have rpetty shgowrrooms and nice cappuchino machines in the service areas. Mostly though the salespeople and the service “advisors” are clueless. Tesla looks no different to me, otehr than its company owned so you have less choice. In fact their sales methodolgy is cumbersome and the reason why I probably dont own one.

    • 0 avatar
      Landcrusher

      I know so many people who refuse to buy BMW for lack of ability to find a good dealer. I was happy with mine for a while, but they got nutty as soon as the warranty was over. I then caught them telling me all sorts of stories. When confronted, the service manager tried to act like I was out of line for pointing out their integrity problem. He calmed down only a bit when I explained to him how they were lying, why they were lying, and, in great detail, how the process actually worked.

      Oh well, we all have bad dealer stories, but we have had 3 BMWs and would have more and recommend them if it were not for their dealers.

      Here is the rub: the dealer network is so uniformly bad, you can only logically blame BMW North America. Btw, the name BMW Norh America is a misrepresentation itself. Cross into Canada and it’s another corporate entity and some of your warranty will not be honored.

  • avatar
    morbo

    I’m waiting for Ruggles to defend the stealerships with about 50 different posts; claiming that the stealership experience is somehow beneficial to the the consumer, because, reasons.

    • 0 avatar
      highdesertcat

      morbo, Ruggles knows what he is talking about.

      But from my own experience, dealerships need to make a living. Their sole purpose for existing is to part a buyer with as much of the buyer’s money as they can, any which way they can.

      And if the buyer is foolish enough to let them, that’s the buyer’s choice.

      Forewarned is fore armed so let the buyer beware.

      • 0 avatar
        Landcrusher

        HDC,
        I think most people just give up and put up with it on the third try. While we can ultimately be blamed for putting up with it, the large amount of bad actors in the dealerships have to get their share of the blame.

        • 0 avatar
          highdesertcat

          LC, you’re right, as always.

          I also have to add that I was directly/indirectly responsible for training some of the bad actors in the sales technique, maintaining eye-contact and reading of a buyer’s body language, all in the interest of ‘making the sale’.

          Nothing matters except making the sale. If the sale is crawled back later, that is something the accounting department’s bean counters and the company’s tax lawyers will deal with.

          There really is a sucker born every minute and that’s why the vast majority of sales go through.

          In my experience, what a dealership’s sales manager absolutely hates is for a potential buyer to state, “I’d like to know what the store needs to sell this vehicle for.”

          That cuts to the chase!

          I won’t go into it here, but that sentence is saturated with trigger words that make most sales manager break into a cold sweat because it puts them and the dealership on the spot.

          If the buyer doesn’t want to dance, the sale could walk out the door and be bagged by another dealer.

          There really is a price for everyone, as long as the dealership makes a profit in order to stay in business to sell another day.

          • 0 avatar
            Lie2me

            “I’d like to know what the store needs to sell this vehicle for.”

            This is an interesting point you make, but why would a dealer be so frightened of this question that for the first time in recorded history he would give the customer an honest answer? I can’t see myself asking a question like this without already knowing what the answer should be and how would I know what the correct answer is?

          • 0 avatar
            highdesertcat

            Lie2Me, sorry about the delayed response, I was assigned Polling station duties for early voting since Tuesday.

            The “honest” answer you refer to is the key because there is no “honest” answer.

            Here’s the deal: assume that a vehicle’s cost to the dealer is 86% of the MSRP — that leaves the dealer 14% for fixed expenses, variable overhead expenses, paying the commision with the remainder as profit.

            There are other things like “hold back” and factory incentives, floor-plan initiatives, etc, but they vary widely depending on popularity and demand for a given vehicle.

            Most dealerships instruct their sales managers to add X% to the cost of the vehicle as their floor. That is the magic number that must be met or exceeded.

            It is unreasonable to assume that a dealership can sell each car at a small loss and make it up in volume. There needs to be a profit for the dealershjip to remain viable.

            When a buyer asks that leading question, the sales manager must assume that the buyer knows a little more than the average bear and is willing to pay a certain amount over cost.

            But it also means that the salesmanager has to look up actual cost (either in the Rolodex or on the Inventory PC) and then add what the salesmanager guesses the buyer is willing to pay on top of that, not falling below the floor figure.

            Books have been written about Selling, as well as the Art of the Deal, but the low down nitty gritty is that if a salesmanager wants to make a sale, they have to accommodate the buyer, while at the same time ensuring a reasonable profit for the business.

            The reason that it makes salesmanagers sweat is because if they guess wrong and the buyer doesn’t want to dance or negotiate, they give the buyer a price that the buyer can use as a base and leverage at another dealership.

            I’m with the crowd that doesn’t dance. I either like the price I’m quoted and buy or I thank them politlely and walk. It works for me, but I have a poker face (I’m told).

            There is a flip side, as there always is. The 2014 Jeep Grand Cherokee was such a hot product in March of 2013 that it was easily sold for MSRP PLUS 3% to 5%, depending on trim.

            All my poker buddies who are also new car dealers hate it when a potential buyer asks the magical question because it takes the dealership off-script.

            There is a lot more, but I think I have said enough, so as not to upset anyone who makes their living selling new cars.

            For a good read, go to Edmunds and read the “confessions of a car salesman”, if it is still available. The author was not very popular after publishing that story, and he didn’t even come close to listing all the diry tricks in the Sales book.

            The ultimate goal is always to part the buyer from as much of their money as the salesmanager can get away with.

            The next time you go shopping for a new car, try it and see what kind of answer you get.

            It recently worked for my grandson who bought that 2014 Accord V6 EX-l for his wife. No muss, no fuss, no hassle, no tussle. Just a clean deal, without all the drama.

            But only if the dealership is willing to play. If a vehicle is high in demand, they’ll give you a take-it-or-leave-it-price that is well over MSRP.

          • 0 avatar
            highdesertcat

            Lie2Me, my reply has gone missing in the ttac void. It was a book. Sorry about the delayed reply. I was assigned Polling station duties since Tuesday.

  • avatar
    SCE to AUX

    “where all participants play by a common set of rules”

    Rules set by the incumbents, not the customers, right?

  • avatar
    mitchw

    Come on, Elon. Make this a national issue rather than a state by state slog to bribe the pols. Let’s have a federal case to test the dealer cartel laws. Nice

    (you guys know Musk is reading this, right?)

  • avatar
    RogerB34

    “should have a business environment where all participants play by a common set of rules.”
    What are the common set of rules?
    A fig leaf statement.
    The bottom line is $$$ and distribution including politicians.

  • avatar
    PrincipalDan

    About time D. Gilbert said something useful. (I say that as a Cavilers fan.)

    Is it just me or is he not the spitting image of Michael Douglas in “Wall Street” (film 1987)?

    Dan Gilbert? No that must be Gordon Gekko!

    • 0 avatar
      Whittaker

      I agree with Mr. Gilbert’s sentiments. Too bad he doesn’t.
      This is the man who lobbied for an Ohio law legalizing casino gambling. That law awarded a casino monopoly in Northeast Ohio to…you guessed it…Dan Gilbert.
      Don’t try to open a casino in Ohio that competes with his. He will call the cops on you.
      Whatever Mr. Gilbert’s motivation is in Michigan auto retailing, it has nothing to do with fair competition.

  • avatar
    dancote

    Why all this discussion?

    Is there anyone commenting in this thread who can afford a Tesla product?

  • avatar
    7402

    Perhaps someone who knows the car dealership industry can chime in here, but my understanding is that dealers are forced by manufacturers to build expensive, conforming buildings and to essentially finance ongoing manufacturing by buying (with loans) all the cars the manufacturers send them. The factory’s goal is to maintain the most profitable production tempo, and dealers’ lots become the buffer zone where the peaks and valleys of demand and the economy are manifested. Tesla must be doing all the financing at the manufacturing end.

    The best deal on a new car is usually a somewhat oddly spec’ed vehicle that has been on the lot too long. I’ve ordered cars (through dealers) and calmly waited 2-3 months to get the exact vehicle I wanted. Dealers don’t like this, and it’s almost impossible to get a meaningful discount, whereas they will discount heavily to get rid of ageing inventory.

    • 0 avatar
      Landcrusher

      Yes. Dealers and sales managers have a natural aversion to aging inventory. There are rational reasons, but IMO, they are too sensitive about it.

      Still. You will often have a hard time getting anyone to admit what cars they want to get rid of because they hate even more losing negotiating power. Mostly they want to sell the car no one seems to want to someone who doesn’t want it either. The guy who would be happy to get a great deal on the car no one wants has to get a normal car at the normal price.

      I could never figure it out. That’s why I’m not filthy rich I guess.

  • avatar
    pacificpom2

    Firstly I believe that Tesla, or anybody else, should be able to sell what they want, how they want, as long as they are subject to normal consumer laws. You don’t’ see Wal-Mart, Target et al rallying against online sales either (or at least not in public) But just imagine a Tesla dealer ship, only 1 car until the X model comes along, 2 drive variants and I think about 8 colours. Small car yard! It’ll also mean that Tesla would have build more vehicles than they can cope with at present. From that point of view a shop front in a mall make great sense. Most Tesla buyers would have already researched what they want, there are no “haggle” points to be made and the option’s list is miniscule, if there is one. They don’t have to employ a service manager, mechanics et al, as they come to you or download a fix from the net. I think any existing car dealership would find the experience quite a shock. As for a prospective customer it does hold promise. I know what I want, what colour it will be etc.. and I know it will take x days/weeks to deliver, and the price isn’t going to be negotiated. I can take that to a bank!

    I know that I have been told before that dealers exist to satisfy the “I want my desires satisfied NOW!” type of customer, but I would suggest that the Tesla customer is beyond that.

    In the land of capitalism, some are a protected species and must be protected and coddled, and free enterprise does not apply. I hope that Tesla does do a national campaign but when you have 50 individual countries that make up the USA, that will be a hard ask. Check out the European Union for a good example :)

  • avatar
    johnny ro

    Let Tesla have this and the major manufacturers might follow. This is why the dealers will fight to the death; that is what they face.

  • avatar
    Big Al from Oz

    I fully support Gilbert on this.

    I seem globally and not only in the US to many industries create a little world in which they influence to maintain an unfair advantage.

    It’s about time our elected officials start to represent the people and not the unions, industry or any other lobby group.

    Regulations must be made in favour of the consumer. When this isn’t done then the consumer ultimately losses out and an uncompetitive environment exists.

    I say to the US car industry and unions grow some balls and take on some challenges. Advance.

    Like I stated those who refuse to start adopting this new technology to it’s fullest will be left behind. The Luddites seem to have the lobby power at the moment.

    But, as always in life the squeaky wheel gets the grease.

  • avatar
    turf3

    The strange thing about this thread is that people are vigorously arguing about whether direct sales would save money, and even more vigorously arguing about whether the manufacturer-dealer system somehow represents a “monopoly”. But no one seems to be discussing what seems to me to be the real point.

    The real point is not whether dealers add value to the process or not. The real point is that a manufacturer has been FORBIDDEN by law from selling their products directly to the public. How on earth can the legislators who proposed this bill and the governor who signed it justify this? “We believe that option A, the current one, is better than option B; therefore we are going to forbid option B”.

    EVERYTHING NOT FORBIDDEN IS COMPULSORY.

    • 0 avatar
      danio3834

      These are my sentiments. While there are benefits and detriments to either model, there’s no reason good enough to prohibit one over the other. People ought to be free to get hosed by any business entity they so choose.

      • 0 avatar
        FreedMike

        And businesses should be free to sell their own products in their own stores.

        Disgusting that in this economic day and age an American state would actively try to sabotage an American company employing American workers…because it doesn’t like the way it sells its goods, despite the fact hundreds of companies – Sears, IKEA, The Limited, Apple, EVERY department store, Wal-Mart, and Target, just to name a few – all use the exact same model. Maybe Michigan should go after them next?

        These people are not just on the take…they’re revoltingly, obviously on the take.

    • 0 avatar
      Pch101

      It’s a federal system. States can pass these laws like this if they choose to.

  • avatar
    FreedMike

    I think most of these comments are completely missing the point. What we have is an American company being shut out of doing business in entire states…becuase someone doesn’t like the way it sells cars.

    Now, if the method was somehow objectionable, or fraudulent, maybe they’d have a point. But all this method boils down to is a company manufacturing its own product and selling it through its own distribution network. How is this somehow a bad thing? Have these people never been to a shopping mall? They’re chock full of company owned stores that sell products that a company designs and manufactures itself, and sells directly to its customers…just like Tesla does.

    Is this somehow a new phenomenon? No. Sears and JC Penney have been selling their own brands through their own stores for a century. If Snyder and these fool legislators want to look natty in Brooks Brothers suits, they have to buy it from company-owned stores. And do I really have to mention Apple? These companies are able to do this because they were under the impression that in the United States of America, you could do that. How much wealth and employment has been created by this model? It’s incalculable.

    But not in Michigan, apparently.

    This is WRONG…and Snyder and every legislator who voted for this should be ashamed for being clearly, obviously bought and sold.

    • 0 avatar
      Pch101

      The argument in favor of such laws is that the retail car business involves a relationship between franchisees and the multi-billion dollar franchisors that have more than enough money to crush those franchisees like bugs.

      What the franchisees don’t want is to have the OEM be able to cherry pick the best locations and to compete against or shut down the franchisee whenever the franchisee proves that a particular location is successful. Because a dealership is usually dedicated to one OEM’s products and parts, the franchisee is completely dependent upon that automaker (at least for the new vehicle sales and warranty repairs businesses.) If you invested seven figures into a business that could be destroyed by an eleven-figure company, then you might also be concerned about protecting your investment.

      I doubt that the dealers care much about Tesla per se. What concerns them are the other OEMs. Their concerns may be overblown — I’ve shown on this thread that selling cars directly isn’t necessarily optimal for the automakers, either — but that is what motivates them.

      Sears isn’t a good example, by the way. It’s a franchise issue. If you want to see franchise abuse in action, then learning about the Subway sandwich shop chain can be educational.

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