By on January 20, 2015

ModelS-Crash-0 Courtesy 4.bp.blogspot.com

Tesla Motors CEO Elon Musk told the press last week that he is open to the idea of expanding their U.S. dealer network to include franchised dealerships. This would be a sea change for the factory direct-to-consumer company but we are not surprised. A few weeks ago, I predicted that Tesla would hook up with traditional dealers sometime in 2015. Back in 2013, my alter ego, Virgil Hilts, proposed that Telsa head in that direction sooner rather than later.

Now that it actually might happen, here is how we think Musk should put it together.

During the same speech he noted that his company’s 2020 worldwide sales goal is 500,000 units, which presumably means 150,000 to 200,000 in the United States, well up from 2014’s estimated sales number of 15,000.  Between other automakers starting to catch up to Tesla’s technology and such ambitious objectives, Musk must know that the time has come to set up an efficient dealer network.

Musk emphasized they would implement this plan only with dealers who could provide customers with a “really good experience.”  In a shot at stores who are lobbying to keep in place existing franchise laws prohibiting direct sales, Tesla said about their possible dealer selection process, “If you’re a jerk to us, we’re not going to turn around and try to do a partnership later.” I think the dealers fighting against Musk know that direct sales will never happen by any volume automaker; they are just unhappy that they cannot get a Tesla franchise.

As an aside, give the auto dealer lobby in Connecticut the award for the Dumbest Reasons To Block Tesla Direct Sales: per the Hartford Courant, they claimed that if Tesla opened outlets in the state and subsequently suffered a recall they would be hesitant to tell the public about it. I hardly think that PR-savvy Mr. Musk, or any automaker in today’s recall-sensitive environment, would be so stupid. They also cited all the poor Yugo owners in the 1980s who got left “holding the bag” when the Yugoslav direct-sale automaker when out of business in the U.S.

Tesla Motors Inc. Chief Executive Officer Elon Musk News Conference

 

Musk’s comment seems to indicate that he may reach out to retailers individually regardless of the brand they currently sell. That would be the wrong tactic. Once a chosen dealer’s manufacturer caught wind of their dealer “dualing” with Tesla there would be hell to pay. An automaker may not have legal ground to stop the move, but they might say: how about a load of eight Marrakesh Brown X6’s Mr. BMW Dealer, that’s all we have this week, sorry.

Neither would it be a wise idea to partner with one of the public-held dealership groups, such as AutoNation, Sonic or Lithia. Those bureaucratic organizations value their own brand name over those of the automakers’ and would subject their Tesla dealerships to monthly meetings wanting to know why they are not generating as much F&I or parts income as their Chevy or Dodge stores.

The answer is to set up an arrangement to distribute their cars through one dealer network. So which brand has well-heeled customers, a track record of excellent CSI, attractive, primarily exclusive facilities, a need for additional traffic to survive themselves, has the optimum number of outlets (275), and thus would be the best partner for Tesla? That would be Acura. If each Acura outlet sells 40 Teslas per month, that is an additional 130,000 sales annually for Tesla plus the huge jump in traffic would cause Acura sales to soar. (Spare me the comparisons to Studebaker dealers selling Mercedes-Benz cars back in the 1950’s, please.)

No matter which sales channel Musk chooses, it will be fun to watch reality set in. Once Tesla vehicles become readily available, their price-fixing days will be over.  Musk will be amazed how the customers that had no problem allowing Tesla to make a 25% markup on their cars will be replaced by those who think dealers should be shot if they try to make 1% over invoice. Welcome to the real car world, Mr. Musk.

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74 Comments on “Tesla Might Consider Partnering With Franchised Dealers...”


  • avatar
    Lie2me

    I think Elon should infomercials at 3 AM

    • 0 avatar
      kovakp

      They NEED Vince Offer from ShamWow! to do those.

    • 0 avatar

      #1 I think Elon Musk would have paid someone $10,000,000 to DELETE THIS PHOTO and keep it from ever being seen. If there’s one thing about Tesla I respect it’s their legion of swift damage-conTROLLS.

      #2 After seeing TESLA put up “that video” of the Challenger Hellcat with the retard behind the wheel loosing to the P85D, I’m sick to my stomach.

      17 second quarter mile…

      And the GREENER, LIBERAL HIPPIES are on Tesla’s Facebook talking big about “EV is the future” and “Model S vs. Dinosaur”…

      Let me know when those PRIUS-DRIVING NOOBS can scrape $135,000 together to purchase one.

      • 0 avatar
        nickoo

        Most of the comments I saw on the Tesla vs SRT (I’m pretty sure it wasn’t a hellcat) challenger called it out for the bullshit it was, even on the green car sites. The guy obviously overspun his tires, (with street tires, you just want to spin one rev to knock off the dust, or you lose traction) then he jumped and got a red light. It was a complete farce.

      • 0 avatar
        mr.cranky

        ^^^^^^^^^

        Obvious anti-Tesla troll above.

        It seems like TTAC as a whole has a bias against Tesla. Just look at the choice of photos here. They’re meant to embarrass Tesla. I doubt Musk reads this blog anyway.

        • 0 avatar
          Dave M.

          1. Elon is way too egotistical NOT to read this blog.
          2. He’s hiding a lot of his cards; most likely the ones where Tesla is coming up no where near the production numbers they’ve insinuated.
          3. Still impressive technology if you play in that court and price level. Me? I’d rather have a BMW….

    • 0 avatar
      DeadWeight

      “I think Elon should infomercials at 3 AM.”

      – Agrees.

      Tesla is & always has operated in fantasy land, using fantasy Non-GAAP methods for reporting their quarterly numbers, deriving more revenue by far from selling carbon credits than tangible products, and proposing a pure fantasy of a ‘gigafactory’ that will soon produce EV batteries that can’t store the amount of energy Tesla claims will be possible (not only are Tesla’s claims about such capabilities not now feasible, but they won’t be able to achieve what they claim is possible for at least a decade, if not two; plus, the money required to build the ‘gigafactory’ is so astronomical as to laughable).

      Now that Tesla has essentially thrown in the towel on challenging state auto dealer franchise statutes & retail direct sales bans, Musk has fully ripped off the mask revealing himself and his company for the unsustainable fraud that it has always been.

  • avatar
    Pch101

    There isn’t any particular reason to partner with a franchisee for a given brand. It would make sense for them to get franchises where the volume is too low to justify direct management or the law for direct sales is unfriendly.

    It’s a tough play, though, because Tesla is going to be competing with conventional cars, both new and used, at the same dealerships. This was the problem in the first place, and there still isn’t enough critical mass to avoid this basic technology sales problem — it will be easier for the dealer to move a typical buyer into a normal car than to sell the benefits of the EV.

    • 0 avatar
      FractureCritical

      you don’t shop for a Tesla because you’re looking at a conventional car, too.
      you shop for a Tesla because you want a Tesla.
      Everyone comes just to look and satisfy curiosity

      Personally, I think Mercedes would be a better match. MB hold the crown for big luxury cars, they are fighting to get a younger customer base, they don’t have any direct pure electric powered competition, and they already have a relationship with Tesla.

      It’s not like anyone with $70k-$100k to drop on a big sedan ISN’T going to walk into an MB dealer, anyway, to at least look. Like most halo cars, most will come to look at the Model S, but once there, they’ll more likely walk out with an E Class. It’s better than having the same customer walk across the street and gawk an i8, then buy a 5 series.

      • 0 avatar
        Pch101

        If Tesla wants to become a real car company, then it will have to woo buyers who would otherwise be inclined to buy or lease a gasoline car. There are only so many hardcore EV fans in the market.

        So this poses a real change. Dealers can be expected to take the path of least resistance, because that’s just what they do.

      • 0 avatar
        RobertRyan

        Tesla would be better served using their technology to produce a hybrid with a conventional maker. EV’s are they way of the past, range fear is very real

        • 0 avatar
          sirwired

          I’ve always thought that the Volt-style hybrid was a much better way to go. The Volt in particular had some issues that needed solving, but the idea of a hybrid with a “commuter” electric range, and gas when you need to go farther is a winner in my book.

          • 0 avatar
            RobertRyan

            @sirwired
            Tesla has so many advanced technologies they cold offer in a hybrid it is strange they never went that route in the first place

        • 0 avatar
          SCE to AUX

          @RobertRyan: That will never, ever happen.

        • 0 avatar
          redav

          Tesla opened its battery patents so that other carmakers would start to use them, and then Tesla with its gigafactory could supply them batteries. It’s the same strategy BMW is doing with carbon fiber and Toyota with hydrogen fuel cells.

      • 0 avatar
        namesakeone

        Somehow, I don’t think Mercedes-Benz would be a good partner; MB and Tesla both sell to the same audience–those with high-six- and sever-figure incomes–so they would cannibalize one off the other. Acura (or perhaps Volkswagen) might be a better bet.

        • 0 avatar
          turboencabulator

          Would ex-Saab franchises be the way to go? Just throwning an idea here. Their clientele always amongst the best educated. It’s been a while since the debacle, so building a structure around some ex-Saab dealers could be challenging. It all depends on where the Saab drivers were forced to go after the bankruptcy.

      • 0 avatar
        SCE to AUX

        “you don’t shop for a Tesla because you’re looking at a conventional car, too.
        you shop for a Tesla because you want a Tesla”

        That’s only true today. Tesla will eventually be making the X and 3, and people will cross-shop SUVs and mid-range cars against those, respectively.

        At the moment, I’m considering a very wide range of options to replace my Leaf when the lease expires later this year. If the Model 3 was available, it would be considered alongside some ICE cars and other EVs or hybrids.

        • 0 avatar
          mcs

          >> That’s only true today

          Especially since they’re apparently going to offer the P85D drivetrain as an option on Model 3. With a lighter car, it should push the 0-60 time to less than 3 seconds.

        • 0 avatar
          highdesertcat

          ” I’m considering a very wide range of options to replace my Leaf when the lease expires later this year”

          SCE to AUX, you should write an article for ttac about your “ownership” experience with your Leaf.

          You write well and you have this years-looooooooooooong practical experience with your Leaf. No better insight anywhere’s else.

          I bet you would get a lot of hits.

          {NB: I wrote an article last year for a Jeep Forum re the excellent three-year day-to-day experiences with our 2012 Grand Cherokee over 60K+ miles, and it was very well received.

          I gained several new email contacts asking me about all sorts of things about our Grand Cherokee from oil, filters, tires, EHPS silicone power steering fluid, to floor mats, hitch mounted cargo carriers and running boards.)

          • 0 avatar
            SCE to AUX

            @highdesertcat: Thanks for the kind words. I have offered to do so previously, but I suspect the TTAC inbox is rather full.

            If I recall correctly, you are a Pittsburgh ex-pat living in the Southwest, no? If so, you can appreciate the unique car ownership experience in western PA.

          • 0 avatar
            highdesertcat

            SCE to AUX, I’m born and raised Huntington Beach, CA, all the way but my mom’s family were Down Easterners and several were categorized as Pennsylvania Dutch farmers.

            So, yes, I have roots there and I can fully understand and appreciate the unique car ownership in western PA.

            Whenever some of my PA relatives came to visit me in the NM desert they were astonished at the array of old cars I had parked on my property. And they were amazed that there was nary a speck of rust on any of them.

      • 0 avatar
        Ihatejalops

        Too much of a direct competitor and would splice sales away from one possibly. Acura does make a lot of sense. Or Infiniti.

    • 0 avatar
      Jimal

      There are multi make exotic car dealers is most major metro areas, where these cars are popular, that could take on selling Teslas alongside their other low volume brands.

      • 0 avatar
        Pch101

        This is the best answer. They need dealers who know how to coddle customers and profit on low volume.

        As an alternative, it might be wise if Tesla to created an incubator that could develop independent retailers who have technology experience but may lack experience in auto sales.

        • 0 avatar
          SCE to AUX

          @PCH101:

          “As an alternative, it might be wise if Tesla to created an incubator that could develop independent retailers who have technology experience but may lack experience in auto sales.”

          You’ve articulated what I think would be the best solution. Tesla has already shunned/alienated the traditional, established dealers, but building a new type of dealership could make a lot of sense.

          • 0 avatar
            Pch101

            Working with the exotics retailers is actually a better idea — they know how to sell cars without needing high volume to stay in business. The incubator idea is a lot more risky.

  • avatar
    vent-L-8

    boooooooo, well shit. This was one of my favorite things about Tesla.

  • avatar
    sirwired

    Why “must” Tesla work with franchised dealers (other than the stupid laws)? Why CAN’T the direct sales model work? What makes a nationwide network of direct-sales stores any different from a nationwide dealer conglomerate, other than the capital required to open them? (The big advantage of a franchised network is the ability to open a complete nationwide dealer network while somebody else digs up the capital.)

    Tesla’s stock is flying high; would it really be that difficult to raise additional capital and open dealers themselves?

    • 0 avatar
      Pch101

      Direct sales are expensive. High volume and direct sales don’t go well together.

      • 0 avatar
        andrewallen

        @pch101

        That would explain why Michael (deal direct) Dell wiped the floor with dealer oriented people like HP and IBM?

        • 0 avatar
          Pch101

          I wasn’t aware that Dell was in the car business. Funny, you learn something new everyday.

          • 0 avatar
            andrewallen

            He isn’t. He is in the business of making more money by dealing direct rather than through dealers. He actually sells computers and now has a bigger market share than those who don’t deal direct. His personal worth of billions of dollars prove that high volumes and direct sales in consumer durables (like computers or cars) actually do go well together if well managed.

          • 0 avatar
            Pch101

            I was referring to cars. Cars and computers are different.

          • 0 avatar
            andrewallen

            Cars and computers are both what is called “consumer durables”. In terms of marketing they are identical.
            P.S. the Tesla has more computers and semiconductors than any other component.

          • 0 avatar
            Pch101

            When a car costs $600 and buying one doesn’t usually involve some elaborate payment structure, including a long-term specialized loan and a trade-in, then you’ll have a point.

          • 0 avatar
            andrewallen

            Your point about price would explain why Airbus and Boeing usually deal direct with their very expensive and convolutedly financed products (not with military stuff though, got to have a bagman somewhere with weapons purchases, Basil Zaharoff etc. etc.)
            Exceptions to every rule, sometimes multiple ones but rules generally hold on the whole.

          • 0 avatar
            Pch101

            A car is usually the most expensive or second most expensive item that somebody will own. Not at all like a computer.

          • 0 avatar
            andrewallen

            I see you agree with me then that dealing direct makes excellent sense thereby cutting out the middleman’s (dealers) markup? Bit like a for sale by owner property where the realtor’s (dealers) commission can be split 2 ways between buyer and seller creating a win win situation for buyer and seller with only the middleman dealer losing out? Dealing direct is always cheaper for either buyer, seller or both as there is no middleman. (That is why Mr. Dell is so wealthy)

          • 0 avatar
            Pch101

            No, I didn’t agree with you at all.

          • 0 avatar
            andrewallen

            Im sorry I thought you were agreeing that someone has to pay the dealers “salary” either the buyer or the seller thereby making the product more expensive by that amount (or do you think the addition of dealer costs somehow make the product cheaper) If the latter I look forward to your explanation of how this would work.

          • 0 avatar
            danio3834

            Another one that believes that when the manufacturer takes on the retailer role that the costs of retailing magically disappear. This has been beat to death, andrew must have missed it the last 342 times it was discussed.

          • 0 avatar
            andrewallen

            Sorry but I am probably not being too smart so could you please explain how the addition of dealer costs to a transaction make it cheaper or less expensive than dealing direct. My understanding is dealer costs make a transaction more expensive. Please tell me where I am making my mistake.

          • 0 avatar
            danio3834

            In as few words as possible, the costs remain there no matter who burdens them. They get passed onto the consumer in either scenario.

          • 0 avatar
            Pch101

            I doubt that the franchise dealer and OEM would have the same costs. I would expect the OEM’s costs to be higher, since their expertise isn’t in retail.

            Dealers help automakers by carrying a low margin business that is less profitable than manufacturing, and by carrying various costs and burdens that the automakers don’t necessarily want.

            Automakers such as Ford built dealer networks because they preferred to focus on the part of the supply chain that they knew best, and because they could push down some of their inventory management problems to the retailer. This idea that dealers don’t create value is absurd — they create value to the producer, and cars are surely cheaper because of this.

        • 0 avatar

          The funny thing with using Dell as an example is that after years of only selling direct, they started selling retail. Now you can buy a consumer-grade Dell at Staples and a bunch of other retailers.

          Like Dell, Tesla is trying to get into a lower-price, higher-volume market, and to get that market requires getting a large presence quickly. The best way to do that with minimal investment is franchising. It worked for McDonalds.

    • 0 avatar
      redav

      Car companies are not car sales companies.

      A report from a couple years ago quoted that GM honestly couldn’t identify how many employees it had. Selling cars to the public–especially every single day on a national or global scale is an entire other pillar of business that car companies don’t have the expertise, manpower, or structure to accomplish successfully. (This is a primary reason I don’t buy dealerships’ claims of being scared that their existing brands will try to undercut them.)

      I can see ways & reasons that factory-owned stores can coexist with traditional franchises. For example, the factory-owned stores would have a premium associated with them, but they also would get the newest stuff first, be the best place for custom orders & tricky maintenance, etc. Traditional dealerships would continue to be able to compete on price (sell below MSRP). That’s similar to what exists for other products–you can buy a Sony TV or Reebok shoe directly from their respective company’s store–and pay more for them–but you can be guaranteed that you will get anything they make as opposed to what the store happens to carry.

      • 0 avatar
        danio3834

        “Car companies are not car sales companies.”

        This is pretty much it. The manufacturers don’t really want to carry this burden. Locally, there have been dealers where the owners decided to close up, but the manufacturer still wanted the territory covered. So the manufacturer took over operations for a time until they could find a buyer then handed it off.

        • 0 avatar
          Pch101

          Tesla needs to flog its own wares because it needs dedicated evangelists, not just dealers. Direct sales do make sense for a small company that launched with no heritage or reputation.

          (As an added bonus, direct sales allow Elon Musk to boast about having high gross margins to those who don’t know enough about finance to realize that Tesla’s high sales costs get booked below the line.)

  • avatar
    cmoibenlepro

    Actually Yugo was Yugoslav, not Czech.

  • avatar
    nickoo

    I’d suggest Lexus. Especially since Toyota and Tesla have financially and technucally partnered in the past and Toyota isn’t currently publicly pursing EVs.

    In further thought, if I were Toyota, I’d be saving my pennies to buy a controlling interest in Tesla once their hydrogen fuel cell abortion fails. Tsla is volatile and will suffer a major dip or two between now and model 3 production.

    • 0 avatar
      frozenman

      I would place my bets on a Toyota/Tesla store as well, considering their past business relationships. Toyota has demonstrated to be a relatively progressive company with bringing alternate fuel vehicles to light. Having decently styled rides adjacent to their own might rub off on them :)

  • avatar
    Yuppie

    I am just as interested in the photograph. How exactly did that happen? Who was driving?

  • avatar
    SCE to AUX

    Mitsubishi stores are pretty lonely these days, and besides, they have the iMiEV on offer.

    Minor nit on the numbers: 2014 Model S sales are estimated somewhat higher than stated in the article – more like 16k+.

  • avatar
    CapVandal

    I like the Acura idea. Acura is small enough that Tesla could be a huge positive for them. They also have no competing vehicles. I would find it surprising if more than a handful of customers walk in for a Tesla and drive out with an MDX.

    As far as the details, Tesla is in a good position to name their own terms and conditions. I don’t see any reason that the dealers couldn’t simply sell it on commission. Unless there are dealer laws/regulations that forbid it.

    Tesla has the cash (or can easily get it) to structure it any way they want. Their convertible bond offering was very brilliant. And if they don’t do something highly innovative in dealer sales, I will be very surprised.

    Tesla has no legacy baggage, and no reason to bargain as if they did.

  • avatar
    healthy skeptic

    *sigh*

    Bottom line–it seems the day I can just order a car at or near invoice, directly from the manufacturer, no middleman required, may never come about.

    Franchise dealers are probably a necessity to the overall industry to some extent, but there’s just no way around ’em for those who don’t need or want ’em.

  • avatar
    healthy skeptic

    >> that is an additional 130,000 sales annually for Tesla plus the huge jump in traffic would cause Acura sales to soar.

    I don’t get Steve Lynch’s logic here. Tesla is already supply-constrained under their own direct sales model. Is Acura going to help them build 130,000 additional vehicles?

  • avatar
    redav

    Autoline ran a story a few months back about Musk saying that he expected as Tesla grew, it would have to move to a franchise system. (They then claimed that to be proof that franchises are better for consumers–facepalm.)

  • avatar
    Steve-O

    If I were in Bill Ford/Mark Fields shoes, I’d be thinking about pairing Tesla with Lincoln. New Luxury/Old Luxury. It could be the next step in reinvigorating the Lincoln brand and give Tesla the scale it seeks. Matthew McConaughey in a Tesla? It just may work…

  • avatar
    jpolicke

    Once Tesla’s obnoxious policy [TTAC, 1/19] of refusing to ship collision parts to non-Tesla-approved shops [I didn’t think that was even legal] becomes more widely known Musk may not need to figure out a distribution system at all.

    • 0 avatar
      SCE to AUX

      Accidents happen to other people.

      I can tell you that if you’ve driven a Tesla (I have) and can afford one (I can’t), the driving experience vastly overwhelms any future concerns about how to repair a fender scratch.

  • avatar
    CoreyDL

    The cover photo is hilarious. I wish there were an accompanying video.

  • avatar
    pbxtech

    Mr. Buffet I have a call from a Mr. Musk on line 1.

  • avatar
    mrcool1122

    Buying the car direct from Tesla was the best experience I’ve ever had buying a car. If they start going to dealers, and I wanted to upgrade, I would rather deal with the company directly. I already know what I want; car dealers are pitchmen who try to push the more expensive model and having to listen to that is a downer.

  • avatar
    CarnotCycle

    Elon Musk made out like a bandit picking through GM detritus getting NUMMI on the cheap, but he missed out on Saturn’s excellent dealer network.

    They were consistent, customer-focused, retail-type shops that engendered brand loyalty from the purchase/service experiences alone. And Elon could have picked it all up for a song in 2009.

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