Tesla Might Consider Partnering With Franchised Dealers

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.

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.