Akerson Demands GM Innovation to Blunt Tesla Threat

[jeff_adams]

The auto manufacturers are literally stuck between a rock and a hard place. The best thing they might be able to pull off is starting a new brand for EVs completely.

Yep. Current dealers are not motivated to invest in salesmen training for EVs. They don't make enough on maintenance of EVs. It's in their best financial interest to push ICE sales.

Until that dynamic changes, the automakers are not going to be much competition for Tesla in EV sales. That's a big reason to be buying Tesla stock. The dealership model ensures "compliance car" competition instead of real competition.

The automakers are going to be doing EVs on the cheap since it's likely to be run at a loss anyway. They might show off cool concept cars, but they can't financially justify building them to sell through franchised dealerships.

 

[derekt75]

Current dealers are not motivated to invest in salesmen training for EVs. They don't make enough on maintenance of EVs. It's in their best financial interest to push ICE sales.

I'm not convinced. I look at Bay Area Nissan dealerships and I see no evidence of prejudice against the Leaf; they seem to promote it as much as any of their other cars.
I tend to think that if the dealership is going to try to sell whatever cars they think they are going to sell. If the car happens to be electric, fine. BEVs still require some maintenance and a sale is a sale. Make someone happy with their Leaf purchase, and maybe they'll buy a Pathfinder for their 2nd car, who knows.
and if there is any prejudice against selling Leafs, it doesn't seem to be affecting the Leaf sales numbers around here.

If you make a desirable BEV, you'll have no problem selling it via dealers.

If you make a Focus EV that costs double your gasoline powered Focus, goes only 70 some miles per charge, and takes nearly 50% longer to get from 0 to 60, you might not have good luck selling it through dealers. but the dealers are really the least of your problems if you do that. (Apologies to any Ford Focus EV owners reading this, but I think you have to really want a BEV to choose a Focus EV over the gasoline powered Focus).


As far as making the right car, I think the important thing is to find a target market segment where you can make the best car for that segment. If you ask 100 random people what they want, and try to make a car that maximizes happiness for those 100 people, your car will be so full of compromises that nobody will be happy. and that's the neat thing about Tesla. By aiming at a $60k - $110k price point, they admitted up front they were looking at a very small segment of the market. and then they went on to make the best car for that segment.
A friend of mine was part of a Chevy Volt focus group, and he thinks it was handled terribly. They asked a bunch of completely dissimilar people what features they'd prefer. Some of the "features" were "innovative" (e.g., ability to change the color of your car as fast as you can change the cover on your cell phone), but perhaps not especially compelling reasons to buy a car.

Anyway, it still confuses me why the big manufacturers keep on aiming at lower price points. The thing about BEVs is that range and performance are inextricably linked. If you make a car that costs $70k, it can go far and can have great performance. If you make a car that costs $30k, it won't go far and it will have crappy performance. yeah, the $30k market is bigger, but if the only BEV you can create at that price is inferior to gasoline cars in nearly every way (cost of ownership, performance, range, etc), why bother?
I'm sure Tesla has some neat patents, but c'mon, safely wiring together a bunch of Panasonic batteries is not beyond the capabilities of GM engineers, nor is making an AC induction motor. On the other hand, GM can leverage all of their experience with user interface things, their adaptive cruise control, their parking sensors, etc., whereas Tesla has to largely design their stuff from scratch. So why are they making a Chevy Spark instead of a Cadillac Escalade EV? Power folding mirrors. blind spot detection warning. LCDs for the rear passengers built into the seats. The Escalade isn't my thing, but my point is: GM could make the best large SUV if they made it powered by Battery. Instead, they're making an inferior econobox when they try to power the econobox with a battery.

I'd rather have the best product in a small market than the worst product in a big market.

 

[ChadS]

I look at Bay Area Nissan dealerships and I see no evidence of prejudice against the Leaf;

Sure, as I noted before there are some dealers that are OK with EVs. The Bay area is the best place in the nation to find them. There is a very supportive Nissan dealer near me too; but it took them a long time to get here - the first time I approached them (to offer free help selling Leafs) they told me, politely but very clearly, to go away because the Leaf wasn't worth spending their time on. (I got that response almost everywhere I went). Most of the dealers around the nation are still at that stage. Like consumer perceptions of EV prospects, dealer perceptions will change over time. They will change fastest in the areas where consumers are demanding them - and the Bay area is the leader there.

 

[jerry33]

My experience was like Chad's. Go away, don't bother me.

 

[ChadS]

Anyway, it still confuses me why the big manufacturers keep on aiming at lower price points.

You make several really great points about why companies that want to make money on plug-ins will have an easier time if they start upscale.

But only Tesla, GM (with the Volt, but not with the Spark), Nissan and I suspect BMW are trying to make money. Everybody else is just trying to lose as little as possible, so a different logic applies. They really think - whether because of lack of consumer demand (which they never tried to measure), lack of dealer willingness (which they never tried to address), lack of desire or resources to be a frontrunner, or inability to recognize the advantages - that they can't make money at EVs. Part of it is just the zeitgeist - everybody knows you can't make money selling EVs, so we would be fools to try. (I was amazed at how much of this attitude I saw with venture capitalists back when I was raising money for a software company. Some of them were aware of it and apologized, but said it was easier to go with the crowd than to explain to their investors why they were swimming against it. This explains a lot of the boom-and-bust cycles in markets).

Given this mindset, most automakers are building small cars in small quantities and will only sell them in limited numbers in ZEV states to meet regulations while keeping their losses as low as possible. Of course there will be losses if they are trying to sell in low quantities; it is a self-fulfilling prophecy. Nissan and BMW didn't start their EV programs until hydrogen research credits dried up, but they appear to be trying to make lemonade and make money. However, they are treating the cars as a small element of their portfolio rather than a disruption, so they will struggle - they are fine knowing that some people want more than 80 miles of range, because they (misreading the market) figure they can just sell them a gas car instead. GM started earlier and was aiming more for a halo car; but they clearly didn't want to mess with their dealers (too bad their dealers have resisted anyway, despite GM giving them a gas car to sell and service) or lead on infrastructure, so they too have ended up with a nice but non-disruptive car.

 

[moollar]

But only Tesla, GM (with the Volt, but not with the Spark), Nissan and I suspect BMW are trying to make money. Everybody else is just trying to lose as little as possible, so a different logic applies. They really think - whether because of lack of consumer demand (which they never tried to measure), lack of dealer willingness (which they never tried to address), lack of desire or resources to be a frontrunner, or inability to recognize the advantages - that they can't make money at EVs.

All-round short-sightedness and keeping to the status quo type of mentality. Good thing Tesla has made it to where they are to prove them wrong.

Given this mindset, most automakers are building small cars in small quantities and will only sell them in limited numbers in ZEV states to meet regulations while keeping their losses as low as possible.

Which is why you don't see (and will likely not ever see) those vehicles in most other parts of the world, like where I live.

Of course there will be losses if they are trying to sell in low quantities; it is a self-fulfilling prophecy.

That, sir, is what they call hitting the nail on the head. It seems that they have always used this excuse that they don't make money on EVs. Well, duh, Mr Automaker! If you actually ramped up production and put in a proper effort to make something decent (which I'm sure they'd be capable of doing if they put their mind to it!), you would make some decent coin I'm sure!

However, they are treating the cars as a small element of their portfolio rather than a disruption, so they will struggle - they are fine knowing that some people want more than 80 miles of range, because they (misreading the market) figure they can just sell them a gas car instead. GM started earlier and was aiming more for a halo car; but they clearly didn't want to mess with their dealers (too bad their dealers have resisted anyway, despite GM giving them a gas car to sell and service) or lead on infrastructure, so they too have ended up with a nice but non-disruptive car.

You've made some excellent points. To be fair though, a lot of the solutions to solving issues associated with a transition to EVs have been difficult problems to solve (e.g. decent range, supercharging, etc.). However, now that Tesla has shown that it can be done, there are no more excuses. I guess that's been the point of Tesla all along.

 

[jerry33]

However, now that Tesla has shown that it can be done, there are no more excuses. I guess that's been the point of Tesla all along.

Of course, the next excuse is "Tesla has already captured all those who are going to purchase electric cars, so there's no point in going after the few remaining ones." Status quo is very hard to fight. At least with EVs it needs to be powered by an electric motor, unlike hybrids, where GM installed a larger alternator, had the car turn off the engine at stop lights, and then stuck a hybrid label on it.

 

[jeff_adams]

One interesting factor I've seen are stories of people on this forum that ended up visiting a Tesla store, got an education on electric vehicles and ended up buying a Volt or Leaf because of budget.


The Chevy and Nissan dealers didn't bother trying to educate them, it was Tesla that convinced them to drive an EV. This is exactly why Tesla doesn't want to be forced to use 3rd party dealers.

These buyers claim they will be selling or trading in their cars when Genlll comes out. Tesla gets it and they will have impressive customer loyalty because of that.

 

[ChadS]

To be fair though, a lot of the solutions to solving issues associated with a transition to EVs have been difficult problems to solve (e.g. decent range, supercharging, etc.).

Agreed. As much as I am a fan of EVs, I have to admit if I worked at a major automaker I would have thought twice about building one. Why build a product that our only legal channel won't sell? Why build a product that requires new infrastructure - nobody else is building the infrastructure, and if we build it everybody else can benefit from it. Why take a risk on a product that people are skeptical of, with no proven market? These clearly are problems that can be solved; but it does take a lot of thought and work. I wish the majors had made a serious effort earlier, but I don't really see the point to blaming them for not taking the risk. I can even mostly forgive them for being too thick-headed to see disruption as it's happening (though that's awfully frustrating, because this transition could happen a lot faster if the major automakers would just try). My main issue is when they lie about the market or actively work to slow it down - you don't have an obligation to be a leader; but you had better not be an active obstacle.

However, now that Tesla has shown that it can be done, there are no more excuses. I guess that's been the point of Tesla all along.

Absolutely. I don't need two Teslas and really didn't like paying for them (especially the Roadster, which I bought just as it looked like they were going out of business in mid-2009), but that's why I own them - I support their mission to change the industry, and it sure didn't look like anybody else was going to do it.

For those who were at TESLIVE, this was the point of the "Tesla Movement" talk that I moderated. Tesla is not trying to take over the auto industry, if for no other reason than that will take too long. They are trying to be an example to show the auto industry that they can (and have to) change. I take Akerson's concern to be a good sign that some automakers are starting to take the message to heart. My fear is that they will apply their old commodity brand management thinking and try to slow down Tesla rather than trying to catch up.

 

[Benz]

[Tesla is not trying to take over the auto industry, if for no other reason than that will take too long. They are trying to be an example to show the auto industry that they can (and have to) change.]

Well, that's very true. And it surely hasn't happened yet. But more EV models are being unveiled every year. The market share of EV's will rise steadily. And at some point (2020?) the auto industry will start changing it's focus towards EV's more rapidly. In the end they are in this to do some business.

 

[AudubonB]

I need be convinced about this dealership recalcitrance/stalling/dragging their feet/back-burnering EV conspiracy. There is a lot of reference to it...in this forum.

But:

Does it pass the smell test? Are effectively all dealerships reluctant to sell something new? Did dealers tell Ford to take a flying leap when it invented and distributed what it called a "sport utility vehicle" that they named the Explorer?

To me, it makes more sense that when a dealership has the opportunity to clear X percent on a new vehicle, it will quite happily do so. This "Doug-in-the-back-room-who's-junior-to-all-the-other-salesmen will be the one to slough that EV off on you" mentality just doesn't stand to reason.

So: have at it. Am all ears -

 

[ChadS]

I have been working on this with automakers and dealers for years. I'm having a hard time envisioning what sort of "proof" you're looking for.

As was explained above, the problem is not that the cars are "new". The problem is that, from the dealers' perspective, they are more work for less money. More work because consumers have a LOT of questions about them (and the dealers are required to train staff, buy equipment, install EVSEs, etc), and less money because dealers assume nobody will buy them, and even if they do the cars typically have less maintenance. This is what the dealers tell us. This is what the automakers tell us. And this attitude REALLY shows up in the many dozens of stories we've heard from people that have tried to buy plug-in vehicles, and had the salesman do their best to talk them out of it (including lying about whether they have one and/or can get one). Of course there are exceptions; dealerships are staffed by people, and some people like plug-ins. Some dealers are looking for a differentiator and realize that plug-in buyers are more affluent and connected. Some dealers are in areas where there is high demand. It is changing (and a lot of that is due to Tesla changing perceptions), but it is still a big issue in most of the country.

It's not a conspiracy at all (was that ever mentioned in this thread?); it's uninformed self interest.

 

[Benz]

I need be convinced about this dealership recalcitrance/stalling/dragging their feet/back-burnering EV conspiracy. There is a lot of reference to it...in this forum.

But:

Does it pass the smell test? Are effectively all dealerships reluctant to sell something new? Did dealers tell Ford to take a flying leap when it invented and distributed what it called a "sport utility vehicle" that they named the Explorer?

To me, it makes more sense that when a dealership has the opportunity to clear X percent on a new vehicle, it will quite happily do so. This "Doug-in-the-back-room-who's-junior-to-all-the-other-salesmen will be the one to slough that EV off on you" mentality just doesn't stand to reason.

So: have at it. Am all ears -

Well, first of all start reading this article: "Strangling Innovation: Tesla vs. 'Rent Seekers'".
Here is the link: http://www.forbes.com/sites/steveblank/2013/06/24/strangling-innovation-tesla-vs-rent-seekers/

 

[Doug_G]

I need be convinced about this dealership recalcitrance/stalling/dragging their feet/back-burnering EV conspiracy.

I have personal experience. A couple of years ago I helped out Sun Country Highway at the Canadian International Auto Show in Toronto, at their EV charging station booth. Had my Roadster on display.

The vendor lounge had food so I'd go there for lunch. You'd often have to share a table. The guy who sat down with me was from a Honda dealer. When he realized who I was with he lit into me big-time. First thing out of his mouth, "I personally resent, as a taxpayer, the rebates electric vehicle owners are getting out of my tax dollars." I just fired back that I resented the billions of dollars of our tax dollars going to subsidize oil companies. He then proceeded to assail me with every piece of FUD you had ever heard of. He was extremely well-misinformed. I shot down every single one of his FUD attacks over the next half hour.

This sort of opinion is not at all uncommon at car dealerships.

 

[AudubonB]

Fair enough point: I used the word "conspiracy" because I have sensed there is the feeling that effectively all dealerships are so like-minded.

But come on: a sales force, in whatever field, has to learn about The New Product. And sure, an EV differs in more ways from a GM ___X____ than it does from GM _____Y_____, but it's still a car. Ya wanna earn yer commission, Mr. Salesman? Well, you can earn A% from that $38,000 ICE, or A% from that $78,000 EV. You're the salesman: which one will you choose?

Perhaps one-half of all car salesmen really are ​ neanderthals. Or even 60%. But 90%? 99%? I'm no fan of them, but I'm not willing to go that far.

 

[ChadS]

You still are describing the dealer's thoughts as if selling a gas car is the same as selling an ICE. The work is not the same, and the profits are not the same. You are mischaracterizing the problem; that is why you don't understand it. We're really not making this up, and I'm not sure why you think we would do that.

If you're not going to trust us, see for yourself. Try going to several dealerships and asking about plug-ins. I'm in Seattle, which is a top market (the biggest Leaf dealer in the US - one that told me a couple of years ago they weren't going to waste their time on the Leaf - is just a few miles from me, and I think this area is Tesla's largest outside of CA), and the last two friends I sent to dealers both got really heavy pressure to buy a gas car instead (one succumbed; the other ended up buying a Leaf from a friendlier dealer even though the Leaf wasn't their first choice). One dealer didn't stock any plug-ins; the other stocked one (with a big markup on it). These were big dealers that had scores of gas cars, and they were cutting deals on those.

Tesla, GM and Nissan are the only automakers serious about selling in quantity. They all knew about this problem, and tried to address it in different ways. Tesla was a new company, so they sell direct and don't use dealers even though using dealers could have freed up a TON of desperately-needed cash and allowed them to grow faster. GM had done a BEV before and learned their lesson; the Volt has a gas engine so they expected the car would be easier to sell and dealers would appreciate similar maintenance requirements (a clever plan, but foiled by a remarkably persistent Volt FUD campaign that still has most US consumers misunderstanding how the car works). Nissan initially sold Leafs direct (technically not legal; but dealers didn't care at the time because they didn't expect any volume and didn't complain) and just used dealers as a delivery point. They tried to prove the market and train their dealers and then had the dealers take over. They moved too early; dealers weren't convinced, and sales fell off a cliff when they made the transition. Their numbers have been going up nicely since; but in really limited areas from a small number of dealers. Largely in major cities on the West coast, and Tennessee where the cars are built.

 

[Benz]

Fair enough point: I used the word "conspiracy" because I have sensed there is the feeling that effectively all dealerships are so like-minded.

But come on: a sales force, in whatever field, has to learn about The New Product. And sure, an EV differs in more ways from a GM ___X____ than it does from GM _____Y_____, but it's still a car. Ya wanna earn yer commission, Mr. Salesman? Well, you can earn A% from that $38,000 ICE, or A% from that $78,000 EV. You're the salesman: which one will you choose?

Perhaps one-half of all car salesmen really are ​ neanderthals. Or even 60%. But 90%? 99%? I'm no fan of them, but I'm not willing to go that far.

You need to step into an helicopter and see the picture of the situation from a much higher level. First of all, they need us to remain addicted to oil. And we don't want that. Besides, they want us to buy cars for which we will need to keep on buying parts for repair and maintenance on a regular basis, because that's an important part of their business. And they want to keep it that way. If they would start selling us EV's, then they would be undermining their own business.

 

[AudubonB]

Chad: I am writing this from the rarefied confines of the middle of nowhere. I'm sure you're right...up to a point. But you're right: I don't understand. Sales iz sales iz sales. "Work"? You mean a steep learning curve? Okay.....but after that, you the salesman is up on that elevated knowledge plateau and if you're first and best, you get the commissions.
Your second line, "profits are not the same". I'm suspecting you may be referring to dealership service department. But aren't those just as separate from sales as a dealership is from F/GM/C??????

Really, I'm not trying to be overly contentious here - rather, I don't want to have everyone complacent in thinking that the Chinese Walls TM has are insurmountable in EVERY respect.

 

[Benz]

Dealers generate more profit from service, repair and maintenance from a ICE vehicle over the years, then they do from selling it. With EV's that will be different.

 

[ChadS]

It's not just a learning curve; the time invested to make each sale and the rewards - as Benz notes, most US dealer profits are from service - are not the same. (The differences are worse in perception than reality; and of course perception is what determines behavior. The good news is that perceptions are changing).

Service is separate from sales, yes. But management sets the spiffs for their salespeople, and they are set with total dealer profits in mind. This is assuming the dealer bothered to invest in the training and equipment required to sell the cars at all - most don't even get that far. Almost 2/3 of Ford dealers don't sell plug-ins, for example - Ford was quite proud that they had talked 1/3 of their dealers in to it and issued a press release. I suggested above that if the automakers raised dealer margins so dealers could set higher spiffs on them, things would turn around. I agree dealers will sell them if they see the work/reward ratio as equivalent - but right now, they don't.

The problem is not insurmountable; it is being surmounted as we speak. But it is an enormous problem, and overcoming it is very slow process. To overcome it, we have to understand it.

(I am not sure I understand your last sentence, but just to be clear Tesla Motors is happy to see other automakers dive in. They WANT the other automakers to be successful selling plug-ins, and are dismayed that things aren't moving along faster. Me too; I like Tesla because they are doing a better job of changing attitudes about plug-ins than anybody else, but I'm primarily a plug-in fan and I want to see the other automakers catch up. I believe they can make great cars and that their customers will love them. I think the primary obstacles are business ones, including the dealer reluctance issue that we have been discussing. I'm not trying to argue that Tesla will forever be the EV leader; I'm trying to figure out what the other automakers have to do to catch up).