Has it dawned on anyone?

[dsm363]

You make a big assumption when you say "the people" want this. You don't necessarily know this.


I know you're going to point out to surveys saying "87% support the idea of direct to consumer selling" - but you need to realize that those people being surveyed are not having the ENTIRE question being framed for them.

Ok, even if it is only 40% of people who want to buy their car directly from the manufacturer then why should they be stopped from doing so especially if that manufacturer has never entered into an existing sales agreement with a dealer so no harm (other than genuine competition) can be done to anyone? If your argument is competition can harm a business and lead some people to lose their jobs so we must stop that then that certainly is one way to look at it.

- - - Updated - - -

Millions of people I am referring to are the stakeholders currently in the auto industry.

I am not disagreeing with what many people on here are arguing in principle. And I do not believe the dealership model is the "best" way to go either.

The reality is that a car dealership owner will have invested $5 million, $10 million, $20 million or more in a dealership with numerous, well paid employees working for them. And in every community there will be 5, 10, 20 of these stores.

The local Apple store...how much will they have invested? They'll have a space leased out, have some inventory (much carried by the manufacturer) some desks, shelving and chairs (you get what I mean).


I'm not saying that they "deserve" this protection over the Apple dealer, or the local newspaper. I am saying that this is a fight we need to first determine is one that we can actually win, and then decide is it one we want to take on. Collectively you are threatening thousands upon thousands of dealers who have billions invested and they won't go down quietly.

Think of it like this - maybe we believe the US could win a war with China, but do you really want to go there?

And that is exactly the point. Tesla has proved that they can sells cars just like anyone else does just in a tiny mall store with no inventory and while keeping all of the profit to themselves.

Again, as long as the other manufacturers stick to their agreements with their own dealer network then I don't see a problem. Tesla doing their own thing and selling cars directly to customers may shine a light on how little value the 6-9% added cost the dealers add to the cost of the car (from a DOJ paper) but they should be allowed to follow their own path. Could that someday lead to more people buying Teslas, less people buying BMWs, Mercedes and Audis and hurting the local dealership? Sure but that is called competition.

 

[richkae]

I'm not saying that they "deserve" this protection over the Apple dealer, or the local newspaper. I am saying that this is a fight we need to first determine is one that we can actually win, and then decide is it one we want to take on. Collectively you are threatening thousands upon thousands of dealers who have billions invested and they won't go down quietly.

I think you are mistaken in thinking Tesla has a choice. Tesla believes, and I believe, and most of us on this forum believe they do not have a choice. The only way for Tesla to succeed is to not use independent dealers.
If you accept that - then it is clear that Tesla is not choosing the war, the auto dealers are. They are the ones trying to put Tesla's back up against the wall. They should keep quiet and hope no one notices the protections they enjoy. They put themselves in jeopardy by bringing attention to it.

 

[TexasEV]

No business has right to be successful, or the right to be without competition, or the right to be profitable forever. It's just rent seeking for the auto dealers to have laws passed to accomplish this. Having made an investment doesnt mean new car companies have to bow down before them. What protects their investment is if they provide value to consumers. We don't have to feel sorry for auto dealers, they've had a good run and they will continue to do well representing established major brands, but there is no legitimate reason for a state to force new entries into the market to use that business model.

Ice companies had big investment in equipment also. When home refrigeration came along did any state mandate that electric refrigerators could only be sold by ice houses?

The issue should be framed as a matter of individual rights. A manufacturer should be able to sell a product to whoever wants to buy it. A consumer should be free to buy a legal product from whoever wants to sell it to him. The only other product I can think of that some states dictate how it's bought or sold is alcohol, and those laws are legacies of Prohibition.

 

[carogan]

Ok, even if it is only 40% of people who want to buy their car directly from the manufacturer then why should they be stopped from doing so especially if that manufacturer has never entered into an existing sales agreement with a dealer so no harm (other than genuine competition) can be done to anyone? If your argument is competition can harm a business and lead some people to lose their jobs so we must stop that then that certainly is one way to look at it.

But the problem is that you're not delineating between two separate and distinct issues: permission to sell the product, and the mode of selling it

If the state deems that it is in the best interests of its constituents that the dealer network remain in place (for whatever logic good or bad that may be and whether you agree or disagree with it - whether it be for consumer protection/protect jobs/keep the governor's garage full of new cars...whatever), then there is nothing that you can do to convince anybody that this is "anti-competition", because Tesla will still be permitted to sell their product to the consumers as long as they follow the rules.

For you to argue otherwise is no different than if I argued I wanted to sell a product but wanted to bypass sales tax because it will increase my business (cheaper for the consumer) and I can also pocket some profit. You might say sales tax is bullshit, but that's too bad - the state deems it necessary so these laws will be adhered to. Its not anti-competitive because the same rules apply to me as everyone else, and I can still sell my product if I choose.

- - - Updated - - -

I think you are mistaken in thinking Tesla has a choice. Tesla believes, and I believe, and most of us on this forum believe they do not have a choice. The only way for Tesla to succeed is to not use independent dealers.
If you accept that - then it is clear that Tesla is not choosing the war, the auto dealers are. They are the ones trying to put Tesla's back up against the wall. They should keep quiet and hope no one notices the protections they enjoy. They put themselves in jeopardy by bringing attention to it.

I am curious - why is it that you accept this? Do you not think Tesla can succeed straight up against ICE vehicles if they had their own separate dealer network? I personally believe Tesla can thrive if they chose that route (not that I'm suggesting this is the best route for them)

I know that the majority of people on this forum believe as you do, but I don't see any reason why Tesla can't thrive in that model. In addition there are a number of HUGE advantages that dealerships have at their disposal that the direct to consumer sales model cannot utilize and I am certain that Tesla is unlikely to have figured these factors into their revenue projections over the long run. I know everybody likes to bash dealers because of the horrible experiences many of us have had, but there is unquestionably some major advantages and there are some REAL services that dealers provide that Tesla has foregone by choosing the Apple Model of delivery.

 

[dsm363]

But the problem is that you're not delineating between two separate and distinct issues: permission to sell the product, and the mode of selling it

If the state deems that it is in the best interests of its constituents that the dealer network remain in place (for whatever logic good or bad that may be and whether you agree or disagree with it - whether it be for consumer protection/protect jobs/keep the governor's garage full of new cars...whatever), then there is nothing that you can do to convince anybody that this is "anti-competition", because Tesla will still be permitted to sell their product to the consumers as long as they follow the rules.

For you to argue otherwise is no different than if I argued I wanted to sell a product but wanted to bypass sales tax because it will increase my business (cheaper for the consumer) and I can also pocket some profit. You might say sales tax is bullshit, but that's too bad - the state deems it necessary so these laws will be adhered to. Its not anti-competitive because the same rules apply to me as everyone else, and I can still sell my product if I choose.

No, I am arguing that the mode of selling the product shouldn't be forced on any company just as the state doesn't determine the mode any other product is sold. I'm not sure why cars deserve special sales protections. How many hardware stores went out of business when Home Depot was created and the state did nothing to protect them. Tesla has determined that they want to sell their product directly to the customer. They have zero contracts with franchised dealerships that the mere act of selling the car directly to customers would harm that agreement, harm a business or customers as there is no franchised dealer to harm. Might they harm dealerships through better efficiencies with their sales model and a better product? Sure but I don't think the state should be determining that. It appears you feel differently. Just because a law is on the books and has been for decades doesn't mean it is a good law and should be there.

You are saying that the state has determined that only cars must be sold through a select group of people and we should all be ok with that. Your sales tax analogy is a little off target. I guess you are saying that if the state determines something should be sold in a certain way (even if that way was determined through decades of political donations and influence) then we should just accept it and Tesla should live with that system even if they determine it is not in their or their customers interest and would actually harm the company on a larger scale possibly even threatening their survival and the few thousand jobs they have created. As others have pointed out, if Tesla even creates one franchised dealership then their main argument against using such a system falls apart. They are not willing to do that.

 

[mark]

Why doesn't Tesla offer to allow a franchise in a difficult state provided:
1) The dealership must be "Tesla only"
2) Wholesale price and internet price will be the same (no change in Tesla's margins by sales method)
Would any dealer agree to these terms?

 

[dsm363]

I am curious - why is it that you accept this? Do you not think Tesla can succeed straight up against ICE vehicles if they had their own separate dealer network? I personally believe Tesla can thrive if they chose that route (not that I'm suggesting this is the best route for them)

I know that the majority of people on this forum believe as you do, but I don't see any reason why Tesla can't thrive in that model. In addition there are a number of HUGE advantages that dealerships have at their disposal that the direct to consumer sales model cannot utilize and I am certain that Tesla is unlikely to have figured these factors into their revenue projections over the long run. I know everybody likes to bash dealers because of the horrible experiences many of us have had, but there is unquestionably some major advantages that Tesla has given up by choosing the Apple Model of delivery.

You may be right and Elon even said that at the Texas house hearing. Dealerships may actually be a better model but Tesla doesn't feel that way and especially as a startup they actually think they wouldn't survive in that model. Why should the state legislate their sales model if they think it would actually put them out of business? Let the market decide. Texas didn't force Michael Dell into the Best Buy or retail market for his computers and look at how well he did. I don't see how cars should be any different. If after a few years Tesla has only sold 300 cars a year in Texas as people hate buying the product from mall showrooms and online then the market will force Tesla into the franchised dealer system. At that point I'm perfectly fine with Tesla being forced by the state to sell every single store in the state to the dealer network and exiting sales in the state. I'm not sure why you feel they shouldn't be given the chance to try that model out.

I think this is one of those agree to disagree things as all relevant points have been brought up by multiple people. Tesla has a strong case for the right to sell their product like any other product is sold in the US and outdated laws regardless of how long they have been on the books do nothing but block competition.

- - - Updated - - -

Why doesn't Tesla offer to allow a franchise in a difficult state provided:
1) The dealership must be "Tesla only"
2) Wholesale price and internet price will be the same (no change in Tesla's margins by sales method)
Would any dealer agree to these terms?

They would never agree to these terms but that would be one way to go. Say ok, you must sell at our price, we still get our full profit oh and you are not allowed to make a profit off of service. As long as you agree to those terms, you can sell Tesla. If not, we must be allowed to sell the car directly to customers.

 

[richkae]

I am curious - why is it that you accept this? Do you not think Tesla can succeed straight up against ICE vehicles if they had their own separate dealer network? I personally believe Tesla can thrive if they chose that route (not that I'm suggesting this is the best route for them)

I know that the majority of people on this forum believe as you do, but I don't see any reason why Tesla can't thrive in that model. In addition there are a number of HUGE advantages that dealerships have at their disposal that the direct to consumer sales model cannot utilize and I am certain that Tesla is unlikely to have figured these factors into their revenue projections over the long run. I know everybody likes to bash dealers because of the horrible experiences many of us have had, but there is unquestionably some major advantages and there are some REAL services that dealers provide that Tesla has foregone by choosing the Apple Model of delivery.

Any auto dealership that sells both Tesla and other vehicles will give Tesla short shrift - that is already well established - so that is not an option.
So then you are left with an independent dealer who sells only Tesla vehicles. I just don't see that business as viable because the volume of vehicles would just be too low in most places outside of California. If Tesla were selling hundreds of thousands of vehicles per year and had more than one model, then perhaps Tesla only stores might work if you solved the problem of the lack of service revenue, but you would still have the bootstrap problem. Where would these dealerships have come from before Tesla had cars to sell?

I refute your claim that there are "major advantages that Tesla has given up". The only advantage is that some other entity is taking a bunch of risk off your plate by holding inventory. I think that holding a bunch of inventory is actually a huge negative and Tesla agrees. Dealerships provide no advantage, they are pure overhead. Dealerships that had a place 100 years ago were made obsolete by the internet: instant secure money transfer, overnight shipping and real-time communication.

 

[Krugerrand]

You make a big assumption when you say "the people" want this. You don't necessarily know this.

Fair enough. Then you make an equally big assumption in thinking *The People* enjoy the Dealership experience.

I know you're going to point out to surveys saying "87% support the idea of direct to consumer selling" - but you need to realize that those people being surveyed are not having the ENTIRE question being framed for them.

What 'entire question needs to be framed' for them? That gives the impression that you think the people are too dumb to know what's being asked and what the likely outcome will be given a yes or no answer.

 

[jerry33]

am curious - why is it that you accept this? Do you not think Tesla can succeed straight up against ICE vehicles if they had their own separate dealer network? I personally believe Tesla can thrive if they chose that route (not that I'm suggesting this is the best route for them)

Dealerships add 30% to the cost of an automobile according to the government. I can assure you that many would not buy a Model S for 30% more than it is today. In addition, service by dealers ranges from average to very poor. The dealer model is broken, and there's really no way to fix it other than to scrap it. In my opinion, the best thing to do is to buy a Tesla and encourage others to do so because every Telsa sold is an average of $90,000 that doesn't go into the dealer's pockets.

Bear in mind that dealers today are not what the dealers were when the laws were written. Back then, they were mostly run by a single person or family and sold one brand of car--that model has gone the way of the family farm. Now dealerships are big business selling many brands of cars. The original intent of the law was to protect small family businesses against the powerful automakers. Now, for the most part, small family dealerships don't exist so the reason for protecting them doesn't exist.

 

[rsquared99]

I'd like to thank carogan for provoking a broad intelligent discussion about this matter. Especially, since this hasn't yet devolved into the normal trip to the snippiness thread as so many of these discussions tend to do.

 

[PeterW]

Bear in mind that dealers today are not what the dealers were when the laws were written. Back then, they were mostly run by a single person or family and sold one brand of car--that model has gone the way of the family farm. Now dealerships are big business selling many brands of cars. The original intent of the law was to protect small family businesses against the powerful automakers. Now, for the most part, small family dealerships don't exist so the reason for protecting them doesn't exist.

Nicely put, thanks Jerry.

 

[Bubba]

But this is where I'm getting at.

The laws that are being argued is that there is some implied necessity for dealerships. The arguments are being perceived by Tesla supporters as being anti-Tesla, but I am suggesting that we (Tesla supporters) could be being very short-sighted by simply making this conclusion. There may be more substance to their concerns than what many of our supporters make it out to be.

I remember back during the 90s cell phone salesmen made a lot of money. There were guys making over $100,000+ per year doing that job.
The market changes. It might be that dealers and car salesmen is just not going to be a high paying profession in the future.

I recall that my first cell phone (around 1996) the salesperson came to my office and did a delivery and setup with me. Those days are gone. There are plenty of business models that fail over time due to changing conditions. If dealers are not sustainable because an EV does not generate the necessary dealer service revenue, then that is the way it is going to be.

 

[ggies07]

Oh oh, I know another example of whats going on between the dealers and Tesla. This is an overview of the book Dark Pools from Amazon:

"In the beginning was Josh Levine, an idealistic programming genius who dreamed of wresting control of the market from the big exchanges that, again and again, gave the giant institutions an advantage over the little guy. Levine created a computerized trading hub named Island where small traders swapped stocks, and over time his invention morphed into a global electronic stock market that sent trillions in capital through a vast jungle of fiber-optic cables. "

It's a fascinating book if you haven't heard of it before.

So, change can occur and will. Electric cars will prevail.

 

[AudubonB]

This is an excellent and thought-provoking thread (I repeat myself). There has been a good amount of input causing many, including me, to step back and re-examine earlier-held, possibly nonchalantly-thought-out positions.

I have some questions, but little in the way of answers.

1. What are the salient arguments for TM NOT to form dealerships? I am not blindly going to agree that a dealership format would necessarily raise final price by 30%. It very likely would, however, lower TM's profit margin - I can accept that, even if, as a shareholder, I might not love it. That being said, as a shareholder I would dearly prefer holding stock in a company with a 15% margin and 25X sales over one with a 25% profit margin and X sales.

What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

 

[Electroman]

How about this : I want to start a dealership selling milk from various producers. I will spend millions in dairy selling facility and employ hundreds from the local community and many of them high paying jobs. The consumers will pay a marginal $2 higher price after intense haggling, but I might throw a pack of cheese with it.

All I ask is exclusivity and protection from manufacturers and retail stores. Don't forget the 'fabric of society' and 'hundreds of well paying jobs' argument.

 

[Electroman]

I will have plush furniture and well dressed salesman explaining in detail the different flavors of milk, for just $2 more per gallon.

It will be a travesty if a small time milk producer tries to sell directly and if I have to close my dealership.

 

[bollar]

What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

Well, the problem was that although there was a MSRP that franchisees were expected to stick to, the franchisees set the daily price and sometimes tacked on "required extras" onto popular models like the Saturn Sky. Franchisees also tacked on profit by increasing interest rates on financing.

GM had little control over these franchisee pricing decisions.

Saturn was a great idea that didn't work as well as it could, given GM's relationship with franchisees.

 

[richkae]

1. What are the salient arguments for TM NOT to form dealerships?

Ask for reasons why Tesla should sell through dealerships.

<crickets>

 

[Gee-Man]

Although I think the OP makes some very good points about understanding the opposition before taking them on, I also think that Tesla can't and shouldn't try to solve this problem for the entire auto industry all by themselves. Yeah, in theory, only Tesla being allowed to go direct is "unfair" - *if* you assume that the original intent of these laws was to prevent auto manufacturers from selling direct (put aside whether that's a good thing or a bad thing for the moment), and Tesla is allowed to bypass the laws and sell cars directly to consumers and set up Tesla stores, why should Ford be prevented from doing the same and directing people to buy from their "Ford Store"? I actually would be perfectly ok with that - I will never buy another car from a dealer again if I can help it - but it does seem like the manufacturers won't be competing on a level playing field in theory, once Tesla starts selling a lot more cars than they do now.

But changing the way automobiles are sold for every auto manufacturer is a rather tall order. As an owner and shareholder I'd rather Tesla focus on solving their specific problem first. If that means taking advantage of "loopholes" and other legal means in order to sell cars in the states where they want to, I think that's smart business.

In the short term, Tesla's situation is a lot like the situation Apple faced when they started the Apple stores. Independent dealers who had sold Macintoshes up to that point were furious with Apple for competing with them, and fought hard to stop Apple from doing what they did. Unlike the auto dealers, there were no laws to stop Apple, and ultimately, I think most people figured out what Apple already knew - that the existing Mac dealers as a whole were doing an absolutely terrible job at selling Apple computers, and it was making it nearly impossible for Apple to compete in the PC marketplace. That obvious-in-hindsight fact is what made Apple even bother with the direct-to-consumer model in the first place, just like Tesla. In the end, a whole lot of Apple dealers died off, and there are only a few independent Apple dealers still around, but those are the ones who figured out how to compete for real and offer some kind of value-added to to the customer, not just be the only choice by default. In the end, the entire experience of buying Apple computers (and arguably, other computers as well) got much better for the customer because of Steve Jobs' move. If you wanted one, there was no more buying a Mac at the back corner of a CompUSA from a salesperson who didn't even know how to turn the thing on, let alone answer questions about it.

But this thread is about the long-term situation. So long as we're speculating about what Tesla could do if they were out to change the entire industry's sales model, maybe they could enlist an unlikely ally in this fight: the other auto manufacturers. I suspect there are many of them that don't like being forced by law into the independent dealer model, and would like to sell direct also. Maybe if they combine forces, they could change the laws so that all auto manufacturers could do what Tesla is trying to do. Ideally this should be done alongside some additional consumer safeguards, such as require replacement parts be made available for a certain number of years after a car is discontinued (I understand California has a law like this for computer parts), or perhaps make it illegal for an auto manufacturer to void a warranty if a car gets serviced outside of their direct service centers. Just brainstorming here, I haven't thought through all the pros and cons of all this, but the overall discussion is very interesting to me.