Mary Barra, what is going through your mind right now?

[ttupper92618]

Most manufacturers are lucky to sell their wares to the dealership at a 6% gross margin, that's the industry average. If Tesla chooses to sell their cars at a 15% profit (reserving what is normally dealer profit for themselves) that is their choice to make. If they then also choose to not negotiate that price with you the consumer, where-as you could negotiate final price with a dealer, then you lose if you are a good negotiator.

I was in sales for 7 years, so please don't lecture me about how I'm getting lied to and taken advantage of by the dealer. When I leave we are both happy, they made a sale (and hit their numbers for things like incentives & dealer holdback) and I'm happy because I paid about $500 over their invoice price for the car, or in some cases less.

Dealers make more of their money by selling your Retail Installment Contract than they do from marking up the car; The finance department is the biggest profit center for virtually every dealership.

You hear this story all the time: Random Person walks into a dealership to buy a car. They wrangle with the dealer about options and getting the car for X amount above invoice, and then the salesperson goes off to their finance guys and they run your credit and they come back with the best financing offer they can find. Random Person thinks they got a great deal, because they got the car for $500 above invoice or whatever. Except, it isn't. Because behind the scenes the dealer just ran Random Person's credit past 15 lenders. And the dealer then picked the lender with the best rate structure relative to their desired spread (between the actual financing cost and what they want to tell Random Person), and they then presented that rate to Random Person. And they didn't tell Random Person any of that at all. So, Random Person gets financed at, say, 5.99 percent... but the dealer who originated the contract actually did so at a rate of 2.99 percent. And to whom does that delta in financing cost accrue? To the dealer - this is their profit center. And it is hidden, it is dishonest, and it is central to the way that dealers do business - the lack of transparency involved in how much the consumer is actually paying for financing vs. the actual value of the contract is integral to the dealership model.

Most everyone who walks in to a dealership knows on some level they are being screwed, and they also know that the manner in which it is happening is being hidden from them. And that's why people hate dealerships. It isn't because they are poor negotiators, it is because the entire model is predicated upon business practices that are designed to be deceptive on multiple levels.

 

[voip-ninja]

Frankly, only an idiot goes into the dealership and lets them handle the financing. I always negotiate the price and then when the dealer approaches me with financing I typically tell them I'll either be paying cash or that I've got rate x from my credit union or other bank and they are welcome to try and do better (they usually can't).

If I'm leasing/financing through the manufacturer I never walk in without knowing what their base rates are for both finance and lease (money factor).

I understand that this seems mind shockingly impossible that there are informed consumers out there, but there are quite a few of us.

And I personally don't know anyone who goes into the dealership and negotiates hard to save a few thousand bucks on the price of a car and then lets the dealer walk over them on the finance piece.

You can look at Tesla's "one price" practice as a boon to consumers who can't haggle their way out of a wet paper bag, or you can look at it as a detriment to those of us who can save a bit of coin on an expensive purchase.

As I pointed out, even Apple distributes their wares to resellers ("dealers") and can't stop those dealers from discounting their product far more than they would be comfortable doing. I believe that Wal-Mart and possibly a few others were doing some pretty aggressive discounting on iPhones recently.

There are actually are decent dealers out there and certainly the dealer network is convenient when you have a newer car that is still under warranty and you need to get it serviced... especially if you are away from home.

 

[Red Sage]

@bonnie -- Thanks for the link to the article by Newt Gingrich! I once saw an interview of him on ZDTV (nee, TechTV) and found him to be very smart. He seems to be a great guy, very adept with technology concerns. I hadn't seen his views on Tesla v NJMVC two years ago, so this was a pleasant surprise.

"So the dealers' actual argument is that without the restrictions, cars would be substantially less expensive for consumers, because they wouldn't need to pay the middle man anymore." -- Newt Gingrich, 'Christie and Tesla'

This is good reading as well:

Economic Effects Of State Bans On Direct Manufacturer Sales To Car Buyers | ATR | Department of Justice

 

[bonnie]

... and certainly the dealer network is convenient when you have a newer car that is still under warranty and you need to get it serviced... especially if you are away from home.

Kind of like when I was on a roadtrip with my Roadster and needed something looked at. The Westside Seattle service center had all my info and took care of things, no charge.

 

[ttupper92618]

Frankly, only an idiot goes into the dealership and lets them handle the financing. I always negotiate the price and then when the dealer approaches me with financing I typically tell them I'll either be paying cash or that I've got rate x from my credit union or other bank and they are welcome to try and do better (they usually can't).

If I'm leasing/financing through the manufacturer I never walk in without knowing what their base rates are for both finance and lease (money factor).

I understand that this seems mind shockingly impossible that there are informed consumers out there, but there are quite a few of us.

And I personally don't know anyone who goes into the dealership and negotiates hard to save a few thousand bucks on the price of a car and then lets the dealer walk over them on the finance piece.

Nope. What you describe represents a tiny percentage of consumers who buy from a dealership - it is not the norm. The norm is this: The vast majority of consumers walk into a dealership not with a notion of how much they want to spend, they walk in with a notion of what sort of monthly payment they can accept. And dealers actually ask, and they then conform their deals to hitting that payment target. And the bulk of the dealer's shenanigans fall into that hidden space beneath how much the person is actually paying for the car and what the dealer did to hit that monthly payment target.

If you think that is not the case, I'm fine with that. However, I assure you it is a fact, and as such it explains in the entirety why the financing department is the primary profit centers for dealers; if it were not true, the secondary part of that equation would also fail the test. Dislike if you must, but distaste for the truth does not diminish it.

 

[Lunarx]

Dealers make more of their money by selling your Retail Installment Contract than they do from marking up the car; The finance department is the biggest profit center for virtually every dealership.

You hear this story all the time: Random Person walks into a dealership to buy a car. They wrangle with the dealer about options and getting the car for X amount above invoice, and then the salesperson goes off to their finance guys and they run your credit and they come back with the best financing offer they can find. Random Person thinks they got a great deal, because they got the car for $500 above invoice or whatever. Except, it isn't. Because behind the scenes the dealer just ran Random Person's credit past 15 lenders. And the dealer then picked the lender with the best rate structure relative to their desired spread (between the actual financing cost and what they want to tell Random Person), and they then presented that rate to Random Person. And they didn't tell Random Person any of that at all. So, Random Person gets financed at, say, 5.99 percent... but the dealer who originated the contract actually did so at a rate of 2.99 percent. And to whom does that delta in financing cost accrue? To the dealer - this is their profit center. And it is hidden, it is dishonest, and it is central to the way that dealers do business - the lack of transparency involved in how much the consumer is actually paying for financing vs. the actual value of the contract is integral to the dealership model.

Most everyone who walks in to a dealership knows on some level they are being screwed, and they also know that the manner in which it is happening is being hidden from them. And that's why people hate dealerships. It isn't because they are poor negotiators, it is because the entire model is predicated upon business practices that are designed to be deceptive on multiple levels.

You are so right!!
As someone with a very high credit rating, the dealers love to bump my rate and take the spread.
It's offensive to have my good credit rating used against me that way.
I only lease now, so I kind of have to deal with financing, but I need to shop multiple dealers, to find the honest dealers from the crooks.
It is satisfying to see slimy dealers cut out of the process by Tesla.

 

[voip-ninja]

Nope. What you describe represents a tiny percentage of consumers who buy from a dealership - it is not the norm. The norm is this: The vast majority of consumers walk into a dealership not with a notion of how much they want to spend, they walk in with a notion of what sort of monthly payment they can accept. And dealers actually ask, and they then conform their deals to hitting that payment target. And the bulk of the dealer's shenanigans fall into that hidden space beneath how much the person is actually paying for the car and what the dealer did to hit that monthly payment target.

If you think that is not the case, I'm fine with that. However, I assure you it is a fact, and as such it explains in the entirety why the financing department is the primary profit centers for dealers; if it were not true, the secondary part of that equation would also fail the test. Dislike if you must, but distaste for the truth does not diminish it.

It's hard to take you seriously when you are providing poor information (the primary profit center for dealers is service, not financing which is probably why Tesla already offers a nice profitable annual service on their "low maintenance" auto).

The Surprising Ways Car Dealers Make The Most Money Off You

Do plenty of consumers go into a dealership with simply a monthly payment in mind and how much they can "put down" on a new car? Sure they do, but not all of them do. Those who are able to negotiate a better deal will "suffer" under the Tesla way of doing things (at least until at some point down the road they are forced to discount product after production starts to out-pace demand)... that's my point. For those who are not very good negotiators I would say that Tesla's way of purchasing might prevent them from being taken of directly, but there are still plenty of opportunities for Tesla to make extra money from them, such as low-balling what their trade-in is worth.

I get it that a lot of you guys here are massive fans of Tesla and thinks that Elon Musk pisses lemonade, but you should at least be open to rational conversation about the pros/cons of not only Tesla vehicles but their delivery model as well.

 

[int32_t]

I hope so. We don't need an EV failure at this point in evolution. But it appears you've fallen for the dealership mantra that they make prices more competitive. The reality is yes, you can negotiate price with a dealership. But they're not going to lose money. They're trying to maximize their profits, based on how well you negotiate. And remember, you're negotiating best price between different dealerships, many of which are owned by the same umbrella company. It gives the illusion of competitive pricing.

Newt Gingrich wrote a great article about how much more you pay using the dealership model. Christie and Tesla In it, he quotes a GS study that found, on average, the price of a car is 10% higher just to cover all the dealership costs like advertising, etc.

When the 3 is ready, people can cross shop. Good for everyone.

Here in Edmonton, it's very competitive <sarcasm>. I'd say roughly 90% (maybe more) of the dealerships here are owned by Go Auto. Whenever another dealership bites the dust and gets taken over by Go Auto, I say it's been Goed or is Gone. We have two Go Nissans, Go Honda, Go Porsche, Go Kia, Go Infiniti, Go Ford, the list goes on ... it should be illegal for all dealerships of a certain brand or for more than half the total dealership market in a given area to be owned by a single corporation.

I prefer the Apple/Tesla business model of, "here it is, this is its price" way better than the shop-around PC and existing car market. I hate shopping and always wonder if I could have got it for less elsewhere.

 

[Bangor Bob]

Assuming this is true, what meaning does this actually have?

Does this mean the Bolt has an unusually long hood where the ICE would have been? No, the Bolt has an unusually short hood for a FWD vehicle of its general class (certainly shorter than the Sonic and Trax). Does this mean the Bolt shares the same floor pan? No, you agree that it's unique. Does this mean it shares the same wheelbase? The Bolt's wheelbase is 102.4 inches vs 100.6 for the 2016 Trax and 99.4 for the 2016 Sonic. We don't know the wheelbase of the 2017 Sonic or Trax yet. Does the Bolt share the same powertrains as the Sonic and Trax? Obviously not. Will the Trax and Sonic make extensive use of aluminum for weight reduction? Probably not. LG is a primary supplier to the Bolt for components that presumably come from other suppliers in the Trax and Sonic.



So? It's a near certainty that the FWD design of the Trax and Encore look nothing like the fixed gear drivetrain of the Bolt.

Thus, sharing the "same platform" at this point comes down to using some common suspension parts and that's about it.

What components and aspects of the Bolt do you think will be shared with the Sonic and Trax? Be specific.

So of course we haven't seen the next-gen Sonic/Trax/Encore yet, but I'd be shocked if the Bolt didn't share the A,B,C,D pillars, firewall, front horns, suspension mounting points, steering gear, rear axle (fwd versions), roof, headliner, windshield, side door windows, transmission crossmember mounting points and side rockers with either the next-gen Buick Encore or Chevy Trax. Most of the structure of the unibody and a lot of the running gear, IOW.

GM just doesn't make all of that unique for something they're planning on selling just 30k-50k copies a year (unless it's a Caddy when they'll tweak a platform some). Bumpers and body panels and trim will be unique, sure. Skins different, for sure. Interior too. But the unibody will share a lot of stampings from the door sills up.

 

[int32_t]

As I pointed out, even Apple distributes their wares to resellers ("dealers") and can't stop those dealers from discounting their product far more than they would be comfortable doing. I believe that Wal-Mart and possibly a few others were doing some pretty aggressive discounting on iPhones recently.

That's just another stinking mess. I'm pretty sure those are iPhones on contract, and will be paid for in full by the end.

 

[ttupper92618]

It's hard to take you seriously when you are providing poor information (the primary profit center for dealers is service, not financing which is probably why Tesla already offers a nice profitable annual service on their "low maintenance" auto).

The Surprising Ways Car Dealers Make The Most Money Off You

Do plenty of consumers go into a dealership with simply a monthly payment in mind and how much they can "put down" on a new car? Sure they do, but not all of them do. Those who are able to negotiate a better deal will "suffer" under the Tesla way of doing things (at least until at some point down the road they are forced to discount product after production starts to out-pace demand)... that's my point. For those who are not very good negotiators I would say that Tesla's way of purchasing might prevent them from being taken of directly, but there are still plenty of opportunities for Tesla to make extra money from them, such as low-balling what their trade-in is worth.

I get it that a lot of you guys here are massive fans of Tesla and thinks that Elon Musk pisses lemonade, but you should at least be open to rational conversation about the pros/cons of not only Tesla vehicles but their delivery model as well.

Just to clarify, we were talking about the dealership model of auto sales. And in my statement, I made it quite clear that is what I was talking about, from the very first sentence: "Dealers make more of their money by selling your Retail Installment Contract than they do from marking up the car." No component of that statement deals at all with anything other than the dealership sales model.

It's ok for you to like dealerships - I get it. I just don't agree with you.

 

[Scott Wilcox]

I really was not even considering a Tesla at first. I was interested in the Bolt. I was kind of worried from seeing the images of the Bolt that the back seat was to close to the back glass. I could not really tell if it was any worse then the car I am driving right now which is a Pontiac Vibe, but my two daughters would be the ones in the back seat so it was a real worry even if it was 5 star rated in the back. I wanted to see 6 more inches of car behind the seat at a minimum just to have more crumple zone.

Then Mary started talking about the dealership network and convinced me to go with Tesla. I had been asking Chevy questions about production targets and how the roll out was going to work. Everything I could find, which was not cold hard facts, indicated they were targeting 30,000 a year. I told Chevy that I expected Tesla to have 200,000 reservations before the car hit production. (I know I was way low) They came back with the gas prices being low and the current trends of EV sales dropping they did not foresee that amount of interest. I tried explaining everyone was waiting for more range. Then the guy had enough of me and stopped talking to me.

So I started working it through in my head. If they do not see the demand and production is less than a year off they will not have enough Bolts to meet demand. So they will do like they always do and release them in California then they will release them in the other compliance states. That is the way the Volt went. It took 3 years or so before they were available in my area and the dealers had a premium of between $10,000 and $20,000 for the first 6 months. We do not get EVs like the compliance states. We did not get the 2016 Volt. We only have Tesla, LEAF and Volts in my area. All the rest of the cars are not sold here no matter what the car companies say. I have called multiple dealers and said "I want to buy EV car XYZ" that are supposed to be sold here. None of them have ever said they could even get one. They usually offer to sell me a pickup truck instead.

The Volt I considered to be a nice car but I do not want an ICE at all. I have worked on way to many ICE cars in my lifetime. The LEAF, with no thermal management system for the batteries, has not worked well for others in my area with the same commute I have. The LEAF only makes it one winter of the 3 year lease before the range is degraded from the summer heat and loss of range with the cold weather makes them un-usable for winter driving.

 

[Jeff N]

So of course we haven't seen the next-gen Sonic/Trax/Encore yet, but I'd be shocked if the Bolt didn't share the A,B,C,D pillars, firewall, front horns, suspension mounting points, steering gear, rear axle (fwd versions), roof, headliner, windshield, side door windows, transmission crossmember mounting points and side rockers with either the next-gen Buick Encore or Chevy Trax. Most of the structure of the unibody and a lot of the running gear, IOW.

It certainly makes sense to share design or parts where possible, especially aspects of the car that customers do not see or care about. Platform sharing becomes a problem when it is self-evident and devolves into "badge engineering" where the same basic car is sold as a Chevy, Buick, or Cadillac with only cosmetic changes. I have no doubt that the Bolt will share some engineering or parts with other small GM vehicles but the aspects that are typically thought to define a "platform" will only partially apply here and there isn't anything wrong or inherently bad with multiple cars sharing a "platform". The items that you list are not specific to an ICE car.

Aside from the internal pillars or structural roof design etc., the Bolt isn't going to be an obvious copy of another car in GM's lineup. Sure, there are similar body styles from multiple car companies including the Trax and Sonic from GM but the Bolt will be uniquely tailored and tweaked to take advantage of its electric design much like the Model 3 looks like a European sports sedan but has its interior packaged in a way that takes advantage of its under the hood layout and skateboard battery pack.

I find the talk about the Bolt being somehow more ICE-derivative than the Model 3 to be completely unconvincing.

Please enlighten me.

 

[roblab]

I get it that a lot of you guys here are massive fans of Tesla and thinks that Elon Musk pisses lemonade, but you should at least be open to rational conversation about the pros/cons of not only Tesla vehicles but their delivery model as well.

OK. Thank you for your insight. I think most intelligent humans realize that every company makes a profit or they are out of business. Even Tesla. Even GM.

If anybody doesn't like the way Tesla makes their profit, or if they think it's excessive (when numerous people are still concerned about their viability), well and good. They can support Toyota or Honda or Mercedes.

I prefer to support the Tesla model. At least someone is trying to save the world. It's not about Elon. It's about goals. Maybe you get what you pay for.

 

[voip-ninja]

OK. Thank you for your insight. I think most intelligent humans realize that every company makes a profit or they are out of business. Even Tesla. Even GM.

If anybody doesn't like the way Tesla makes their profit, or if they think it's excessive (when numerous people are still concerned about their viability), well and good. They can support Toyota or Honda or Mercedes.

I prefer to support the Tesla model. At least someone is trying to save the world. It's not about Elon. It's about goals. Maybe you get what you pay for.

Tesla goals are admirable but even if through some Herculean feat every single American purchased an EV over the next 15 years it is not going to "save the world". I have my own reasons for being interested in Tesla products but they certainly don't involve a savior complex that if the world temperature goes up 2c instead of 1c over the next 100 years our species is doomed and I must support Tesla or die.

Tesla is first and foremost in business to make money, lots of it. Keep in mind that Elon is one of those behind the abomination called PayPal.

But it's all good, lots will clap you on the back for expressing that opinion so enjoy that.

 

[ohmman]

I get it that a lot of you guys here are massive fans of Tesla and thinks that Elon Musk pisses lemonade, but you should at least be open to rational conversation about the pros/cons of not only Tesla vehicles but their delivery model as well.

OK, I'll bite. Your argument for the pros of a dealership model is that some people - the good negotiators - can get a better deal at the cost of other people - the bad negotiators or the poor financial decision makers. Is that right? So if you're a good negotiator, which I'm just guessing you purport yourself to be, then you do not benefit from the Tesla sales model.

I can see where that's better for you. However, is it better overall? Do you think it's better to have a sales model where there is positioning, or where there is cooperation? Does it make more sense for the consumer to know that they paid the same as every other consumer, or that they may have paid more or less depending on how they played a game?

I don't know if Tesla's model is better or not. I haven't thought about it enough to put together a solid argument, but the way I read your argument doesn't make it feel very solid either.

 

[Dan Detweiler]

Here's another angle on all this that might just be me (and probably is) but here goes. I have a problem when people start saying I can or can't do something because somebody (or some industry) says it is an unfair practice. When the auto industry started lobbying to ban Tesla sales in their states because it didn't represent a fair sales model that threw up a huge red flag for me. Just because they are doing something in a manner that is different from the traditional way of doing things shouldn't limit my access to make the choice to do it that way. Sorry if the auto industry feels it gives Tesla an unfair advantage. Don't like it? Change the way you do business. For me, all the BS that has been thrown about just drives me further from the high pressure middle man car dealers and closer to a direct sales model. Go online, pick the car I want with the options I want, arrange my own financing, finish the deal direct with Tesla, take delivery when it's been built. Simple, easy, no hassle, no hours spent talking to this person and then that trying to sell me a bunch of crap I don't want. DONE

Sorry Detroit, there are a lot of people that are fed up with what has become the norm in car sales. Everyone will have their own feelings regarding this and certainly there will be a lot of folks that will choose to keep doing things the way they always have. That being said, don't take away my choice to do things different.

Just my $.02

Dan

 

[garsh]

Re: dealership laws

There are only two reasons why the large manufacturers are supporting dealership laws across the country:

• They already have a dealership network, while Tesla does not. So it's an easy way to "compete" against Tesla.
• Their dealerships would revolt if they didn't support the dealerships. This would really hurt them financially if dealerships switched to other brands. The manufacturers have no other sales channel to fall back on.

So I can't fault the current manufacturers for their stance. Publically, they have to support the current network, or it will kill sales short term. Long-term, I think they would all be just fine with dealerships going the way of the dodo bird. So they'll continue to support dealerships until legislation is passed (or killed) to allow manufacturer-owned sales, then they'll transition to the new model if they feel they need to in order to compete.

 

[voip-ninja]

OK, I'll bite. Your argument for the pros of a dealership model is that some people - the good negotiators - can get a better deal at the cost of other people - the bad negotiators or the poor financial decision makers. Is that right? So if you're a good negotiator, which I'm just guessing you purport yourself to be, then you do not benefit from the Tesla sales model.

I can see where that's better for you. However, is it better overall? Do you think it's better to have a sales model where there is positioning, or where there is cooperation? Does it make more sense for the consumer to know that they paid the same as every other consumer, or that they may have paid more or less depending on how they played a game?

I don't know if Tesla's model is better or not. I haven't thought about it enough to put together a solid argument, but the way I read your argument doesn't make it feel very solid either.

Negotiation is a fact of life. If two people are starting new jobs at the same company filling the same role and one is a better negotiator they will probably start with a better salary, maybe more vacation time, maybe a starting bonus. Should this be illegal? Is it morally indefensible, or is it just the reality of competition in the real world and extends into many aspects of our lives even if we aren't always fully aware of it?

When Tesla approaches a supplier and doesn't like the price quote are they obligated to take the product anyways or should they shop around or try to negotiate a better price so that they can make more profit on their vehicles and better reward their shareholders and employees?

You are right that some customers will benefit more from the Tesla one-price model as they don't have good negotiation skills... although, as I pointed out Tesla still has opportunities to take advantage of those customers like traditional dealership... most likely by under-valuing their trade-in.

So, yes, for a buyer like me I will possibly have to pay a bit more for the product than I would if it were sold in a more competitive venue. I would say in the short term demand for Model 3 will be very high so there would likely not be any "deals" to be had anyways.

 

[diamond.g]

It is a shame GM isn't releasing the numbers of dealers whom have requested allocation of Bolts. I would be concerned that the 2017 Bolt won't be seen in non-compliance states as the compliance states will probably have the highest initial demand. I am also curious to see if Dealers actually offer the base model or if they will force you to get all those 'available' options...