6 ms·

Tesla Rides High, But Faces Formidable Foe: Car Dealers

46 points by btian 13y ago

quackerhacker 13y ago
Innovation and success is usually met with resistance. Resistance that's caused by the companies/individuals whose interest it's hurting. The one's I think lobbying against Tesla are the National Automobile Dealers Association (the middle men - link below). Even though they're is 2 sides of this argument (ex. it benefits the end consumer by reducing costs :: it'll kill jobs at dealerships if manufactures follow suit), a company that refuses to innovate or change with their industry will fail...or in this case lobby politicians to block Tesla's success. FYI: Nothing is stopping used car dealers from selling a "like new, 1 owner, low miles" Tesla in Texas ;) http://www.businessweek.com/news/2012-10-23/dealer-group-leaving-tesla-retail-challenge-to-states http://www.businessweek.com/news/2012-10-23/dealer-group-lea...
- hkmurakami 13y ago
  Come to think of it, this is the same dynamic in the publishing vs ebook industry. Middlemen (bookstores / publishers / printers) are being obsoleted by a player with brand trust, unique value proposition and a method of direct delivery.
  - quackerhacker 13y ago
    I agree! Innovation drives businesses and society to advance. To summarize the needs (or in this case, benefit) of the many should outweigh the few. Ebooks helped people read more I think and publishers to cut printing costs and ultimately benefited the consumer. Music in iTunes, Pandora, and Spotify, I think I remember reading that piracy was down for the music industry. Tesla helps the environment and the end consumer by cutting a useless middle men. They may be out of jobs (if they're ignorant...lol, have you even haggled with a dealer), but new jobs are always created with innovation!
- chii 13y ago
  Jobs that are obsolete _should_ be killed. Because the cost of having that job when a more efficient method exists to produce the job's result means wastage if the job is kept. Sure it sucks to be a car dealer if this goes down, but that's the price of progress.
- btian 13y ago
  Email is killing USPS jobs, so should emails be banned? Exactly, and nothing is stopping independent dealers from buying new cars from Tesla and selling to consumers with a markup if they're so sure that their service is as valuable as they claim.
  - quackerhacker 13y ago
    Ever wondered what dealers get cars for? I had got my used car dealer license JUST to cut out the middle man and find out, even though it's expired now, I still have access to the ACTUAL SALES results for the dealer only auctions. Below is the link to the Dealer-Only auction post sales result in the bay area. Mark up is crazy! http://simplemike.com/assets/Manheim-PostSaleResults.pdf http://simplemike.com/assets/Manheim-PostSaleResults.pdf
    - quackerhacker 13y ago
      I notice alot of you guys checking out the link above, reply or vote this up so people know it's NOT link bait.
    - HorizonXP 13y ago
      I'm currently looking for a used car in the Bay actually, any advice for how to beat the system and get the best bang for my buck?
      - quackerhacker 13y ago
        Craigslist and diligence. The only reason you should EVER go to a dealer is if you need financing and have bad credit. Aside from that, meet people, show interest in a vehicle, then negotiate (never try talking people down over the phone or by email - it's rude).
venus 13y ago
The dealers can grasp for whatever reasons they want, but I have no sympathy whatsoever. They're rent-seekers, pure and simple, with no value add at all. Half the time they don't even have stock! > "Buying an iPad is not buying a car," says David Hyatt of the national association Well, it should be.
- samstave 13y ago
  EXACTLY. Far too many people are trying to cling to the old method of purchasing a car as if it is something that was efficient, cost effective and transparent. Car dealers can go rust in hell. What do I want - I want to customize my car online and buy it for a known price and have it exactly as I expected to cost. I also want to never put another penny toward gasoline purchases. Period.
  - toomuchtodo 13y ago
    What you described is exactly how I bought my Model S. I will never go back to buying a car from a dealership. Ever.
    - galaktor 13y ago
      Here we have what I suspect is the real reason dealerships are scared.
  - ams6110 13y ago
    GM sort of tested this approach with Saturn. Custom ordering online wasn't a reality then, but the no-haggle pricing and a generous (30 day?) no-questions-asked return policy were part of their approach, initially. Consumers generally liked the Saturn buying experience.
- btian 13y ago
  Can't upvote this enough. I'm so sick of the constant haggling needed to get a good price on a car, getting quotes from a dozen dealers, and all the trouble with dealers during service. Looking forward to the day when consumer gets the same best price from manufacturer owned stores everywhere.
ams6110 13y ago
All they need is to be able to sell in one state. Ideally more of course, but for a person spending $70K or more on a car, and especially a car with the cachet of Tesla right now, ordering the car online in another state and either going to pick it up or having it shipped won't be a huge obstacle. On the NADA argument, I think they have a legitimate concern about wanting protection for dealer franchisees from competition by the manufacturers. But Tesla doesn't have dealer franchisees. So the concern really doesn't apply.
- btian 13y ago
  Absolutely but it limits Tesla's ability to provide service and test drives in the states that ban it. It's practical for someone to take delivery from another state, but driving to another state just to get a test drive is probably too much effort.
  - hkmurakami 13y ago
    Is it not legal to set up a subsidiary that only does test drives but not sales? Service would be a tough problem though.
  - ams6110 13y ago
    I'm wondering just how often the decision to buy a Tesla comes down to a test drive.
    - revelation 13y ago
      Elon Musk, on the recent earnings call, claimed that their conversion rate for test drives was 25%. Excerpt from the SeekingAlpha Transcript: Amy Carroll - JPMorgan The first question was just basically like when somebody comes to the door, how do your stores – like what you're converting in terms of like actual sales? [..] Elon Musk - Chairman, CEO, and Product Architect It's a low percentage conversion. I mean a lot of people in and educate them about Tesla and the brand. So that's our marketing strategy which is different from a typical car company. And so just a typical metric of conversion for traffic is not exactly applicable. I mean there's a lot of people that buy T-shirt. Our apparel sales are actually not bad. I think we could actually do a lot more on that front. We actually have millions of dollars in apparel sales, but we're not really trying hard. I think probably a better metric would be conversion after – of a qualified lead after a test drive. And we're seeing something like 25% conversion after a test drive which is quite high.
tibbon 13y ago
Does anyone else find the push by the dealers to be incredibly anti-freemarket and anti-capitalistic? Strangely, many of the people who own the dealerships and are pushing on the side of the dealerships are conservatives, who in theory say they like supporting freedom, free markets, etc?
- caf 13y ago
  The political philosophy of Conservatism is more about maintaining the status quo than it is about explicitly supporting free markets (it is not uncommon to see Conservatives supporting measures like import tariffs or agricultural subsidies). Liberalism is the philosophy that explicitly supports freedom and minimal government regulation; Conservatives and Liberals found common cause over much of the 20th century in opposition to Socialism.
codex 13y ago
Surely there's at least a nominal rationale for these laws, even if the real reason is manipulation by special interests. Some kind of monopoly prevention? It seems a stretch.
- ams6110 13y ago
  This was addressed. Franchise dealerships allowed manufacturers to receive payment when the dealer took delivery of the vehicle. It takes a lot of variables out of the picture for them: how long will a car sit in inventory, unsold? How many of each model do we need to ship to various locales? What kind of service capacity do we need to provide? Dealerships also allow manufacturers to have a "presence" in many smaller towns. In return, the dealers demanded (and largely won) protection from a manufacturer coming in and setting up shop in a market that the dealer worked to develop. Tesla don't care about all that. They are fine with having a select few stores in large markets. They are fine taking all the risk of actually being able to sell their cars to consumers. They are fine with providing all the service. So I don't see what the NADA are complaining about, really. And honestly, if and when Tesla really starts to get big enough to compete with traditional manufactures, some kind of dealer/franchise network is probably going to start to make more sense for them. Large centrally-planned organizations don't tend to do very well.
- wmf 13y ago
  The reason is to prevent a car manufacturer from competing with independently-owned dealers who sell their cars. But that doesn't apply to Tesla, since Tesla will not license any third-party dealers.
hasker 13y ago
I think the dealership model in general creates a bad experience for customers. I highly respect Apple for their single price policy. Rarely do any of their products go on sale. Outside of a few cashback, bundled item specials, or loopholes to avoid salestax, the price is the price. This saves me all the anxiety of needing to find a better deal online. With cars, things are even worse. Having a multi-dealer and dealer inventory sales model necessarily creates a multi-price model. I think most consumers would be much happier knowing they got the best price possible without any extra work than dealing with all of the information asymmetry in buying a car.
beedogs 13y ago
Regulatory capture doesn't seem like a viable long-term job security strategy. I won't miss these vultures when they're gone. Go Tesla!

46 points by btian 13y ago

Innovation and success is usually met with resistance. Resistance that's caused by the companies/individuals whose interest it's hurting. The one's I think lobbying against Tesla are the National Automobile Dealers Association (the middle men - link below). Even though they're is 2 sides of this argument (ex. it benefits the end consumer by reducing costs :: it'll kill jobs at dealerships if manufactures follow suit), a company that refuses to innovate or change with their industry will fail...or in this case lobby politicians to block Tesla's success. FYI: Nothing is stopping used car dealers from selling a "like new, 1 owner, low miles" Tesla in Texas ;) http://www.businessweek.com/news/2012-10-23/dealer-group-leaving-tesla-retail-challenge-to-states http://www.businessweek.com/news/2012-10-23/dealer-group-lea...

hkmurakami 13y ago
Come to think of it, this is the same dynamic in the publishing vs ebook industry. Middlemen (bookstores / publishers / printers) are being obsoleted by a player with brand trust, unique value proposition and a method of direct delivery.
- quackerhacker 13y ago
  I agree! Innovation drives businesses and society to advance. To summarize the needs (or in this case, benefit) of the many should outweigh the few. Ebooks helped people read more I think and publishers to cut printing costs and ultimately benefited the consumer. Music in iTunes, Pandora, and Spotify, I think I remember reading that piracy was down for the music industry. Tesla helps the environment and the end consumer by cutting a useless middle men. They may be out of jobs (if they're ignorant...lol, have you even haggled with a dealer), but new jobs are always created with innovation!
chii 13y ago
Jobs that are obsolete _should_ be killed. Because the cost of having that job when a more efficient method exists to produce the job's result means wastage if the job is kept. Sure it sucks to be a car dealer if this goes down, but that's the price of progress.
btian 13y ago
Email is killing USPS jobs, so should emails be banned? Exactly, and nothing is stopping independent dealers from buying new cars from Tesla and selling to consumers with a markup if they're so sure that their service is as valuable as they claim.
- quackerhacker 13y ago
  Ever wondered what dealers get cars for? I had got my used car dealer license JUST to cut out the middle man and find out, even though it's expired now, I still have access to the ACTUAL SALES results for the dealer only auctions. Below is the link to the Dealer-Only auction post sales result in the bay area. Mark up is crazy! http://simplemike.com/assets/Manheim-PostSaleResults.pdf http://simplemike.com/assets/Manheim-PostSaleResults.pdf
  - quackerhacker 13y ago
    I notice alot of you guys checking out the link above, reply or vote this up so people know it's NOT link bait.
  - HorizonXP 13y ago
    I'm currently looking for a used car in the Bay actually, any advice for how to beat the system and get the best bang for my buck?
    - quackerhacker 13y ago
      Craigslist and diligence. The only reason you should EVER go to a dealer is if you need financing and have bad credit. Aside from that, meet people, show interest in a vehicle, then negotiate (never try talking people down over the phone or by email - it's rude).

venus 13y ago

The dealers can grasp for whatever reasons they want, but I have no sympathy whatsoever. They're rent-seekers, pure and simple, with no value add at all. Half the time they don't even have stock! > "Buying an iPad is not buying a car," says David Hyatt of the national association Well, it should be.

samstave 13y ago
EXACTLY. Far too many people are trying to cling to the old method of purchasing a car as if it is something that was efficient, cost effective and transparent. Car dealers can go rust in hell. What do I want - I want to customize my car online and buy it for a known price and have it exactly as I expected to cost. I also want to never put another penny toward gasoline purchases. Period.
- toomuchtodo 13y ago
  What you described is exactly how I bought my Model S. I will never go back to buying a car from a dealership. Ever.
  - galaktor 13y ago
    Here we have what I suspect is the real reason dealerships are scared.
- ams6110 13y ago
  GM sort of tested this approach with Saturn. Custom ordering online wasn't a reality then, but the no-haggle pricing and a generous (30 day?) no-questions-asked return policy were part of their approach, initially. Consumers generally liked the Saturn buying experience.
btian 13y ago
Can't upvote this enough. I'm so sick of the constant haggling needed to get a good price on a car, getting quotes from a dozen dealers, and all the trouble with dealers during service. Looking forward to the day when consumer gets the same best price from manufacturer owned stores everywhere.

ams6110 13y ago

All they need is to be able to sell in one state. Ideally more of course, but for a person spending $70K or more on a car, and especially a car with the cachet of Tesla right now, ordering the car online in another state and either going to pick it up or having it shipped won't be a huge obstacle. On the NADA argument, I think they have a legitimate concern about wanting protection for dealer franchisees from competition by the manufacturers. But Tesla doesn't have dealer franchisees. So the concern really doesn't apply.

btian 13y ago
Absolutely but it limits Tesla's ability to provide service and test drives in the states that ban it. It's practical for someone to take delivery from another state, but driving to another state just to get a test drive is probably too much effort.
- hkmurakami 13y ago
  Is it not legal to set up a subsidiary that only does test drives but not sales? Service would be a tough problem though.
- ams6110 13y ago
  I'm wondering just how often the decision to buy a Tesla comes down to a test drive.
  - revelation 13y ago
    Elon Musk, on the recent earnings call, claimed that their conversion rate for test drives was 25%. Excerpt from the SeekingAlpha Transcript: Amy Carroll - JPMorgan The first question was just basically like when somebody comes to the door, how do your stores – like what you're converting in terms of like actual sales? [..] Elon Musk - Chairman, CEO, and Product Architect It's a low percentage conversion. I mean a lot of people in and educate them about Tesla and the brand. So that's our marketing strategy which is different from a typical car company. And so just a typical metric of conversion for traffic is not exactly applicable. I mean there's a lot of people that buy T-shirt. Our apparel sales are actually not bad. I think we could actually do a lot more on that front. We actually have millions of dollars in apparel sales, but we're not really trying hard. I think probably a better metric would be conversion after – of a qualified lead after a test drive. And we're seeing something like 25% conversion after a test drive which is quite high.

tibbon 13y ago

Does anyone else find the push by the dealers to be incredibly anti-freemarket and anti-capitalistic? Strangely, many of the people who own the dealerships and are pushing on the side of the dealerships are conservatives, who in theory say they like supporting freedom, free markets, etc?

caf 13y ago
The political philosophy of Conservatism is more about maintaining the status quo than it is about explicitly supporting free markets (it is not uncommon to see Conservatives supporting measures like import tariffs or agricultural subsidies). Liberalism is the philosophy that explicitly supports freedom and minimal government regulation; Conservatives and Liberals found common cause over much of the 20th century in opposition to Socialism.

codex 13y ago

Surely there's at least a nominal rationale for these laws, even if the real reason is manipulation by special interests. Some kind of monopoly prevention? It seems a stretch.

ams6110 13y ago
This was addressed. Franchise dealerships allowed manufacturers to receive payment when the dealer took delivery of the vehicle. It takes a lot of variables out of the picture for them: how long will a car sit in inventory, unsold? How many of each model do we need to ship to various locales? What kind of service capacity do we need to provide? Dealerships also allow manufacturers to have a "presence" in many smaller towns. In return, the dealers demanded (and largely won) protection from a manufacturer coming in and setting up shop in a market that the dealer worked to develop. Tesla don't care about all that. They are fine with having a select few stores in large markets. They are fine taking all the risk of actually being able to sell their cars to consumers. They are fine with providing all the service. So I don't see what the NADA are complaining about, really. And honestly, if and when Tesla really starts to get big enough to compete with traditional manufactures, some kind of dealer/franchise network is probably going to start to make more sense for them. Large centrally-planned organizations don't tend to do very well.
wmf 13y ago
The reason is to prevent a car manufacturer from competing with independently-owned dealers who sell their cars. But that doesn't apply to Tesla, since Tesla will not license any third-party dealers.

hasker 13y ago

I think the dealership model in general creates a bad experience for customers. I highly respect Apple for their single price policy. Rarely do any of their products go on sale. Outside of a few cashback, bundled item specials, or loopholes to avoid salestax, the price is the price. This saves me all the anxiety of needing to find a better deal online. With cars, things are even worse. Having a multi-dealer and dealer inventory sales model necessarily creates a multi-price model. I think most consumers would be much happier knowing they got the best price possible without any extra work than dealing with all of the information asymmetry in buying a car.

beedogs 13y ago

Regulatory capture doesn't seem like a viable long-term job security strategy. I won't miss these vultures when they're gone. Go Tesla!