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> They're rent-seekers, pure and simple, with no value add at all. Half the time they don't even have stock! This isn't true. While dealers are slimy and have

by chaz 13y ago

> They're rent-seekers, pure and simple, with no value add at all. Half the time they don't even have stock! This isn't true. While dealers are slimy and have miles to go, there's still a consumer need to (a) a place to see/touch/drive a vehicle and (b) go in for service and repairs. You can't simply fix this with manufacturer-owned stores because the capital cost is so high. Major manufacturers like Ford and GM have over 3,000 dealers in the US. Maintaining that kind of network is something that dealers can't afford. Tesla only has a few dozen service centers right now, and they're centered around high-population urban areas with wealthy customers. I'd like to see franchise laws change to encourage competition in the space, but I think we still need dealers in some form or another.

revelation 13y ago
Tesla is exactly doing that. If you think that is a guaranteed failure, I take it you are short on their stock? Because obviously we need not institute new laws if basic economic reasoning can bring about the change.
- chaz 13y ago
  > Tesla is exactly doing that. If you think that is a guaranteed failure, I take it you are short on their stock? Relax, no need for accusations or jumping to conclusions. I think Tesla will be a terrific company and I look forward to owning one someday. I just don't think it's reasonable to assume that just because Tesla can do it, everyone else can and should do it the same way. If you were Alan Mulally, CEO of Ford, would you do exactly what Tesla is doing? Would you close the 3k franchised dealerships and install manufacturer-owned ones instead? How would you finance that much real estate, inventory, and employees? Or would you close down a large portion of the dealers and go with fewer? How would you service the millions of Fords sold every year?
  - ams6110 13y ago
    There's also no reason to think Tesla will always operate this way. At some point, if they continue to grow, it is no longer practical to own and operate all the sales and service facilities.
  - beedogs 13y ago
    I guess I missed the part where someone said every other automaker should shut down all their dealerships and do it Tesla's way instead. We're all mostly upset that the dinosaur automakers are trying to dictate the terms of Tesla's business.
- MichaelApproved 13y ago
  Believing a company is guaranteed for failure and shorting a stock do not always go hand in hand. They may grow using capital on hand which temporarily increases the stock price. They may have trouble with expansion as they move into new territories which is a long way away. Failure isn't always immediate. Also "The Market Can Remain Irrational Longer Than You Can Remain Solvent" The above is a general statement about company failure and shorting a stock. I personally believe that Tesla is the future of the car industry and it's likely to be a successful company for the foreseeable future.
pmorici 13y ago
Why do there need to be laws specific to that? Aren't companies like Tesla capable of deciding if they need more or less service centers, in what locations and what model is best to run them?
- chaz 13y ago
  Sorry if I wasn't clear: there are laws that currently exist that protect franchises in almost every state. I'd love to see those laws eliminated or changed to encourage more competition between dealers to improve pricing and service. Companies like Tesla should absolutely be able to do what they'd like without having local protectionism kick into place. There's a great story from NPR Planet Money that covers this: http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful http://www.npr.org/blogs/money/2013/02/12/171814201/episode-.... It's been a while since I've listened to it, but the tl;dr is that franchises are granted exclusivity to a geography, and manufacturers can't change the franchise terms without going to a review board that's basically controlled by the dealers. So if Chevrolet has a poorly-performing dealer, they can't threaten to take the franchise away, or can't put another dealerships in the same geography. (ugh, replied to the wrong thread, moved the reply, and this is dead ... sorry)
- mc-lovin 13y ago
  Unfortunately the argument that in a free market, what maximizes profit is socially optimal, is not taught in schools, and alien to many people. It doesn't help that in public debate, this argument is usually espoused by people on the right who mix it in with other unrelated arguments. So people end up thinking that if they support the free market, they also have to support cutting all welfare.
MichaelApproved 13y ago
"Major manufacturers like Ford and GM have over 3,000 dealers in the US. Maintaining that kind of network is something that dealers can't afford." I don't see why 1 company couldn't maintain that many locations. Walmart has 10,857 stores[1]. Over 4,000 in the U.S. and over 6,000 internationally. I would argue that maintaining a single Walmart store is more difficult than maintaining a dealership and yet they're able to make it happen. [1]http://stock.walmart.com/financial-reporting/unit-counts-square-footage http://stock.walmart.com/financial-reporting/unit-counts-squ...
- hkmurakami 13y ago
  exactly. If dealers are profitable today, then an auto company running the whole show can be just as profitable if not moreso.
- Maven911 13y ago
  And WalMart's core strenghs are store management and discounting, while auto manufacturer's core competency is to build and market cars, not to deliver and operate dealerships. Walmart also has an army (2 million strong) of people working for them, most of whom are working near minimum wage
  - ams6110 13y ago
    Exactly what I wanted to say. WalMart doesn't make any of the products they sell. They can focus on making money selling stuff, and manufacturers can focus on making money making stuff. I could see Tesla one day letting a company like Amazon sell the cars and handle the logistics of delivering them to the customer.
  - MichaelApproved 13y ago
    My point was to show that it's possible for a company to handle massive infrastructure with thousands of locations (dealerships). If you want to talk about core business competency, that's another issue. I don't think it's a leap to think a car manufacturer could also have a division that sells the vehicles.
- 13y ago

by chaz 13y ago

revelation 13y ago

Tesla is exactly doing that. If you think that is a guaranteed failure, I take it you are short on their stock? Because obviously we need not institute new laws if basic economic reasoning can bring about the change.

chaz 13y ago
> Tesla is exactly doing that. If you think that is a guaranteed failure, I take it you are short on their stock? Relax, no need for accusations or jumping to conclusions. I think Tesla will be a terrific company and I look forward to owning one someday. I just don't think it's reasonable to assume that just because Tesla can do it, everyone else can and should do it the same way. If you were Alan Mulally, CEO of Ford, would you do exactly what Tesla is doing? Would you close the 3k franchised dealerships and install manufacturer-owned ones instead? How would you finance that much real estate, inventory, and employees? Or would you close down a large portion of the dealers and go with fewer? How would you service the millions of Fords sold every year?
- ams6110 13y ago
  There's also no reason to think Tesla will always operate this way. At some point, if they continue to grow, it is no longer practical to own and operate all the sales and service facilities.
- beedogs 13y ago
  I guess I missed the part where someone said every other automaker should shut down all their dealerships and do it Tesla's way instead. We're all mostly upset that the dinosaur automakers are trying to dictate the terms of Tesla's business.
MichaelApproved 13y ago
Believing a company is guaranteed for failure and shorting a stock do not always go hand in hand. They may grow using capital on hand which temporarily increases the stock price. They may have trouble with expansion as they move into new territories which is a long way away. Failure isn't always immediate. Also "The Market Can Remain Irrational Longer Than You Can Remain Solvent" The above is a general statement about company failure and shorting a stock. I personally believe that Tesla is the future of the car industry and it's likely to be a successful company for the foreseeable future.

pmorici 13y ago

Why do there need to be laws specific to that? Aren't companies like Tesla capable of deciding if they need more or less service centers, in what locations and what model is best to run them?

chaz 13y ago
Sorry if I wasn't clear: there are laws that currently exist that protect franchises in almost every state. I'd love to see those laws eliminated or changed to encourage more competition between dealers to improve pricing and service. Companies like Tesla should absolutely be able to do what they'd like without having local protectionism kick into place. There's a great story from NPR Planet Money that covers this: http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful http://www.npr.org/blogs/money/2013/02/12/171814201/episode-.... It's been a while since I've listened to it, but the tl;dr is that franchises are granted exclusivity to a geography, and manufacturers can't change the franchise terms without going to a review board that's basically controlled by the dealers. So if Chevrolet has a poorly-performing dealer, they can't threaten to take the franchise away, or can't put another dealerships in the same geography. (ugh, replied to the wrong thread, moved the reply, and this is dead ... sorry)
mc-lovin 13y ago
Unfortunately the argument that in a free market, what maximizes profit is socially optimal, is not taught in schools, and alien to many people. It doesn't help that in public debate, this argument is usually espoused by people on the right who mix it in with other unrelated arguments. So people end up thinking that if they support the free market, they also have to support cutting all welfare.

MichaelApproved 13y ago

"Major manufacturers like Ford and GM have over 3,000 dealers in the US. Maintaining that kind of network is something that dealers can't afford." I don't see why 1 company couldn't maintain that many locations. Walmart has 10,857 stores[1]. Over 4,000 in the U.S. and over 6,000 internationally. I would argue that maintaining a single Walmart store is more difficult than maintaining a dealership and yet they're able to make it happen. [1]http://stock.walmart.com/financial-reporting/unit-counts-square-footage http://stock.walmart.com/financial-reporting/unit-counts-squ...

hkmurakami 13y ago
exactly. If dealers are profitable today, then an auto company running the whole show can be just as profitable if not moreso.
Maven911 13y ago
And WalMart's core strenghs are store management and discounting, while auto manufacturer's core competency is to build and market cars, not to deliver and operate dealerships. Walmart also has an army (2 million strong) of people working for them, most of whom are working near minimum wage
- ams6110 13y ago
  Exactly what I wanted to say. WalMart doesn't make any of the products they sell. They can focus on making money selling stuff, and manufacturers can focus on making money making stuff. I could see Tesla one day letting a company like Amazon sell the cars and handle the logistics of delivering them to the customer.
- MichaelApproved 13y ago
  My point was to show that it's possible for a company to handle massive infrastructure with thousands of locations (dealerships). If you want to talk about core business competency, that's another issue. I don't think it's a leap to think a car manufacturer could also have a division that sells the vehicles.
13y ago