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This is something I think a lot of people don't get about Tesla's state-by-state fight with the dealer networks. It's not about hating on electric cars. It's ab

by beat 13y ago

This is something I think a lot of people don't get about Tesla's state-by-state fight with the dealer networks. It's not about hating on electric cars. It's about the threat that Tesla's model poses to their entire industry. Frankly, Ford doesn't need its dealer network any more than Tesla does now, or they shouldn't. They could go to the same shop-online and drop-ship model, and cut out a middleman. If any of the major automakers start killing dealers, the whole industry will die, and quickly. Why? Because they're parasites. The dealer network evolved to solve distribution problems from 100 years ago. It makes zero sense as a business model in the 21st century. "Ripe for disruption", as we'd say in these parts. All they have is inertia, deep political connections, and a century of regulatory mazes. But those are three very big things to have. Still, they're fighting a defensive war. They will lose. The question is only how quickly, and at what cost to consumers?

rdudek 13y ago
Agreed! Wish I could afford a Tesla car, maybe one day I will. But I always look forward to see what else they're doing. Got to hand it to Tesla for disrupting the standard industry.
hardwaresofton 13y ago
I agree -- I think this article should have been named "Tesla will topple the car dealer monopoly". The entire dealership system represents a market inefficiency that will correct itself. The only forces that are keeping the monstrosity around are broken political systems and force (physical or otherwise) paramount to coercion.
bluedevil2k 13y ago
I wouldn't be so dismissive of dealers by simply saying "They will lose." The most important thing in American politics is power, and power comes from money (sounds like that comes directly from House of Cards). The article points out that the car dealer lobby is well funded and powerful. It even points out that they are exempt from the Consumer Protection laws, meaning they don't have to disclose the awful interest rates they are offering (which surprised me). Look at the size of a company like AutoNation ($6.3B market cap). They aren't a local mom and pop car dealer. Never underestimate the fight of a wounded animal backed into a corner.
- rayiner 13y ago
  So less than half the purchase price of WhatsApp? These are the deep pocketed interests on the other side of the battle?
  - fotbr 13y ago
    That's one of many such companies. It's simpler than that, though. On a local level, away from the large cities, it's not uncommon for the guy or gal that owns (not necessarily the same as the name is on the sign though) the local dealership to be the area's state senator or state representative. No amount of lobbying or money from tesla, etc, are going to convince him to vote against his/her own business.
  - bluedevil2k 13y ago
    Don't confuse market cap and purchase price. And I would never use Facebook's ridiculous overpayment as the basis for valuing other companies.
    - rayiner 13y ago
      Purchase price should be in general a small premium over market cap.
      - btilly 13y ago
        It should be, but the actual premium is the result of a human decision, and humans sometimes make very bad decisions. (See, for instance, the purchase of Skype by eBay a decade ago. Also on the value of a network that was an alternative to phone calls.)
        baddox 13y ago
        Market cap is also the result of human decision.
        13y ago
Shivetya 13y ago
We have to be careful here, while I am all for Tesla being able to sell their cars where they want I want assurances I can get their car and any other car serviced where I want. Car dealers and independent auto service centers need protection from manufactures; dealers can service brands they don't sell should they choose. The danger in allowing manufacturers to determine how sales are made is they will likely dictate how repair and maintenance is handled. While maintenance on an electronic vehicle is going to be significantly different my warranty should not be affected should I choose someone other than the manufacturer to repair it. disclaimer, I work for a leading supplier of auto parts.
- gergles 13y ago
  Magnusson-Moss already prevents manufacturers from denying your warranty based on who does the service. We don't need protectionism for the dealerships.
  - schiffern 13y ago
    Yep, but it doesn't prevent them from requiring proprietary equipment, scan tools, service manuals, and part ordering systems that only dealers can buy. This is why Right to Repair laws are so important. https://en.wikipedia.org/wiki/Motor_Vehicle_Owners%27_Right_to_Repair_Act https://en.wikipedia.org/wiki/Motor_Vehicle_Owners%27_Right_...
- hueving 13y ago
  >We have to be careful here, while I am all for Tesla being able to sell their cars where they want I want assurances I can get their car and any other car serviced where I want. Those are two completely separate topics. The fact that dealers now service cars has nothing to do with the fact that they sell them. Otherwise auto repair shops wouldn't exist.
- 300bps 13y ago
  The danger in allowing manufacturers to determine how sales are made is they will likely dictate how repair and maintenance is handled. With Tesla, I don't think it is anywhere near as likely as you seem to. Look at this: http://www.teslamotors.com/blog/people-new-jersey http://www.teslamotors.com/blog/people-new-jersey Going a step further, I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars. Beyond that, with unbelievably fewer moving parts and over-the-air updates, Tesla vehicles require far less servicing. For starters, they don't require regular oil changes.
Spooky23 13y ago
I think there is some truth there, but managing a national retail/service is not trivial. Consider that among all of the computer OEMs, Apple is the only one who has successfully operated a retail channel. (Gateway did once, but it wasn't very profitable) Also consider another franchise model: fast food. McDonald's has a vast network of franchise and corporate owned stores. There is no discernable difference in customer experience or cost between the two.
- soperj 13y ago
  Dell? HP? Seriously.
  - Spooky23 13y ago
    I'm not talking web, I'm talking retail. People don't buy cars sight unseen.
    - larrys 13y ago
      Agree. Cars are an emotional purchase. The dealer motivated by profit serves a function in that process. That is one of the reasons that by and large fixed pricing hasn't worked with autos as much as everyone seems to think that it's such a great idea. Negotiation and "buy now" kicks people off of fences. (So does inventory and other factors to be sure..)
    - soperj 13y ago
      sure they do. Ebay.
- njharman 13y ago
  That's cause apple is selling a lifestyle, like Starbucks. Others a fine with just selling you a computer and don't need glass box retail locations to do that.
larrys 13y ago
"Frankly, Ford doesn't need its dealer network any more than Tesla does now, or they shouldn't. " So you are suggesting that Ford is interested in replacing the franchised model and operating and owning the establishments themselves? Car dealerships in many areas are basically small businesses. They are a model that work in the same way that many bakeries have route drivers that are one step away from being employees in a sense (Fedex also uses this in some areas). I don't buy the idea that it's a given that a large existing car manufacturer would rather just build out and operate car dealerships and that there is no value to an entrepreneur owning that dealership. Or that that even adds to significant extra costs for the consumer. By "significant" I mean the extra cost per car because there is a dealer. (Which by the way you do need a place to get service (even with electric) and you do need a showroom and a local point of contact). How much profit per car do you think the dealer makes exactly that the consumer will save?
- GFK_of_xmaspast 13y ago
  GM had a hell of a time killing Oldsmobile because of the dealers.
  - larrys 13y ago
    That seems to be a benefit for consumers though. Imagine if google had dealers and they weren't able to so easily kill off a service that wasn't profitable because there was more of a unified voice against the action. (This is not a pro or con for dealers just something that came to my mind based on your comment).
    - GFK_of_xmaspast 13y ago
      Spoken like someone who's never driven an oldsmobile. The automobile industry has consumer protection laws that force manufacturers to honor warranties and emission control systems.
      - larrys 13y ago
        "Spoken like someone who's never driven an oldsmobile." I actually have. So please explain what you are trying to say.
agumonkey 13y ago
I really wonder how you migrate obsolete networks like these. Secondary effects of its disruption, ex-employees etc... Did people theorize this in the past or was it left to nature, forces (lobbies etc) attempting to ensure survival until it was no longer possible and everybody accepted to let go.
tootie 13y ago
I think a lot of manufacturers will secretly support Tesla's effort. They can't risk alienating their dealers publicly, but the entire industry hates them.
gamblor956 13y ago
Car dealers don't solve distribution problems from 100 years ago. They didn't have these sorts of distribution problems 100 years ago, and the first car dealers were simply manufacturer storefronts. Car dealers solve the risk management function. Selling cars is a risky business. Car makers are in the business of making cars, which is significantly different business activity with a wholly different risk profile and operational needs. Tesla can sell direct to customers because its small enough now that the localized retail/inventory risks aren't significant. This business model (of manufacturer-owned dealers) simply won't scale to a national level.
- vajrabum 13y ago
  Aren't you assuming that the manufacturer needs to store an inventory of cars somewhere? If the manufacturer sells direct and the lead time is short enough there's little to no risk because there's little to no inventory.
  - gamblor956 13y ago
    You're thinking of manufacturing inventory risk vs hyper-localized inventory risk. They have to manage inventory both ways, but the hyper-localized inventory incurs significant transportation expenses.
- gaius 13y ago
  Exactly. It's the same as wondering why you can't book a flight directly with Boeing.
dwd 13y ago
> Because they're parasites This could be said for most middlemen such as Real Estate Agents and Financial Planners.

by beat 13y ago

rdudek 13y ago

Agreed! Wish I could afford a Tesla car, maybe one day I will. But I always look forward to see what else they're doing. Got to hand it to Tesla for disrupting the standard industry.

hardwaresofton 13y ago

I agree -- I think this article should have been named "Tesla will topple the car dealer monopoly". The entire dealership system represents a market inefficiency that will correct itself. The only forces that are keeping the monstrosity around are broken political systems and force (physical or otherwise) paramount to coercion.

bluedevil2k 13y ago

I wouldn't be so dismissive of dealers by simply saying "They will lose." The most important thing in American politics is power, and power comes from money (sounds like that comes directly from House of Cards). The article points out that the car dealer lobby is well funded and powerful. It even points out that they are exempt from the Consumer Protection laws, meaning they don't have to disclose the awful interest rates they are offering (which surprised me). Look at the size of a company like AutoNation ($6.3B market cap). They aren't a local mom and pop car dealer. Never underestimate the fight of a wounded animal backed into a corner.

rayiner 13y ago
So less than half the purchase price of WhatsApp? These are the deep pocketed interests on the other side of the battle?
- fotbr 13y ago
  That's one of many such companies. It's simpler than that, though. On a local level, away from the large cities, it's not uncommon for the guy or gal that owns (not necessarily the same as the name is on the sign though) the local dealership to be the area's state senator or state representative. No amount of lobbying or money from tesla, etc, are going to convince him to vote against his/her own business.
- bluedevil2k 13y ago
  Don't confuse market cap and purchase price. And I would never use Facebook's ridiculous overpayment as the basis for valuing other companies.
  - rayiner 13y ago
    Purchase price should be in general a small premium over market cap.
    - btilly 13y ago
      It should be, but the actual premium is the result of a human decision, and humans sometimes make very bad decisions. (See, for instance, the purchase of Skype by eBay a decade ago. Also on the value of a network that was an alternative to phone calls.)
      - baddox 13y ago
        Market cap is also the result of human decision.
        13y ago

Shivetya 13y ago

We have to be careful here, while I am all for Tesla being able to sell their cars where they want I want assurances I can get their car and any other car serviced where I want. Car dealers and independent auto service centers need protection from manufactures; dealers can service brands they don't sell should they choose. The danger in allowing manufacturers to determine how sales are made is they will likely dictate how repair and maintenance is handled. While maintenance on an electronic vehicle is going to be significantly different my warranty should not be affected should I choose someone other than the manufacturer to repair it. disclaimer, I work for a leading supplier of auto parts.

gergles 13y ago
Magnusson-Moss already prevents manufacturers from denying your warranty based on who does the service. We don't need protectionism for the dealerships.
- schiffern 13y ago
  Yep, but it doesn't prevent them from requiring proprietary equipment, scan tools, service manuals, and part ordering systems that only dealers can buy. This is why Right to Repair laws are so important. https://en.wikipedia.org/wiki/Motor_Vehicle_Owners%27_Right_to_Repair_Act https://en.wikipedia.org/wiki/Motor_Vehicle_Owners%27_Right_...
hueving 13y ago
>We have to be careful here, while I am all for Tesla being able to sell their cars where they want I want assurances I can get their car and any other car serviced where I want. Those are two completely separate topics. The fact that dealers now service cars has nothing to do with the fact that they sell them. Otherwise auto repair shops wouldn't exist.
300bps 13y ago
The danger in allowing manufacturers to determine how sales are made is they will likely dictate how repair and maintenance is handled. With Tesla, I don't think it is anywhere near as likely as you seem to. Look at this: http://www.teslamotors.com/blog/people-new-jersey http://www.teslamotors.com/blog/people-new-jersey Going a step further, I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars. Beyond that, with unbelievably fewer moving parts and over-the-air updates, Tesla vehicles require far less servicing. For starters, they don't require regular oil changes.

Spooky23 13y ago

I think there is some truth there, but managing a national retail/service is not trivial. Consider that among all of the computer OEMs, Apple is the only one who has successfully operated a retail channel. (Gateway did once, but it wasn't very profitable) Also consider another franchise model: fast food. McDonald's has a vast network of franchise and corporate owned stores. There is no discernable difference in customer experience or cost between the two.

soperj 13y ago
Dell? HP? Seriously.
- Spooky23 13y ago
  I'm not talking web, I'm talking retail. People don't buy cars sight unseen.
  - larrys 13y ago
    Agree. Cars are an emotional purchase. The dealer motivated by profit serves a function in that process. That is one of the reasons that by and large fixed pricing hasn't worked with autos as much as everyone seems to think that it's such a great idea. Negotiation and "buy now" kicks people off of fences. (So does inventory and other factors to be sure..)
  - soperj 13y ago
    sure they do. Ebay.
njharman 13y ago
That's cause apple is selling a lifestyle, like Starbucks. Others a fine with just selling you a computer and don't need glass box retail locations to do that.

larrys 13y ago

"Frankly, Ford doesn't need its dealer network any more than Tesla does now, or they shouldn't. " So you are suggesting that Ford is interested in replacing the franchised model and operating and owning the establishments themselves? Car dealerships in many areas are basically small businesses. They are a model that work in the same way that many bakeries have route drivers that are one step away from being employees in a sense (Fedex also uses this in some areas). I don't buy the idea that it's a given that a large existing car manufacturer would rather just build out and operate car dealerships and that there is no value to an entrepreneur owning that dealership. Or that that even adds to significant extra costs for the consumer. By "significant" I mean the extra cost per car because there is a dealer. (Which by the way you do need a place to get service (even with electric) and you do need a showroom and a local point of contact). How much profit per car do you think the dealer makes exactly that the consumer will save?

GFK_of_xmaspast 13y ago
GM had a hell of a time killing Oldsmobile because of the dealers.
- larrys 13y ago
  That seems to be a benefit for consumers though. Imagine if google had dealers and they weren't able to so easily kill off a service that wasn't profitable because there was more of a unified voice against the action. (This is not a pro or con for dealers just something that came to my mind based on your comment).
  - GFK_of_xmaspast 13y ago
    Spoken like someone who's never driven an oldsmobile. The automobile industry has consumer protection laws that force manufacturers to honor warranties and emission control systems.
    - larrys 13y ago
      "Spoken like someone who's never driven an oldsmobile." I actually have. So please explain what you are trying to say.

agumonkey 13y ago

I really wonder how you migrate obsolete networks like these. Secondary effects of its disruption, ex-employees etc... Did people theorize this in the past or was it left to nature, forces (lobbies etc) attempting to ensure survival until it was no longer possible and everybody accepted to let go.

tootie 13y ago

I think a lot of manufacturers will secretly support Tesla's effort. They can't risk alienating their dealers publicly, but the entire industry hates them.

gamblor956 13y ago

Car dealers don't solve distribution problems from 100 years ago. They didn't have these sorts of distribution problems 100 years ago, and the first car dealers were simply manufacturer storefronts. Car dealers solve the risk management function. Selling cars is a risky business. Car makers are in the business of making cars, which is significantly different business activity with a wholly different risk profile and operational needs. Tesla can sell direct to customers because its small enough now that the localized retail/inventory risks aren't significant. This business model (of manufacturer-owned dealers) simply won't scale to a national level.

vajrabum 13y ago
Aren't you assuming that the manufacturer needs to store an inventory of cars somewhere? If the manufacturer sells direct and the lead time is short enough there's little to no risk because there's little to no inventory.
- gamblor956 13y ago
  You're thinking of manufacturing inventory risk vs hyper-localized inventory risk. They have to manage inventory both ways, but the hyper-localized inventory incurs significant transportation expenses.
gaius 13y ago
Exactly. It's the same as wondering why you can't book a flight directly with Boeing.

dwd 13y ago

> Because they're parasites This could be said for most middlemen such as Real Estate Agents and Financial Planners.