6 ms·

Tesla vs. the auto dealers

55 points by zwieback 13y ago

zevyoura 13y ago
Planet Money has an excellent episode where they discuss this topic in more detail: 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-...
- mbillie1 13y ago
  That was fascinating, thank you for sharing it. I'm always curious when a business justifies its existence or protection by appealing to the fact that it employs people - "we have families depending on us!" Every business employs people, has families depending on it, etc. That argument ought to be considered a fallacy.
  - wmf 13y ago
    Specifically, it's not obvious why a Tesla-owned "store" would employ fewer people than an independent "dealer".
- timjahn 13y ago
  That was amazing, thanks for sharing! Amazing how the woman representing the dealerships struggled to come up any logical defense for their legal protection.
mbillie1 13y ago
It would be difficult to find a less sympathetic cast of characters than car salesmen from New Jersey, but I think the issue at stake is that the legislation in question was initially intended to protect new businesses in an established field and encourage innovation, but now is protecting existing business and hindering innovation. It reminds me a lot of patent laws with respect to the software world.
jusben1369 13y ago
This was a pretty light and fluffy piece: " But the auto industry is different. In its early years, companies tried all kinds of ways of selling cars; you could buy them right at the factory, or at local department stores, or even from the Sears catalogue. But by the nineteen-twenties the industry’s major players had settled on a system of local, independently owned car dealers." - A good reporter would tell you why it settled on that system. It's behind the reasons these sorts of laws exist. When he does hint at it " the relevant Florida statute claims to be “providing consumer protection and fair trade.” he makes no attempt to even enlighten us as to why this might be the reasoning even if the reasoning is crappy and out of date at least discuss it Oh, and it isn't just autos. " In most states, retailers and restaurants have to buy alcohol from wholesalers rather than directly from producers." Ok, pick the one industry that is heavily regulated due to religious and social reasons. Not really a great example to utilize given all the baggage and emotion there. "But, according to a 2008 study, almost thirty per cent of jobs now require a license in some state or other, including many—auctioneer, shampooer, home-entertainment installer—where licensing seems totally unnecessary." Big sweeping claim without even referencing the study? Yikes. I think Tesla should be able to sell directly. This though feels like an opinion piece from Tesla more than a reporter reporting on a story.
- larrydag 13y ago
  There definitely is a story. Here in Texas it's forbidden to sell cars directly to consumers and must through a dealer. The article does not mention how much of an impact the National Auto Dealers Association lobby group has on the industry. We aren't hearing from the manufacturers because they caught in a catch-22 with wanting to lower their costs via direct sales yet not irritating their network of dealers.
DEinspanjer 13y ago
FTA: "Of course, you might ask, who really cares if some luxury-sedan maker has to sell through dealers?" The answer to this question is one of the more important ones that I find typically under-reported. The biggest problem with trying to force Tesla to go through dealers to sell their cars is that it is almost guaranteed not to be feasible or profitable. The majority of profit from dealerships comes out of repairs and service rather than the actual sales. They want people to buy a car, drive it for a few years, paying for regular maintenance, and any repairs that crop up, then buy a new car after that in order to get the new features and stop paying for more and more expensive repairs. Being an electric vehicle, a Tesla has fewer mechanical parts, and a lot less "stuff" to wear out and require breaking down. That is one major penalty to the service model common for existing auto dealerships. Tesla has committed to providing a service model that does not seek to be a profit center for the company. They specifically don't want to make any significant portion of their revenue from service. Tesla has also committed to providing over the air updates of the software as well as providing retrofits of new features and updated components such as batteries. OTA updates are free for the life of the car and are delivered automatically. The batteries are swappable with a minimal amount of service work, and that means that existing vehicles on the road today can likely take advantage of future battery technology as it comes online. So, roll all these things up together and think about how many dealers would actually want to put an amazing looking vehicle in their showroom that: * doesn't require periodically stopping at a gas station but can instead typically be re-fueled at home overnight * requires less maintenance * costs less for the maintenance and repairs that are required * doesn't become obsolete as quickly due to new software features being delivered for free and new hardware upgrades potentially available at a fraction of the cost of a new car and then watch as many customers who walk in purchase that vehicle rather than the dozens of models from other manufacturers that don't have those advantages... A dealership would almost have to exclusively sell Teslas. If they weren't, they'd be hurting their revenue model and competing against themselves. Unfortunately, until the third generation Tesla comes out, there isn't enough market for the current models to warrant a large traditional dealership just for the Model S (and soon to be Model X). All that is needed right now are the small showroom stores that they are currently using, and there isn't really any significant utility in forcing those to be owned by a different business entity. When the third gen cars do hit mainstream, it is very likely that shortly thereafter, there will start being stores with outdoor parking lots that have several models on hand ready to be bought and driven away. It is also likely that at that point, it will make sense to have third party businesses own and run those stores. Even then, it still isn't all straightforward, because there has to be some utility for those businesses to exist, and anything more than a modest markup for origination and on-site immediate delivery will require careful thought to prevent major disruption and potential descent into the current hellish system of deceptive markup and aggressive haggling for deceptive discounts that is so common in the rest of the auto dealership model.
evanm 13y ago
Not sure what the backlash is about with the auto dealers. Even if they are weary of automakers becoming more vertical, the automakers themselves will still need experienced salesmen in which case their jobs aren't threatened. They'd be working for automakers, not dealerships. If you look at it, this industry shift wouldn't be job-cutting unlike for airline ticketing agents and toll collectors, who have seen their jobs replaced by machines.
- soperj 13y ago
  The automakers might choose to not employ douchebags because they want to retain a positive image.
jesusmichael 13y ago
The Dealership model is outdated to say the least. But there are some genuine liability issues that need to be addressed at the state level. Most state regulate most aspects of the Automobiles that travel their roads and there would have to be some compromise on licensing and nexus so the consumer won't be left holding the bag from a product liability prospective and states can enforce their product standards without stepping on federal toes.
n_coats 13y ago
I've personally experienced the frustration of trying to introduce an innovative and different model in the auto industry. It's a good old boys network that seems like they will resist change until their failure far before they'd ever consider transitioning to something that isn't, "just the way it is".
jmharvey 13y ago
The "dealers have political clout because they generate so much sales tax revenue" logic seems lacking. Wouldn't people buying cars pay the sales taxes regardless of whether the cars are sold through dealers or direct to consumer?

55 points by zwieback 13y ago

Planet Money has an excellent episode where they discuss this topic in more detail: 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-...

mbillie1 13y ago
That was fascinating, thank you for sharing it. I'm always curious when a business justifies its existence or protection by appealing to the fact that it employs people - "we have families depending on us!" Every business employs people, has families depending on it, etc. That argument ought to be considered a fallacy.
- wmf 13y ago
  Specifically, it's not obvious why a Tesla-owned "store" would employ fewer people than an independent "dealer".
timjahn 13y ago
That was amazing, thanks for sharing! Amazing how the woman representing the dealerships struggled to come up any logical defense for their legal protection.

mbillie1 13y ago

It would be difficult to find a less sympathetic cast of characters than car salesmen from New Jersey, but I think the issue at stake is that the legislation in question was initially intended to protect new businesses in an established field and encourage innovation, but now is protecting existing business and hindering innovation. It reminds me a lot of patent laws with respect to the software world.

jusben1369 13y ago

This was a pretty light and fluffy piece: " But the auto industry is different. In its early years, companies tried all kinds of ways of selling cars; you could buy them right at the factory, or at local department stores, or even from the Sears catalogue. But by the nineteen-twenties the industry’s major players had settled on a system of local, independently owned car dealers." - A good reporter would tell you why it settled on that system. It's behind the reasons these sorts of laws exist. When he does hint at it " the relevant Florida statute claims to be “providing consumer protection and fair trade.” he makes no attempt to even enlighten us as to why this might be the reasoning even if the reasoning is crappy and out of date at least discuss it Oh, and it isn't just autos. " In most states, retailers and restaurants have to buy alcohol from wholesalers rather than directly from producers." Ok, pick the one industry that is heavily regulated due to religious and social reasons. Not really a great example to utilize given all the baggage and emotion there. "But, according to a 2008 study, almost thirty per cent of jobs now require a license in some state or other, including many—auctioneer, shampooer, home-entertainment installer—where licensing seems totally unnecessary." Big sweeping claim without even referencing the study? Yikes. I think Tesla should be able to sell directly. This though feels like an opinion piece from Tesla more than a reporter reporting on a story.

larrydag 13y ago
There definitely is a story. Here in Texas it's forbidden to sell cars directly to consumers and must through a dealer. The article does not mention how much of an impact the National Auto Dealers Association lobby group has on the industry. We aren't hearing from the manufacturers because they caught in a catch-22 with wanting to lower their costs via direct sales yet not irritating their network of dealers.

DEinspanjer 13y ago

FTA: "Of course, you might ask, who really cares if some luxury-sedan maker has to sell through dealers?" The answer to this question is one of the more important ones that I find typically under-reported. The biggest problem with trying to force Tesla to go through dealers to sell their cars is that it is almost guaranteed not to be feasible or profitable. The majority of profit from dealerships comes out of repairs and service rather than the actual sales. They want people to buy a car, drive it for a few years, paying for regular maintenance, and any repairs that crop up, then buy a new car after that in order to get the new features and stop paying for more and more expensive repairs. Being an electric vehicle, a Tesla has fewer mechanical parts, and a lot less "stuff" to wear out and require breaking down. That is one major penalty to the service model common for existing auto dealerships. Tesla has committed to providing a service model that does not seek to be a profit center for the company. They specifically don't want to make any significant portion of their revenue from service. Tesla has also committed to providing over the air updates of the software as well as providing retrofits of new features and updated components such as batteries. OTA updates are free for the life of the car and are delivered automatically. The batteries are swappable with a minimal amount of service work, and that means that existing vehicles on the road today can likely take advantage of future battery technology as it comes online. So, roll all these things up together and think about how many dealers would actually want to put an amazing looking vehicle in their showroom that: * doesn't require periodically stopping at a gas station but can instead typically be re-fueled at home overnight * requires less maintenance * costs less for the maintenance and repairs that are required * doesn't become obsolete as quickly due to new software features being delivered for free and new hardware upgrades potentially available at a fraction of the cost of a new car and then watch as many customers who walk in purchase that vehicle rather than the dozens of models from other manufacturers that don't have those advantages... A dealership would almost have to exclusively sell Teslas. If they weren't, they'd be hurting their revenue model and competing against themselves. Unfortunately, until the third generation Tesla comes out, there isn't enough market for the current models to warrant a large traditional dealership just for the Model S (and soon to be Model X). All that is needed right now are the small showroom stores that they are currently using, and there isn't really any significant utility in forcing those to be owned by a different business entity. When the third gen cars do hit mainstream, it is very likely that shortly thereafter, there will start being stores with outdoor parking lots that have several models on hand ready to be bought and driven away. It is also likely that at that point, it will make sense to have third party businesses own and run those stores. Even then, it still isn't all straightforward, because there has to be some utility for those businesses to exist, and anything more than a modest markup for origination and on-site immediate delivery will require careful thought to prevent major disruption and potential descent into the current hellish system of deceptive markup and aggressive haggling for deceptive discounts that is so common in the rest of the auto dealership model.

evanm 13y ago

Not sure what the backlash is about with the auto dealers. Even if they are weary of automakers becoming more vertical, the automakers themselves will still need experienced salesmen in which case their jobs aren't threatened. They'd be working for automakers, not dealerships. If you look at it, this industry shift wouldn't be job-cutting unlike for airline ticketing agents and toll collectors, who have seen their jobs replaced by machines.

soperj 13y ago
The automakers might choose to not employ douchebags because they want to retain a positive image.

jesusmichael 13y ago

The Dealership model is outdated to say the least. But there are some genuine liability issues that need to be addressed at the state level. Most state regulate most aspects of the Automobiles that travel their roads and there would have to be some compromise on licensing and nexus so the consumer won't be left holding the bag from a product liability prospective and states can enforce their product standards without stepping on federal toes.

n_coats 13y ago

I've personally experienced the frustration of trying to introduce an innovative and different model in the auto industry. It's a good old boys network that seems like they will resist change until their failure far before they'd ever consider transitioning to something that isn't, "just the way it is".

jmharvey 13y ago

The "dealers have political clout because they generate so much sales tax revenue" logic seems lacking. Wouldn't people buying cars pay the sales taxes regardless of whether the cars are sold through dealers or direct to consumer?