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 ;)
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.
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!
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.
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.
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!
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).
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
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.
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.
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.
This also puts the universe of consumers on a level playing field. No longer will the loudest, most ruthless negotiator customers get the best deals. Such equality would be a welcome change.
What's funny about this is in San Diego guess where the Telsa dealership/store is? In the local mall, right across from the Apple store. There are always a ton of people in there looking at the car (yep, a "dealership" with just one car). I think it's great and gets a ton of people familiar with their product that otherwise wouldn't be.
That's a terrific place to set up Tesla showrooms. Apple has done all the legwork in figuring out where their target demograhic is, and Tesla can piggyback on it, like what Taco Bell does vs McDonalds. (considerable overlap between Apple customers and potential Tesla customers)
Same thing in Bellevue, WA. I would argue though that it isn't about malls with Apple stores, but rather it is about Malls with high-income shoppers of which both Apple and Tesla want to be in.
> They're rent-seekers, pure and simple, with no value add at all. Half the time they don't even have stock!
That's a major oversimplification. Car dealers can provide a lot of value to individuals looking to purchase a vehicle, both at the time of purchase and after the fact via test drives, financing, and discounts for future maintenance at their service centers. There are plenty of shady car salesmen that take advantage of vulnerable people, but that should not negate the benefits that many dealerships provide.
The stock issue is tricky, as many local dealers can't afford to carry a wide range of models and configurations. Stopping by the local dealership looking to buy a specific model vehicle same-day may result in disappointment. However, dealerships are very good about acquiring a vehicle that you are interested in purchasing. All you need to do is ask.
That being said, I agree with you that buying a car should be more similar to buying an iPad than it currently is. There are ludicrous laws that stifle innovation in the vehicle purchasing process, such as the Massachusetts Franchise law 93B[1] that prohibits manufacturers from owning dealerships. I think Tesla's vision[2] for first party dealerships and vehicle distribution is a step in the right direction.
"Car dealers can provide a lot of value to individuals looking to purchase a vehicle, both at the time of purchase and after the fact via test drives, financing, and discounts for future maintenance at their service center."
none of those things are exclusive to dealers for any reason other than the law requires it. a manufacturer-owned store could provide the same (or better) service in all cases. they add no value above and beyond what a first-party dealership would provide.
> 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.
> 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?
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.
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.
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?
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-.... 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)
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.
"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.
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
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.
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.
Currently, the dealers buy the vehicle from the manufacturer, so the manufacturer isn't holding onto large amounts of inventory. I suppose it's possible to restructure the business to operate in a way that can take on the large inventory and long turnover, but probably not the current companies in their current forms.
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.
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.
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.
It looks like the sell in many states. There's a Tesla "store" (if that's the correct term) where I live. I've been there but never asked anyone there about the whole buying process.
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?
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.
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.
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.
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.
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.
52 comments
[ 3.2 ms ] story [ 651 ms ] threadEven 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-lea...
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!
Sure it sucks to be a car dealer if this goes down, but that's the price of progress.
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
> "Buying an iPad is not buying a car," says David Hyatt of the national association
Well, it should be.
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.
I will never go back to buying a car from a dealership. Ever.
Looking forward to the day when consumer gets the same best price from manufacturer owned stores everywhere.
That's a major oversimplification. Car dealers can provide a lot of value to individuals looking to purchase a vehicle, both at the time of purchase and after the fact via test drives, financing, and discounts for future maintenance at their service centers. There are plenty of shady car salesmen that take advantage of vulnerable people, but that should not negate the benefits that many dealerships provide.
The stock issue is tricky, as many local dealers can't afford to carry a wide range of models and configurations. Stopping by the local dealership looking to buy a specific model vehicle same-day may result in disappointment. However, dealerships are very good about acquiring a vehicle that you are interested in purchasing. All you need to do is ask.
That being said, I agree with you that buying a car should be more similar to buying an iPad than it currently is. There are ludicrous laws that stifle innovation in the vehicle purchasing process, such as the Massachusetts Franchise law 93B[1] that prohibits manufacturers from owning dealerships. I think Tesla's vision[2] for first party dealerships and vehicle distribution is a step in the right direction.
[1] http://www.malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/...
[2] http://www.teslamotors.com/nl_NL/blog/tesla-approach-distrib...
none of those things are exclusive to dealers for any reason other than the law requires it. a manufacturer-owned store could provide the same (or better) service in all cases. they add no value above and beyond what a first-party dealership would provide.
It's the same issue over and over. Just because you did work does not mean it is worth anything.
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.
Because obviously we need not institute new laws if basic economic reasoning can bring about the change.
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?
We're all mostly upset that the dinosaur automakers are trying to dictate the terms of Tesla's business.
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.
There's a great story from NPR Planet Money that covers this: 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)
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.
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-squ...
I could see Tesla one day letting a company like Amazon sell the cars and handle the logistics of delivering them to the customer.
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.
Changing the current company models, in their current forms, is exactly what Tesla is trying to do.
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.
Service would be a tough problem though.
Excerpt from the SeekingAlpha Transcript:
Isn't that the case now?
http://www.teslamotors.com/findus
It looks like the sell in many states. There's a Tesla "store" (if that's the correct term) where I live. I've been there but never asked anyone there about the whole buying process.
Just because you can look, doesn't mean you can buy, hence the workaround.
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.
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.
I won't miss these vultures when they're gone. Go Tesla!