

Tesla Rides High, But Faces Formidable Foe: Car Dealers - btian
http://www.npr.org/2013/05/19/184882045/tesla-rides-high-but-faces-formidable-foe-car-dealers

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venus
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.

~~~
chaz
> 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.

~~~
MichaelApproved
_"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-
squ...](http://stock.walmart.com/financial-reporting/unit-counts-square-
footage)

~~~
Maven911
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
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.

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quackerhacker
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-
lea...](http://www.businessweek.com/news/2012-10-23/dealer-group-leaving-
tesla-retail-challenge-to-states)

~~~
btian
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
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>

~~~
HorizonXP
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
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).

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ams6110
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
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.

~~~
ams6110
I'm wondering just how often the decision to buy a Tesla comes down to a test
drive.

~~~
revelation
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.

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tibbon
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
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.

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hasker
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.

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codex
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
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.

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beedogs
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!

