
Tesla Can Topple the Car-Dealer Monopoly - adventured
http://www.bloombergview.com/articles/2014-03-20/tesla-can-topple-the-car-dealer-monopoly
======
gxs
One of the great things that has come of this entire ordeal is simply
education.

I usually take pride in doing my research well before buying something, but it
had never really occurred to me that the dealers are forced middlemen. It had
never occurred to me that it is ILLEGAL for Toyota to sell a car directly to
me.

I am rooting for Tesla now with even more fervor. It's absolutely comical to
me how politicians will tote the values of a capitalistic society, then turn
around and get on their knees for special interest lobbies.

~~~
chongli
_It 's absolutely comical to me how politicians will tote the values of a
capitalistic society, then turn around and get on their knees for special
interest lobbies._

This is only a contradiction if you view the government as some sort of
impartial referee in the game of capitalism. If instead you rightly view them
as the biggest player on the field that bullies everyone else and picks
favourites then there is no contradiction.

~~~
baddox
The government isn't just a normal player on the field that happens to be
bigger and stronger. Government also enjoys the acceptance by society that it
is the _only_ actor with certain authorities, like the authority to mediate
conflict with violence, imprison and execute people, break up companies or
prevent mergers by force, and fund itself via taxation. If a "normal"
organization did any of those things, you would probably resist, and your
neighbors would probably take your side.

~~~
res0nat0r
Could we please stop conflating the military and use of it by the government
to laws that were enacted long ago to protect consumers when buying a car? The
military isn't going to take over a dealership with armed service personnel to
keep Tesla from selling their cars. Sheesh.

~~~
socrates1998
How do you think personal and private property laws get enforced?

Don't be under the illusion that our system is built upon trust and volunteer
acceptance. It's built upon overwhelming brute force.

>he military isn't going to take over a dealership with armed service
personnel to keep Tesla from selling their cars.

Who do you think the car dealerships will call when Telsa refuses to shut his
stores down? The police. They will confiscate the property, arrest the
managers/owners and shut down the business.

That is overwhelming brute force whether you call it the military or the
police.

~~~
res0nat0r
> Who do you think the car dealerships will call when Telsa refuses to shut
> his stores down? The police. They will confiscate the property, arrest the
> managers/owners and shut down the business.

I'm going with the court system.

Businesses for the most part don't comply with the law because they are
worried about a gun being pointed to their head, they are worried about being
sued and being put out of business, or being sent to jail for something
criminal.

~~~
baddox
> Businesses for the most part don't comply with the law because they are
> worried about a gun being pointed to their head, they are worried about
> being sued and being put out of business, or being sent to jail for
> something criminal.

Those are essentially the same thing. What do you think happens if a court
rules that you cannot continue your business, but you do anyway? Or what
happens if you are given a jail sentence and you physically resist being moved
to jail?

~~~
res0nat0r
Sure it can eventually come to that, but thinking that businesses operate for
the most part in compliance with the law because they are worried about being
accosted by the US military is just fear mongering.

~~~
baddox
Again, I don't think anyone here is talking about the military.

~~~
res0nat0r
Military / police / militia, whatever type of scary men with guns you are
insinuating above...

------
beat
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?

~~~
Shivetya
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.

~~~
300bps
_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.

~~~
mikeash
Regarding your last paragraph, I believe the only item that requires routine
service is the tires.

~~~
mikestew
If there's a published service schedule, I can't find it. But it's probably
safe to guess it's much like the Nissan Leaf. The Tesla probably has a teensy
cooling system for the motor (they do get hot). Probably has an in-cabin air
filter. Brake fluid, most assuredly. It might have a bit of oil in the thingy
that transfers electric motor power to axles, or maybe it doesn't have that
thingy.

None of which really needs to touched very often. Brake fluid _should_ be
changed once a year or so (yeah, neither do I). Same with the in-cabin filter.
The rest is a 100K mile service on the Leaf, IIRC.

------
BrandonMarc
I've often been amazed the car-dealer industry has lasted this long. It's all
too often based on deception, disrespect, intimidation, and rip-offs - from
the showroom (overcharge as much as possible), to the trade-in aspect (under-
charge using the same tricks ... go figure) to the financing (bury the
overcharging in extra years of interest paid), to the garage (a skilled
mechanic will often still charge far less than the dealership for the same
service).

No, not every dealer works this way. Just the majority. If Tesla can make a
change to this phenomenon, then good riddance to bad rubbish.

As an aside, this (long) story from Edmunds gives outstanding insights to how
dealerships work, and what options are available to consumers.

[http://www.edmunds.com/car-buying/confessions-of-a-car-
sales...](http://www.edmunds.com/car-buying/confessions-of-a-car-
salesman.html)

It's fascinating to see how racial profiling comes into the mix. An ethnic
group - according to dealers - will be known to have bad credit, or to pay the
overcharged price no matter what without a fight, or (as dealers claim of
white people) chiefly car-shop online and come armed with information looking
for the best price.

~~~
chris_mahan
Agreed. Also very often within the dealership itself: Salesman lies to you,
finance guy lies to you, other salespeople completely ignore you. The only
person relatively nice is the receptionist.

~~~
mikeash
It's interesting to think about how much of this crap is ultimately enabled by
the ubiquity of car loans.

Transforming the sticker price into a much lower (in terms of which number is
absolutely bigger) monthly charge completely changes the psychology of it.

How many people don't do as much research as they should because they're
thinking in terms of $500/month instead of $25,000? How much BS can the
salesman then get away with because of that?

How often does a salesman successfully pitch some completely useless extra as
being "only $20/month" when the buyer would never pay $1,000 for it if they
actually sat down and thought about it?

How often do buyers end up spending way more than they intended to because
they don't properly factor in interest, or the added cost of extras, or down
payments, or the costs of taking out the loan itself?

I bought a car in cash last year and it made the whole process pretty nice. A
whole fat layer of nonsense was just stripped away.

I realize this isn't practical for everybody, but how much of it is that it's
outright _impossible_ for people, and how much of it is that Americans are
conditioned to buy cars on credit, end up spending more than they should and
buying more car than they should, making it harder to save up money, making
the whole cycle repeat.

In many ways, it's just another example of how it's expensive to be poor, and
cheaper to be better off.

------
vvvv
Actually, Tesla is not the first auto company that is attempting to dispense
of dealers. When Daewoo entered the UK in 1995, "their market research
revealed that car buyers disliked dealers on commission, hard-sell, aggressive
sales techniques, over exaggerated promotional campaigns and poor after-sales
service" so "Daewoo set up its own dealerships with staff paid a salary rather
than commission – trained, helpful sales advisors providing information rather
than pressing for sales. Showrooms had crèches and children’s play areas and
offered coffee. Cars were not serviced at the same location, but rather by the
well-known retailer Halfords in their out-of-town service centres. The themes
used by Daewoo to further differentiate itself included good value, reliable
cars (3 year warranties, AA breakdown cover) with additional safety features
(eg ABS brakes and side impact protection) and additional features and
benefits that would otherwise be extra cost (eg power steering, no-fuss
guarantees, courtesy cars or pick up and collection for services). The result
was that in the first six months Daewoo sold a remarkable 14,000 cars in the
UK."

[http://www.palgrave.com/business/ebm/lecturers/session4/4-da...](http://www.palgrave.com/business/ebm/lecturers/session4/4-daewoo.html)

[http://books.google.co.uk/books?id=33HpNgHUkb0C&pg=PA144&lpg...](http://books.google.co.uk/books?id=33HpNgHUkb0C&pg=PA144&lpg=PA144&dq=daewoo+dealer+business+case+study&source=bl&ots=e7ROG6y03z&sig=J_cOGHSQizeFmyn-81db-
aeTAgI&hl=en&sa=X&ei=Uh4rU8fINciQhQedyYDAAQ&ved=0CEAQ6AEwAg#v=onepage&q=daewoo%20dealer%20business%20case%20study&f=false)

~~~
Theodores
You have a good memory!

If I remember...

The original Daewoo cars in the UK were based on old Astra (and other
Vauxhall) models, with body panels that were just not quite as well defined as
the Astra originals. This appearance was a bit like the tacky Rover versions
of Honda cars or how we imagine Chinese 'knock offs' to look. They were
competing against Lada and other low price motors at the budget end of the
price range. I don't think the service-by-Halfords arrangement worked out too
well for them and other dealerships tried their hardest to do them down.
Nonetheless they were a disruptive presence in the marketplace - at the time I
lived in a rural part of Wales and those Daewoo efforts were quite common.

In a UK context the Tesla dealerships are probably more akin to the McLaren
dealerships (I think these are owned by M(a)cLaren, i.e. Ron Dennis et al.,
but they could be a franchise). McLaren are an up-market premium brand and,
having a McLaren dealership in nearby Knightsbridge, probably isn't going to
stress out the Ford dealers on the A5 (or rural Wales) in the same way that
Daewoo disrupted things. I think our American friends are over-worrying about
the 'threat' Tesla are to regular car dealers.

~~~
brc
Ron Dennis is only a minority owner in McLaren.

The dealership is fully owned by the company as far as I know.

------
api
I'm with Tesla here, but this headline is weirdly almost Orwellian. Car
dealers are not a monopoly. They all have different owners! But they are a
state-mandated middleman, something I do not support.

The reason I'm with Tesla is because I know why they're doing this. The
automotive industry is for the most part terrified of EVs as they have far
fewer moving parts, no oil changes, etc. They also have the potential to last
longer and (eventually!) be easier to produce. Tesla is doing this because if
given half a chance car dealers will sideline if not outright sabotage any EV
that attempts to succeed in the market. They're going around the car industry
because the car industry wants them to fail.

~~~
venomsnake
Oligopoly is monopoly in all but name.

------
casca
For more info on the how and why of US car dealerships, here's a good Planet
Money podcast:
[http://www.npr.org/blogs/money/2014/03/14/290241292/episode-...](http://www.npr.org/blogs/money/2014/03/14/290241292/episode-435-why-
buying-a-car-is-so-awful)

~~~
Florin_Andrei
That episode was fantastic.

------
Spooky23
A better headline would be "Tesla must topple the car-dealer franchise
system".

The retail side of the dealer network is really just a front door to the
service department. Electric cars are supposed to have fewer service
requirements, so if Tesla cannot defeat the franschise system, they are kind
of screwed, as franchises will have to make more money on retail.

~~~
protomyth
"Tesla must topple the car-dealer franchise system".

That is a much better description. For example, Ford probably doesn't care if
Tesla succeeds or fails. They are stuck with independent dealers currently and
any attempt on their part to change that will start a "starve out" of their
sales as most dealers have multiple dealerships and sell multiple brands.

If Tesla doesn't break the franchise system, then Ford is no worse off than it
is now and Tesla is blocked. If Tesla does win, then Ford can start selling
direct itself.

------
mikestew
With all the talk about money-driven politics, and how politicians listen to
the car dealers over what you have to say, at the end of the day I'm the one
that fills out the ballot. And I would defy anyone to point out an industry
endpoint (at least in the U. S.) that has as much a reputation for dishonesty
and obfuscated pricing as auto dealers. Lawyers at least come in handy from
time to time, but I'd guess car salesmen will have a hard time finding a
sympathetic ear. People expect car salesmen to just lie to their face. Seat
protection spray and undercoating being a rip-off is so cliched it's the
subject of comedy routines (and everybody gets the joke). Yet dealers still
sell it, and we sit there saying "no...no...no...ask me again, and I'll buy
the car elsewhere" because that's just the way it is, right?

Maybe it doesn't have to be that way. If you live in NJ, TX, or another state
that doesn't want to let Tesla sell cars, let a state politician know. Maybe
you think your U. S. Congressperson won't listen to you, but at the state
level they are much more likely to lend an ear.

~~~
mikeash
If just _you_ filled out the ballot, I imagine this would be much less
problematic.

The problem is that you, and people like you, are not normal. Most ballots are
filled out by slack-jawed yokels who choose their car because they liked the
ad they saw for it on TV, and who choose their politicians in much the same
manner.

------
sixQuarks
This may seem counter-intuitive, but an educated car shopper today can
actually get a better deal because of this archaic franchise system.

The truth is, dealers do compete against each other ferociously. Yes, they
will rip you off if you come unprepared, but if you shop your deal around to
enough dealers, chances are you will get a zero-profit or even below-cost deal
on your new car.

When the dealer franchise system has been gotten rid of (I give it another 15
to 20 years), supply and demand will be better matched and manufacturers will
be optimizing their profits.

~~~
fancyketchup
See, but this just shows that even those who think they are educated car
shoppers actually aren't. Dealers never sell cars at zero or negative profit,
unless you ignore things like holdback (a rebate on the wholesale price of the
car when the car is sold at retail) or factory quota incentives (a "bonus" for
dealers who sell a certain number of certain models of cars in a particular
month). If you think you got the car for below cost, chances are you forgot to
factor in holdback or you just pushed the dealer over the edge for a big fat
manufacturer bonus check.

~~~
sixQuarks
A lot of irony in your statement. I've been involved in the retail automotive
space for 8 years, so I'm not just talking out my ass.

It's a FACT that some dealers will sell new vehicles for below cost. One very
simple example is when dealers are trying to hit stair-step incentive goals
near the end of the month. This is where a manufacturer will pay out a bonus
incentive on EVERY vehicle sold that month, if and only if the dealer hits a
certain sales goal. If they are off by 1, they don't get any bonus. If they
sell that one additional vehicle, they may get as much as $100,000 in bonuses.
Dealers sell cars for below cost all the time.

~~~
fancyketchup
Yea, neither am I: Grandpa had a Ford dealership until about 5 years ago, his
son ran the service department. My uncle on the other side currently sells
cars for Honda. I'm well-versed in the car business.

I'm not sure how your comment contradicts mine. If you get a $100,000 bonus
for selling a vehicle, the marginal profit on that vehicle is damn near
$100,000. Dealerships don't sell cars for a loss. Of course, that doesn't help
the consumer unless the consumer wants that particular model, with the
particular options that need to be sold to get the bonus.

~~~
sixQuarks
OK, now you're just using semantics to change your argument.

Regardless, the stair-step incentives is just ONE of many examples I can
provide.

The backlash against TrueCar's initial business model showed there were some
dealers selling vehicles for below cost, in hopes of making up the difference
with add-on sales. Whether these dealers made up the profit difference on the
whole does not change the fact that at least some of those customers purchased
vehicles at a profit loss to the dealer.

~~~
fancyketchup
And I quote:

"[...] chances are you will get a zero-profit or even below-cost deal on your
new car"

Let's say I'm a car dealer and I need to sell one more car to get my bonus.
Let's say that car cost me $20,000. Let's say the bonus is $100,000. Now let's
say I give away the car _for free_. I still have $80,000 more than I started
with at the beginning of the comment.

------
crabasa
"the initial benefits of the dealer franchise system have long since given way
to rent-seeking, inefficiency and unintended consequences"

This is by far the most interesting part of what is a rather short and fluffy
piece with a strangely assertive headline.

How __exactly __does a government /regulator quantify when the benefits of a
granted monopoly (i.e. power, telecom, etc) has outlives its _well understood_
purpose?

------
tdiggity
Why can't it be as simple as this:

If you sell direct, you can't have dealers. If you have dealers, you can't
sell direct.

Are dealers afraid that manufacturers like Toyota or Ford would just go up and
undercut them? I doubt it, that would piss off a lot of their customers (the
dealers). The dealer decided to open a particular branded dealership, so if
you're in a Toyota dealership they shouldn't give a crap about what anyone
else is doing.

------
Bpal
That's fascinating how people fear to take something new and better as opposed
to old and traditional. The same has been with adoption computer. Yes, it has
changed our lives and the world. But if this move hadn't been done, would we
get better life? I don't think so. Getting info from Anywhere in the world in
the split of the second is as good as breathing Clean air in big cities.

------
RankingMember
Anything that can bring down dealerships has got my backing. I don't
understand why the auto manufacturers wouldn't want to lobby to distribute
their own vehicles rather than have the frequently
dickish/predatory/incompetent sales/service of dealerships be the local face
of their company.

------
jrjr
why not sell them through Indian Reservations ? then the 'laws' and special
interests could GFY.

it would be great for everyone involved.

jr

------
tn13
Can someone care to explain me why the car dealers exist in first place ? Isnt
it much more economical for Ford, Toyota etc. to simply start selling cars
from their own retail store chains ?

It is likely to make cars more cheaper and car companies more profitable. How
can any legislation banning it get passed in USA ?

------
puppetmaster3
Unless Tesla starts 'donating' to politicians, it won't go anywhere.

------
wil421
They will probably not _topple_ the monopoly as long as we allow lobbying in
this Country. Who's agenda do you think the legislators of these bans are
following?

The people who elect them or the lobbyist who fund them?

------
loceng
Tesla not only can but they will, and they are in the lead to do this, and
will own the majority of this market. If I wasn't investing in myself I would
be investing in Tesla.

------
sebnukem2
I truly believe that lobbyism is legalized corruption.

------
hnriot
Like Saturn did...

~~~
RankingMember
Saturn didn't. Those were still dealers, just more closely-watched ones since
GM was really trying to turn over a new leaf.

------
wcfields
Sigh... Guess I won't ever see Gene Simmons Tesla President's day KISS-A-THON
sales event.

------
krisgenre
Can't Tesla create their own 'Car Dealership' company and sell through it?

------
radley
Monopoly?
[http://www.youtube.com/watch?v=G2y8Sx4B2Sk](http://www.youtube.com/watch?v=G2y8Sx4B2Sk)

------
wil421
Ford tried to uproot the dealers years ago and it didnt work. I did a case
study in school on this topic, I cant seem to find my source again...

Unions need to go...they hurt innovation and sometimes completely destroy it.

~~~
GFK_of_xmaspast
How on earth is this a union issue? It's capital vs capital.

~~~
wil421
Really you think the dealer unions didnt lobby to get tesla banned from
selling in that state?

From:

[http://www.nj.com/politics/index.ssf/2014/03/chris_christie_...](http://www.nj.com/politics/index.ssf/2014/03/chris_christie_blames_njs_controversial_tesla_ban_on_state_legislature.html)

"The state Motor Vehicle Commission last week unanimously passed a rule
requiring franchised dealers to sell electric cars rather than allowing
manufacturers to sell directly to customers as Tesla does at two showroom
locations in New Jersey — at the Garden State Plaza and The Mall at Short
Hills."

> _requiring franchised dealers_

And who is going to be franchising? The Unions will be. Maybe not in NJ but I
gurantee other state's dealer unions are feeling the pressure that may come
from tesla.

~~~
GFK_of_xmaspast
That's like calling the Chamber of Commerce a union.

~~~
wil421
Who do think is putting pressure on these organizations?

~~~
GFK_of_xmaspast
I'm going to need you to explain exactly why you think an association of
otherwise independent and competing dealerships is a "union".

~~~
wil421
They may be called associations in some states. I don't think you can open a
certain brand dealership in a state with going through them.

Ford was trying to let customers order cars online and they would deliver it
within a couple weeks or less to a Ford hub. Some states pushed them out
before they could try it.

