

Tesla vs. the auto dealers - zwieback
http://www.newyorker.com/talk/financial/2014/04/21/140421ta_talk_surowiecki

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DEinspanjer
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.

~~~
hnnewguy
> _costs less for the maintenance and repairs that are required_

What are you basing this on? What does it cost to repair an electric motor?

I also think you overestimate the maintenance costs of ICE cars. I've owned
nothing but new vehciles (relatively cheap ones) for the past 10 years.
Outside of oil changes, which the Tesla doesn't need, I paid very little for
routine maintenance. I had one kind of "major" problem, warranty covered. For
one vehicle, my oil changes were paid for.

So much speculation, but it seems to me that people around these parts think
all ICE vehicle are "junk", or close, when in reality they're incredibly
efficient, reliable and pretty cheap to operate.

~~~
marcosdumay
> What does it cost to repair an electric motor?

Unless you somehow destroyed the wiring, very little. And the only kind of
required maintenance is changing bearings (should last a decade, or two) or
brushes (some motors don't have them, the ones that have require changing
every few years, and they are quite cheap). Any other kind of repair is done
only after some kind of abuse.

An electric motor also has no cooling, no transmission, simple lubrication, no
starter engine, in short, nothing that breaks. But it has a huge battery...

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jusben1369
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
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.

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mbillie1
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.

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zevyoura
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-...](http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-
buying-a-car-is-so-awful)

~~~
mbillie1
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
Specifically, it's not obvious why a Tesla-owned "store" would employ fewer
people than an independent "dealer".

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evanm
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
The automakers might choose to not employ douchebags because they want to
retain a positive image.

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n_coats
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".

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jmharvey
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?

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jesusmichael
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.

