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Tesla Can Topple the Car-Dealer Monopoly (bloombergview.com)
293 points by adventured on Mar 20, 2014 | hide | past | web | favorite | 184 comments

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.

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.

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.

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.

... and militarized police swat teams would never be used to, say, raid a barber shop and enforce up-to-date barber licenses. Oh, wait.


That's right. Floridian police raided several barber shops, with a warrant to ensure the barbers were licensed practitioners, and while they were at it they handcuffed people, held them at gunpoint, and even arrested several for unrelated crimes (coincidence?!).

And if only such an event were an outlier ... sadly, it's become common, around the country.

Don't forget SWAT teams and farmer's markets:


Not the military, but if Tesla or someone else violated the law, it's no exaggeration to say that at some point law enforcement, i.e. armed personnel, would be involved. Of course, it's unlikely anyone would take it that far, but that doesn't mean force or the threat of force is not at work.

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.

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

Not completely, but society still heavily relies on it. The majority of people obey (most) laws because they believe it's the right thing to do, not because they're afraid of punishment. And if they didn't, we'd very quickly find that the existing police forces are completely inadequate to keep control of a herd of psychopaths.

Companies are a little different, since their decision making is often disconnected enough that the individual morality of their employees isn't necessarily reflected in their overall behaviour.

> 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.

> 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?

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.

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

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

You're making it sound comical by making it over precise. Business comply with the law because the law has the capacity to punish them. That's it, plain and simple. It's about enforcement.

I didn't even mention the military.

Violence. Guns. These are the threats behind every piece of legislation. Comply, or we'll send the goons with guns to make you comply. That most people go ahead and comply without making the government resort to using violence doesn't mean the violence isn't right there behind every bureaucrat's pen.

Eventually, they will, if you resist effectively enough. They don't need to use large amounts of force most of the time.

It was just an example of some of the powers the government is given by its people. He's not saying they are equivalent.

Political patronage doesn't require violence.

Look at the FED.

By "FED" do you mean the Federal Reserve? While they don't directly engage in violence as far as I know, their powerful influence is due to the dominance of the US dollar, which is established and maintained by violence, in the form of monopoly protection (if you create a competing currency, you go to jail) and taxation.

Nice theoroy, but their influence is greater within the US than externally (obviously). Most people are manipulated by means other than violence quite effectively, just look at Advertising and other Online Scams.

I don't claim that manipulation is impossible without violence. How do you explain the Fed's tremendous influence in the US (and presumably world) economy?

They are in control of an insane amount money.

If a 'normal' organisation is able to take over these roles, this organisation becomes a defacto government and most people won't resist it, as long as they are able to live within the system. People's revolutions are relatively rare in the grand scheme of things.

I should have mentioned that the reason most people don't resist government isn't simply that resistance is futile (in the way a person likely won't resist a mugger with a gun), but rather that they don't feel like they are being wronged at all.

That's a good point. In countries like France and Canada, that's how sharia works. For the people who accept it, it becomes a de facto alternate government (officially, subject to the laws of the land in which it operates, but in practice, a law unto itself).

The government is granted those powers because of the legal and social contracts we enter into as citizens of the country... it isn't, won't, and shouldn't be just like any other actor in a market. It's an organized, representative extension of the population of the country.

>The government is granted those powers because of the legal and social contracts we enter into as citizens of the country.

That's bs post-hoc justification. There is no contract and few people agreed to it. Government is accepted because it works better than no government. We haven't found the perfect way to organize society (and it may not exist), so we stick around in the local optima.

>It's an organized, representative extension of the population of the country.

This is true in theory. In practice it's a big mess. Voters don't actually have that much control. Just a single bit of input "which party do you like more right now?" And maybe they shouldn't they because direct democracy isn't that great either. The real advantage of democracy is that if the rulers really screw up, if they make the population really angry, they will eventually lose their power when the next year divisible by 4 comes around. It also encourages the politicians to make an effort to be popular (which isn't necessarily what's best, but it's better than nothing.)

Unfortunately, free markets aren't free if we let everyone burn down their neighbor's market stall. Without government, there is no free market.

Good luck building your startup if your larger competition can get away with Mafia-like tactics.

Depending upon whether people choose to actively participate in their government, it can either protect or harm us. I meet far too many laissez-faire "free market" know-it-alls who have a strong wish for the latter.

Unfortunately, free markets aren't free if we let everyone burn down their neighbor's market stall. Without government, there is no free market.

Actually that's the very definition of a truly free market.

Good luck building your startup if your larger competition can get away with Mafia-like tactics.

Right, so, the argument there is that a true free market is not a good idea. So we put up rules and regulations that we think will be beneficial to society, but we don't change the definition of "free market" to "the market structure that we find sensible."

In other words, governmental control is a direct limitation to the amount of freedom in the market, but we think that's a good thing. It's to everyone's benefit to restrict one's freedom to sell rotting rat meat labeled as beef.

That's absurd. A free market is not a market without regulations any more than a free society is a society without laws.

In both situations, freedom is best defined as that which the weakest member of the group has. A society where the weak can be bullied by the strong, coerced and cajoled by threats of force, is not a society where those people can be considered free. Unless you think that slaves are also free people, provided that there are no laws concerning slavery.

Similarly, I don't see how a market can possibly be considered free if strong incumbent players are able to exert extra-market pressure on the weak players, to bully them in ways "outside" of normal market forces. Rather, a free market is one where all players are free to act on an equal footing, competing on price, quality, service, reputation, and other "market-based" differentiators, rather than through bribes, collusion, artificial barriers to entry, and the like - because the playing field is forced level by regulations which apply to all participants equally.

"Free" does not mean "anarchistic." Free societies still have (often complex) laws, just like free markets have (often complex) regulations. The existence of laws and regulations does not necessarily make a market less free.

Actually that's the definition of the opposite of a free market. A market in which you can wield arbitrary force - without little to no consequence - against another person and their property, is not free.

None of the great free market economists responsible for laying down the very definition of what "free market" means - from Smith to Friedman to Mises and so on - have argued that to have a free market you must be able to destroy someone else's life or property. They've argued the exact opposite, that among the most important things in a free market is property rights and the defense of said property rights.

A free market does not mean a market free of protected individual rights, it means a market free of the government initiating force against individuals to arbitrarily restrain free association among people, and a market in which the government performs its proper duties, including the protection of property rights.

>Actually that's the very definition of a truly free market.

No it isn't, the free market is a very defined thing, based on the number of actors in the system, perfect information, rational actors. It has absolutely nothing to do with the presence or lack of regulation (though obviously regulation can play a role in these factors)

> It's to everyone's benefit to restrict one's freedom to sell rotting rat meat labeled as beef.

Not if the social structures necessary to enable society to restrict that freedom inevitably lead to other inefficient/undesirable restrictions, and the bad restrictions end up outweighing the good restrictions.

> Without government, there is no free market.

Government obviously performs several functions which are necessary or extremely helpful for a free market, but it's not so simple to prove that these functions couldn't be performed without a government.

In that case, you're merely changing the definition of government to suit your argument.

How is that? My definition of government is not merely a set of functions performed, but rather the way they are performed, funded, chosen, etc.

Exactly. Government is not limited to some tightly-controlled definition conveniently suited to your anti-government rhetoric. It includes almost all means of organizing society. The only social structure that doesn't function as government is unenforced anarchism, which doesn't allow for market freedom because the powerful simply take from the weak.

It seems like you're not reading my comments. I just said that I do not define government by a specific set of functions.

That hardly matters if lots of other people do.

I'm not interested in a semantic argument. My arguments that mention government are, obviously, referring to my own definition of that term.

Have you clearly defined this definition anywhere, so that it can be consulted to find out what you are on about, or are you winging it?

I gave it a shot in this comment: https://news.ycombinator.com/item?id=7437083. I think this description fits pretty well with most people's idea of what is and isn't a "government," although most people probably have never tried to explain their own internal definition.

> My definition of government is not merely a set of functions performed, but rather the way they are performed, funded, chosen, etc.

Given that that's not anything remotely like the common use of the term (which is about functions), maybe you should use a more appropriate term to avoid confusion.

> Given that that's not anything remotely like the common use of the term (which is about functions), maybe you should use a more appropriate term to avoid confusion.

On the contrary. I think my definition describes what most people think of as a government. If I show up at your door with 5 tough guys, explain to you that your neighborhood has voted to instigate a 25% income tax in order to maintain the roads of the neighborhood, would you consider me to be government? Would you comply? According to what you just claimed, since I would be performing a function generally associated with government, acquiring funds the same way as government, and using a similar justification (the vote) as government, it sounds like you would consider me to be government. And yet, I do not think most people would agree.

>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.

Or just as well see them as a parent that keeps the children from bullying each other.

Again, that implies a level of disinterest in the outcome that demonstrably fails to model the real actions of the real government.

If you allow for the possibility of child abuse, neglect, and favoritism in your analogy, sure.

EDIT: Also, the children work and the parent collects an allowance.

thanks to your edit, I wish I could upvote 10x ...

> 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.

Yes, because that image is false.

The government is mostly the sock puppet of whoever has most money - biggest corporations and richest individuals, who essentially buy whatever politics suits them best.

Rest assured they derive great satisfaction from your misdirected anger against the "government".

The state is an organization of the wealthy to protect their wealth from the poor.

That's not an assumption, that's what these politicians say it should be. They say, explicitly and repeatedly, that government should get out of the way of the free market. Then many of them turn around and do stuff like this.

Don't exchange one hyperbole for another. The government is in between being an impartial referee and being the capitalist bully.

This is as simplistic a representation as the one you're contradicting. Government is necessary for capitalism to work, the question is how much it should do beyond the minimum (law enforcement, etc.).

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.

There is a weird paradox, in that lobbyists are often the best source of quality information for legislators. They have the time and money to produce well packaged and well researched information. That it has a bias for the lobbyists clients follows from that, however.

Another paradox: Our system has us electing the most efficient marketers for a job that should center around strategic thinking and collating complex information.

How many employees do dealers have in Texas, versus Tesla? Now do you get why politicians get on their knees for special interests?

In Arizona where I live one of the biggest campaign contributors for any party is a family that owns dealerships across the state. According to this article [1] in 2010 this same family/company contributed more to political campaigns than did General Motors (see #6 on the list). Yes it's crazy that a corporation can donate - but that's another issue altogether.

I don't think a politician is concerned about jobs as much as they are concerned with campaign contributions.

I've seen first hand how campaign contributions work between the wealthy and politicians. It's unreal. In 2004 my uncle (founder of a big time HMO) contributed to the Bush campaign. In return he was granted exclusive time to the President to address whatever concerns he had. The White House would call him to guide the President on policy decisions. The White House will never call you or me for our opinion because we didn't pay for that privilege.


> I've seen first hand how campaign contributions work between the wealthy and politicians.

How funny it is to see people complaining about the "government", when really these days the government is merely the sock puppet of the biggest piles of money (big corpo, the ultra-rich), who use it to buy legislation and policy decisions that further their own interests.

While the dogs keep barking at the rag doll, the real person keeps kicking them in the backside.

See also: how much money in local taxes do car dealerships pay vs. Tesla? They are very big players in local economies.

Aside from property taxes on the dealerships' land holdings, most states have ad valorem taxes on cars. This is typically paid whether you bought the car in the state or not, often at the time you register the vehicle in a state. This is also, typically, an annual tax. So if I buy a car in FL and register it in GA, I'll essentially pay sales tax twice (once in FL and once at registration in GA, also depends on how much the ad valorem tax is). So GA tax revenue will be consistent whether I buy it from the dealership or from Tesla.

Regarding employees, direct sales will reduce the number of sales people, yes. Or it'll change the nature of the salesman's job. From pusher on a commission to a salaryman. Now, Tesla and other electrics may not need frequent work done by mechanics (even the standard maintenance stuffs), but other cars still would. Just because I bought my Subaru from Subaru proper instead of the local dealership doesn't mean I won't need to take it in for service every 6 (or so) months.

And if electric cars really do have an effect on employment of mechanics and service technicians, then that's the consequence. We can't legislate the cars away to preserve jobs anymore than we can legislate manufacturing robots away to preserve the jobs of the assembly line worker. (That said, a change in employment status of a large segment of the population will have to be dealt with. Either by charity, retraining, welfare or some combination of those and other methods I've not mentioned.)

Car registration fees are not sales taxes. You only pay the sales tax once, on the purchase. You might pay a use tax if you ship or otherwise transfer the car to another state, but for the most part use tax laws are not well enforced. Sales taxes in most states go into the general fund.

The registration fee is a fixed amount that is not dependent on the price of the car. You pay an annual registration fee in every state in which you reside and intend to use the car. The registration fee in most states goes into a restricted use fund that pays for things like road maintenance.

> Car registration fees are not sales taxes.

No, they are (in California, at least) ad valorem property taxes.

> The registration fee is a fixed amount that is not dependent on the price of the car.

As klinquist notes, this is incorrect in California.

Similar to what the others say, in GA the ad valorem is paid annually and is based on the value of the vehicle. This is (was?) true in NC circa 2010 (when I moved) as well. Though, now in GA you pay the tax once on new (? not sure the criteria, either vehicle model year or sale date) vehicles, and the sales tax (if purchased in GA) counts as the one time ad valorem.

The registration fee in California scales with vehicle price (blue book value).

But how many people buy cars? Dealerships profits / car salesmen's wages come at the expense of car buyers as much as car manufacturers.

Oh, I'm not arguing in favor of the rent-seeking of car dealerships -- I just think it's important to remember that not every legal regime is the natural end result of corruption. The car dealerships have this cozy arrangement because they pay loads of local taxes, employ lots of people, and have a strong and well organized lobby.

Yep. The NPR Planet Money episode said it's typical for car dealers to be responsible for about 20% of a states sales tax revenues. TWENTY PERCENT.

How many people in Texas enjoy the car buying process, versus hate it? Now do you get why that might not be a sufficient explanation?

People may not enjoy the car buying process, but many of them will still choose to put up with it if it means keeping their neighbors employed. Because if the neighbor loses their job, they can lose their home to foreclosure, and foreclosed homes reduce the market value of the rest of the houses in the neighborhood... and so on.

I think you overestimate people's concern with their neighbor's job opportunities versus their own welfare/comfort. I point to Walmart as just the tip of the iceburg in making my case.

Did your research extend as far as to why it is illegal ?

When it was introduced it was only the manufacturers that were able to sell cars to you, by their own choice. The law was introduced to break the stranglehold that manufacturers had on retail operations. Car dealers were able, for the first time, to guide buyers through the positive and negative aspects of the features of one model against another in a climate where they weren't just bashing the competition to make a sale.

It is ironic you choose Toyota as your example because when breaking into the US market they faced similar problems as Tesla does now. At the time, in Japan, the car dealers sold cars door to door, there were no showrooms. And you dealt with the same dealer for all your life. Japanese joked that it was easier to lose contact with your parents than it was your car dealer.

Boy, does the US now hate Toyota http://www.bbc.co.uk/news/business-26650173 That's some spin Holder puts on the story.I guess he's got to try and get GM's bailout money back somehow, just another $23.9bn to go

As has been said before countless times, we have the best congress that money can buy.

This is why rulings like Citizens United are turning this country into a kleptocracy.

Car dealer protectionism has nothing to do with the US Congress.

Citizens United doesn't make it easier to bribe politicians, the entire point of PACs running ads is to lobby voters directly instead of the traditional method of bribing legislators.

As long as anyone is allowed to give money to particular politicians and parties, as long as the entire political process is not funded exclusively from public money, then money will keep ruling the land.

As long as there's money in manipulating the government, then money will manipulate the government, whether it's through campaign donations, bribery, cronyism, or something else.

Maybe the real problem is that so many people are susceptible to cheesy attack ads from PACs. Maybe we should try to fix that instead.

I agree that would solve a lot of problems, but it amounts to somehow shifting the IQ gauss curve for the whole population to the right a few dozen points. How would you go about accomplishing it?

The car dealership system predates Citizens United by decades. The only way to stop lobbying is to regulate how people communicate with their elected officials, and that cure sounds worst than the disease.

So I'm guessing that means you are for free speech unless that speech is about political issues and involves spending money you have legally acquired. In a free society, shouldn't political speech be the absolutely most free form of speech?

Please note, I'm using the dictionary definition of Freedom as reported by Google (https://www.google.com/search?q=freedom+definition) that says:

"the power or right to act, speak, or think as one wants without hindrance or restraint."

Not the other definition of freedom that says:

"the power or right to act, speak, or think as one wants without hindrance or restraint up to a maximum value of $2600 per candidate in a single election"

The problem comes from when you assign the rights of an individual to that of a corporation, whose sole purpose is to maximize profits. I don't think anyone would argue that individuals should have first amendment rights, however I'm not convinced that the bill of rights should be applicable to a company.

So individuals actually lose free speech rights when they unite with other individuals to form a corporation?

If that is the case, it restricts the rights of the poor relative to the rich. A rich individual can afford a TV advertisement campaign on his own. A poor individual needs to pool his money with the money of other like-minded people to be able to afford that same TV ad campaign. The common way for many people to pool their resources to act for a unified purpose is to incorporate.

We don't have the best congress that money can buy, because that phrase implies the existence of a competitive price-based market, which obviously doesn't exist.

If there was an automobile monopoly that defended its monopoly status with violence, and their only product was one crappy car, you probably wouldn't say "we have the best car that money can buy," because we all know that a competitive automobile market would produce better cars.

We do have the best men of Congress that money can buy, because the best Money bought them.

> dealers are forced middlemen

"Forced", in that they force themselves upon you.

Politicians regularly use their position to make society bend to their will, this occurs regardless of the professed economic model or freedoms.

Politicians are the one percents. The rich just have a better means to make them look away.

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?

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.

>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.

Those are two completely separate topics. The fact that dealers now service cars has nothing to do with the fact that they sell them. Otherwise auto repair shops wouldn't exist.

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:


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.

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

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.

And wiper blades. The brake pads should go ~100K miles between replacement.

Magnusson-Moss already prevents manufacturers from denying your warranty based on who does the service. We don't need protectionism for the dealerships.

Yep, but it doesn't prevent them from requiring proprietary equipment, scan tools, service manuals, and part ordering systems that only dealers can buy.

This is why Right to Repair laws are so important. https://en.wikipedia.org/wiki/Motor_Vehicle_Owners%27_Right_...

There are tons of service shops that don't sell cars. In fact, having worked in that industry for a while and as a gear for over a decade, I'd say if you want to get some of the worst car service around, head straight to your dealer. Otherwise, find a local independent mechanic.

> The danger in allowing manufacturers to determine how sales are made is they will likely dictate how repair and maintenance is handled.

That danger only applies to you if you don't read the contract agreement before signing it.

If there exists no other place to obtain replacement parts, firmware/software necessary to run the car, and diagnostic equipment that can check trouble codes and such, then what agreements you've signed is irrelevant. It's of no benefit that you're allowed to bring your car to Pep Boys instead of Tesla if Tesla doesn't provide Pep Boys with the parts and information they'd need to actually repair your car.

That's a fair point. One would need to put more effort into researching the manufacturer.

How is this different from Dell or Apple?

I didn't pay $30k for my iPhone.

I wouldn't be so dismissive of dealers by simply saying "They will lose." The most important thing in American politics is power, and power comes from money (sounds like that comes directly from House of Cards). The article points out that the car dealer lobby is well funded and powerful. It even points out that they are exempt from the Consumer Protection laws, meaning they don't have to disclose the awful interest rates they are offering (which surprised me). Look at the size of a company like AutoNation ($6.3B market cap). They aren't a local mom and pop car dealer. Never underestimate the fight of a wounded animal backed into a corner.

The most important thing in American politics is power, and power comes from money

Since most American legislators come from a legal background, the culture of national politics has this world view. Chinese leadership is majority engineering, so at least they have some sense that physics isn't impressed dollars and poll results.

Sorry, but when you use the example of a repressive, communist regime that gives its people hardly any freedoms at all as an example of a better way of running a governmentyou kind of lose credibility.

Not to mention the fact that China seems the be having a massive problem with official corruption. In fact, China's official corruption problem is arguably worse than America's. At least our politicians are bought with campaign dollars. It appears that Chinese politicians and bureaucrats are bought with direct payments.

My point is not that the Chinese gov't is better than we thought, nor that it's better in an absolute sense than the US gov't. My point is that the US gov't is worse than how we've been thinking of it.

Hm, I've read your comment several more times and it still plainly reads to me that you are arguing that China's leadership, being engineers, have a better grasp of the futility of being corrupt... and since the United States is led by lawyers then corruption is to be expected.

In short, we should expect the United States to be corrupt because of lawyers and China to be not corrupt because of engineers, and I'm just saying that's the opposite of the truth.

I really don't care all that much, I'm just really curious now why you bothered to mention China at all if what you were trying to say was that the US is worse than we thought.

So less than half the purchase price of WhatsApp? These are the deep pocketed interests on the other side of the battle?

Don't confuse market cap and purchase price. And I would never use Facebook's ridiculous overpayment as the basis for valuing other companies.

Purchase price should be in general a small premium over market cap.

It should be, but the actual premium is the result of a human decision, and humans sometimes make very bad decisions. (See, for instance, the purchase of Skype by eBay a decade ago. Also on the value of a network that was an alternative to phone calls.)

Market cap is also the result of human decision.

A single human decision generally has higher variance than a group one. (Not to say that group ones are always reliable.)

eBay made approx 1.4 billion net gain from buying then selling Skype - see http://investor.ebayinc.com/releasedetail.cfm?ReleaseID=8296...

"In May 2011, all of the equity in Skype was sold to Microsoft for $8.5 billion. Due to eBay's 30% stake at the time of sale, the company realized a net gain of $1.4 billion on its original investment in Skype."

That's one of many such companies.

It's simpler than that, though. On a local level, away from the large cities, it's not uncommon for the guy or gal that owns (not necessarily the same as the name is on the sign though) the local dealership to be the area's state senator or state representative. No amount of lobbying or money from tesla, etc, are going to convince him to vote against his/her own business.

I agree -- I think this article should have been named "Tesla will topple the car dealer monopoly".

The entire dealership system represents a market inefficiency that will correct itself. The only forces that are keeping the monstrosity around are broken political systems and force (physical or otherwise) paramount to coercion.

I think there is some truth there, but managing a national retail/service is not trivial.

Consider that among all of the computer OEMs, Apple is the only one who has successfully operated a retail channel. (Gateway did once, but it wasn't very profitable)

Also consider another franchise model: fast food. McDonald's has a vast network of franchise and corporate owned stores. There is no discernable difference in customer experience or cost between the two.

That's cause apple is selling a lifestyle, like Starbucks. Others a fine with just selling you a computer and don't need glass box retail locations to do that.

Dell? HP? Seriously.

I'm not talking web, I'm talking retail. People don't buy cars sight unseen.

Agree. Cars are an emotional purchase. The dealer motivated by profit serves a function in that process.

That is one of the reasons that by and large fixed pricing hasn't worked with autos as much as everyone seems to think that it's such a great idea.

Negotiation and "buy now" kicks people off of fences. (So does inventory and other factors to be sure..)

sure they do. Ebay.

"Frankly, Ford doesn't need its dealer network any more than Tesla does now, or they shouldn't. "

So you are suggesting that Ford is interested in replacing the franchised model and operating and owning the establishments themselves?

Car dealerships in many areas are basically small businesses.

They are a model that work in the same way that many bakeries have route drivers that are one step away from being employees in a sense (Fedex also uses this in some areas).

I don't buy the idea that it's a given that a large existing car manufacturer would rather just build out and operate car dealerships and that there is no value to an entrepreneur owning that dealership. Or that that even adds to significant extra costs for the consumer. By "significant" I mean the extra cost per car because there is a dealer. (Which by the way you do need a place to get service (even with electric) and you do need a showroom and a local point of contact).

How much profit per car do you think the dealer makes exactly that the consumer will save?

GM had a hell of a time killing Oldsmobile because of the dealers.

That seems to be a benefit for consumers though. Imagine if google had dealers and they weren't able to so easily kill off a service that wasn't profitable because there was more of a unified voice against the action.

(This is not a pro or con for dealers just something that came to my mind based on your comment).

Spoken like someone who's never driven an oldsmobile.

The automobile industry has consumer protection laws that force manufacturers to honor warranties and emission control systems.

"Spoken like someone who's never driven an oldsmobile."

I actually have.

So please explain what you are trying to say.

Car dealers don't solve distribution problems from 100 years ago. They didn't have these sorts of distribution problems 100 years ago, and the first car dealers were simply manufacturer storefronts.

Car dealers solve the risk management function. Selling cars is a risky business. Car makers are in the business of making cars, which is significantly different business activity with a wholly different risk profile and operational needs.

Tesla can sell direct to customers because its small enough now that the localized retail/inventory risks aren't significant. This business model (of manufacturer-owned dealers) simply won't scale to a national level.

Aren't you assuming that the manufacturer needs to store an inventory of cars somewhere? If the manufacturer sells direct and the lead time is short enough there's little to no risk because there's little to no inventory.

You're thinking of manufacturing inventory risk vs hyper-localized inventory risk. They have to manage inventory both ways, but the hyper-localized inventory incurs significant transportation expenses.

Exactly. It's the same as wondering why you can't book a flight directly with Boeing.

I think a lot of manufacturers will secretly support Tesla's effort. They can't risk alienating their dealers publicly, but the entire industry hates them.

Agreed! Wish I could afford a Tesla car, maybe one day I will. But I always look forward to see what else they're doing. Got to hand it to Tesla for disrupting the standard industry.

I really wonder how you migrate obsolete networks like these. Secondary effects of its disruption, ex-employees etc... Did people theorize this in the past or was it left to nature, forces (lobbies etc) attempting to ensure survival until it was no longer possible and everybody accepted to let go.

> Because they're parasites

This could be said for most middlemen such as Real Estate Agents and Financial Planners.

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.


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.

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.

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.

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."



Saturn was similar in some ways


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.

Ron Dennis is only a minority owner in McLaren.

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

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.

Oligopoly is monopoly in all but name.

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-...

That episode was fantastic.

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.

"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.

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.

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.

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.

You can get a better deal because of it, but how often do you? Most people do not.

In other words, the current system offers benefits to the best negotiators, and screws everyone else. I'd rather even that out, especially since there will be plenty of competition between car makers anyway.

I don't know that people really get zero-profit or below-cost deals. I'm sure they think they do, but when people say that they're typically (not always, and not saying you're doing this) looking only at the car's invoice price, and ignoring holdbacks.

(For those unaware, manufacturers typically pay out a sum of money to the dealer when the dealer sells the car. This effectively reduces the invoice price of the car but, crucially, doesn't reduce the actual number on the invoice. Thus, you could buy a car "at cost" and the dealer still makes a profit because they get extra money afterwards.)

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.

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.

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.

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.

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.

Without access to the dealer's financials, how do you know what their profit/loss even is? There are many variables like land/rent costs, local wages, etc. that could have a dramatic effect on profitability between seemingly similar dealers.

Also, having recently purchased a new car, I noticed that every dealer specced them slightly different, so you couldn't easily compare the vehicles one to one. Something as simple as the color of paint changed the price by hundreds of dollars. Not an insurmountable detail if you are careful, but you really have to do your homework.

Not to mention that it becomes a massive time sink. Given a typical programmer's hourly pay, in many cases it would be more economical to pay out more money and get back to work than spend that time looking for the savings.

So, I do agree that shopping around can net you a better deal, but for all the effort required, I question if it is worth it. I'm going to very sad if I can't buy my next car online (and I hope it will drive itself to my door).

"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?

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.

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.

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.

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

it would be great for everyone involved.


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 ?

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

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?

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.

I truly believe that lobbyism is legalized corruption.

Like Saturn did...

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

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

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

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.

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

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



"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.

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

Who do think is putting pressure on these organizations?

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

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.

Because my anti-socialist upbringing taught me unions are bad. Therefor things I think are bad must be unions.

What do unions have to do with Tesla and this issue in New Jersey?

Maybe not in NJ but I guarantee dealer unions are lobbying as we speak to get Tesla banned from various states.

Dealership unions? What!? A union of dealership salesmen? Owners? Explain.

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