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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.

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