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In honor of Elon Musk’s latest pronouncements, here’s a little thought exercise for hump day. I want you to make the case for Tesla, as a company.
Seems easy, right. But there’s a catch.
- You can not talk about what good cars they are.
- You cannot use the word “disruptive” or any form of it.
Let’s see what you’ve got.
198 Comments on “Question Of The Day: What’s So Great About Tesla?...”
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Easy,
They have a remarkably low TCO compared to other cars in the size class. No haggling at the dealer and no dealer bullshit.
TTAC, the hatchet job is getting old. Really old.
TCO has yet to be determined.
There is no haggling at traditional dealers if you just pay MSRP. See if you can go on eBay, Auto Trader, and Craigslist and buy one of the 400 or so for sale there without a haggle.
What hatchet job? When did the asking of salient questions become a hatchet job?
Ruggles… I’m sorry, but the MSRP is pure bull****, and with the dealers getting back the holdback, and target achievement money, and other compensation, the vehicles should really be sold for a lot less than they do…
Anyway, if it was just the MSRP for the dealer, I really wouldn’t mind all that much… it is just when you take delivery of the vehicle that get’s my blood to boil over. The Dealer Conveyance Fee is another bull**** fee (which is a free for all here in Connecticut, from $299 all the way to $995 at some dealers), that they try and hit you with all the other crap (vin etching, useless paint protection, rust proofing, and extended warranties), and finally, marking up the finance rate (sometimes by almost 3%) even if your credit rating is OK.
I say let the old franchise dealer model die away… I want to walk into a dealer, not have to do anything with the sales staff, talk to someone over the phone, and have the vehicle delivered to my home when promised. Service can be done at one of the many factory owned service locations… I’ll site a couple of examples… Firestone Repair Centers (my current favorite place to take my truck), Pep Boys, Sears Auto Centers, and so on…
No need to eliminate the dealers. Just give them some decent competition then things should improve all round.
Dealers have all sorts of competition from each other.
I thought you hate haggling? If dealers of a particular make got together to fix prices you would all pay the same margin. Is that what you want? What do you think would happen if Ford owned all of the Ford points?
You’d better get used to the dealer system. Its not going anywhere. If you know elementary arithmetic and have some basic business understanding, you might calculate what the cost would be for auto OEMs to own their own sales points. Take Ford. Multiply 3500 times $15 million to start. Compare that number to Ford’s available cash. Yes, I know they can borrow some of it. Why would they want to put themselves in that position since they already have the dealer’s investment and local expertise and they know they have no idea how to retail cars?
“If dealers of a particular make got together to fix prices you would all pay the same margin”
That’s precisely what many people want, and it wouldn’t be price fixing it would be the franchiser stipulating the price franchisees can sell their product for, happens all of the time in other industries and certainly doesn’t lead to a lack of competition or higher prices, otherwise McDonalds would be selling Bic Macs for $15.
People in hell want ice water too. If what you want was a better mousetrap, why wouldn’t dealers be doing it?
Are you completely gutless? Do you have a problem saying no?
So far depreciation has been fairly minimal.
Anyway, this is a bit out of date now but when I was pricing one out, I did a full depreciation model using data from McKinsey and other sources. Feel free to play with it, but you will find: (a) TCO is basically dependent on mpg and depreciation mostly and (b) even if you give the Tesla rotten depreciation, it still ends up cheaper to own than you would expect.
Excel file here: http://ge.tt/16vKNWC2/v/0?c
I ended up not buying one literally only because I am renting and the owner wouldn’t let me install a charger.
And frankly, anyone who pays MSRP at a dealer is an idiot, and your suggestion to do so tells me a lot about your agenda. It took me no time at all to think of benefits. Here are other ones, OTA software updates that improve your car continuously, ability to upgrade to the latest and greatest, the end of the stupid model year iteration, instead improvements are rolled out continuously. My Lexus has a mediocre infotainment system, but if I want a new one, well, I am not going to pay the ridiculous amount. Tesla has built in enough processing power to handle updates and not just built to the minimum.
People pay MSRP for Teslas. I guess they’re all idiots?
If you don’t want the hassle of haggling, don’t.
>> People pay MSRP for Teslas. I guess they’re all idiots?
If Tesla is asking less money than what it allegedly costs to make the vehicle, what would be the point of trying to push the price lower? If Chevy was putting $20k on the hood of new C7s for a no haggle price, would you grumble about not being able to negotiate the price? Is buying a Tesla more like a situation where you haggle, start at below their cost, and they immediately accept your offer?
Projected TCO is one thing. Actual is actual. I could claim my grandmother is in orbit around Mars and you can’t prove she isn’t.
What hatchet job? He’s posing a legitimate question, how far can the company go with an extremely expensive to build vehicle in an extremely niche segment.
If I had to answer the question I would say it’s an American fullsize RWD sedan that goes against the trend of bloated poorly styled sedans occupying our roads today.
What’s so difficult about haggling?
Its a mystery to me.
“What’s so difficult about haggling?”
Besides the fact that many people don’t enjoy it? And the fact that women especially feel that they are being taken advantage of and they have no position of strength at all? Besides the fact that people have come to me in the past to have me help them with the dealer because they consider the event so stressful and frustrating? That most people feel that they are at a disadvantage negotiating with a car salesman? That many people I know would rather go to CarMax just to avoid the whole idea of negotiating with a car salesman? It is an incredibly difficult situation for many people.
““What’s so difficult about haggling?”
Besides the fact that many people don’t enjoy it? And the fact that women especially feel that they are being taken advantage of and they have no position of strength at all?”
You’ve obviously never met any of the women in my family. Heck, my mom gets angry with me if I don’t try to haggle at least a little.
Ronnie, was your mother Brazilian? Sounds like most of the women I know.
There are many things in life I don’t enjoy, but have to do. If you don’t enjoy it that much, pay full price and go home happy. There is a price for convenience too.
Poor powerless people, not really. All the info you need is a keystroke away.
And most especially, the power is yours. You have the money (or credit or even just the will to buy). They want your money need your money. Don’t like the salesman? Change, ask for another one. Keeping your driver’s license? Scream at the top of your lungs.
There is always another dealer, there is always another car. There are always many competitors. Use that.
Nope. Seems like a lot of ado about nothing.
Crickets?
Beat me to it.
I’ll go with: What is the result of nearly a decade of non-stop printing at the U.S.Treasury, Alex?
They’re mining deep wells of voters’ suicidal stupidity. At this point, Musk couldn’t be a decent human being if he wanted to.
You mean, other than 60 straight months of private-sector job growth and a consistently growing GDP while keeping inflation at around 2% even as the rest of the western world teeters on the brink of a double- or now triple-dip recession?
You’re Naive as all get-out if you believe that. You’d be any governments Favorite Citizen(TM) for buying that propaganda known as job growth/unemployment or to think somehow we’re better here in the US than world wide.
Labor participation rate (at all time lows) and median income (frozen since 1968 by “official” inflation rates, been going down by actual inflation rate comparisons) are all that matter, because they are the only metrics that are not yet purposely manipulated to lie, where-as pretty much all other metrics from GDP, NON-GAAP earnings, U3 unemployment, and inflation are out-and-out lies.
I got news for you if you think we’re immune to the coming world-wide recession. Janet Yellen tanked the dollar TODAY. What happened in currency markets today is a black swan level event.
“What happened in currency markets today is a black swan level event.”
No idea what you’re talking about. The USD rebounded almost immediately.
Well, they’ve done an excellent job of building a business off the clever use of government subsidies, credits, etc.. I’m not so sure how healthy the company would be if all those programs suddenly disappeared. (Of course, those same subsidies are open to any carmaker that wants to claim them, so they certainly deserve credit for building a business where others dare not tread.)
It is an excellent product but with limited practical use for everyday realities.
I wonder how much of the hatchet job from auto people comes from Elon Tusk’s smug arrogance? He is the kind of guy you want to deck on general principles. And maybe the whole thing is built on a house of cards. But he is doing something innovative.
Whenever the inevitable hookup with Toyota, BMW or whomever happens and the e-tech matures, I suspect many people will say of Tesla, “we were behind you all along!” I’m afraid that would include moi.
Easy. There does not need to be a business case for Tesla automobiles because the automobiles are neither the point of the business nor Musk’s true goal.
My guess is that in his impressionable youth Elon read Heinlein and grokked the Shipstone.
The long game is batteries, not cars.
7402, exactly my sentiments!
Tesla cars will never be mainstream and the niche is limited to people who have disposable cash to stick in a toy.
Hard to make the case for a company without talking about the strengths of the product, no?
Here’s an outline of the case I’d make: Tesla has a solid plan for the market. They’ve entered in a high-margin niche, which is helping them fund development to enter the volume segment of the market. This is a more typical strategy in the tech industry than in the automotive market; compare how Apple entered the volume phone market from the top. Tesla’s plans for vertical integration will help them gain an enduring cost advantage. Their short-term operational issues are challenges any entrant to the volume electric car market will have to face, and as long as management is committed to the long-term success of the company, they’ll end up stronger and better positioned than the incumbents.
Tesla has also shown a solid aptitude for brand-building, making their products desirable and building value with specialized performance models. While incumbents often act to preserve their existing product lines instead of embracing new technology, in the next five to ten years Tesla will be able to enter the markets that make sense without worrying about cannibalizing existing product lines or meeting existing project schedules. In short, if the future of the car is electric, then Tesla is the next great car company.
Here is a list of independent profitable high-end automakers:
______________________
Wrong.
There are some:
I know Wiesmann is profitable. There have to be a few others on this list, such as Noble, Gumbert, etc…
None high-volume though.
http://en.wikipedia.org/wiki/List_of_sports_car_manufacturers
German manufacturer Wiesmann closes its doors
7 May, 2014
Reports indicate that Wiesmann, the outlandish sport car maker based in north-west Germany, has collapsed. The company went into administration in August 2013 after being unable to pay its suppliers, and despite efforts to salvage the brand and save the jobs of 125 employees, a buyer could not be found to take responsibility for Wiesmann’s mounting operating costs and dwindling market share.
___________
http://www.autoexpress.co.uk/car-news/86928/german-manufacturer-wiesmann-closes-its-doors
You were saying?
Wow – I missed that.
Sucks, as I liked their cars.
I still hold that “None” is incorrect :-)
Define independent? Most car companies have connections to other car companies, or buy engines etc. from other car companies.
Independent = Not owned by another automaker.
This is not a business that lends itself to going it alone.
Even the independent automakers like Zonda Wiessman and Morgan are to some degree ‘dependent’ on engines etc. Tesla is fairly independent when it comes to the car itself apart from some Mercedes parts, but they will need another income than the Model S and it’s derivatives if they want to stay in the business for long.
(the brilliant thing is that they may end up only supplying batteries for a niche of cars that they themselves made popular in the first place, and the Model S is/was just the PR machine for the batteries)
Tesla has a market cap of $25 BILLION, and it produces losses.
Morgan’s profits last year were about $1 MILLION.
Weismann is dead.
If Tesla aspires to be Morgan, then it will also fail. That isn’t nearly enough profit to support Tesla as a going concern.
Scale is an issue in the auto industry. You can’t get around this.
Yeah, my whole point is that there is no such thing as a truly independent automaker any more. And I don’t think Musk wants to be Morgan, I think it’s fairly obvious that he wants to sell batteries. And if he’s trying to hide it he is doing a really bad job at it. (he isn’t trying to hide it at all though)
Morgan meets the definition of an independent automaker. Independence is not a great thing when it comes to automaking.
Er… BMW? And I don’t think Mercedes is owned by anyone, and although they have SMART as a subsidiary, it’s hardly paying the bills. And if FIAT has a controlling interest in Ferrari, well, does Maranello get huge infusions of cash from FCA? Or are they successful independently, despite being raided for engines and engineering to keep Maserati alive?
Neither of these companies live on high end cars alone though. They all sell boring slow awful cars (YMMV on the ‘awful’ part) to pay their bills. Mercedes even make vans and trucks (some even in collaboration with Volkswagen)
BMW is a major automaker. You may as well argue that Toyota is an independent.
I would call 2M cars tiny these days, and only being able to get the margins they get enables BMW to stay independent at that size. The 10M level makes you a major player.
Tesla is practically a hobby business, one step up from Morgan (and Morgan is actually profitable). That market cap is fantasy-land. Luckily, there are a lot of suckers until the music stops.
I find it highly unlikely, baring a true breakthrough in battery tech, that Tesla will make the leap to being a mainstream car company. And if there is a battery breakthrough, there will be so much competition from the established car companies that Tesla is still screwed six-ways-to-Sunday. The reason there is no electric S-class is not because Mercedes could not do it tomorrow, but because there is no money in it.
BMW has scale. Tesla doesn’t. No comparison.
“I don’t think Mercedes is owned by anyone”
Daimler AG own MB. You know, the world’s largest maker of freight trucks and buses? You might know them as the parent of Freightliner, Western Star, Fuso, Setra, and the MB truck division.
Koenigsegg
BMW is probably the smallest independent that is highly profitable and relatively high-end. And really only in the car business, thought they do dabble in a few other technologies as well.
And of course, BMW likely sells more 3-series in a day than Tesla sells cars in a year.
Porsche was certainly the poster child for independent profitability until they got delusions of hedge-fund grandeur and started an intra-family war.
Porsche is not so independent. But BMW sells a hell of a lotta taxis and cop cars for a high end OEM. Plus too many vinyl seat, entry level “luxury” and fwds.
Porsche is no longer independent, but they certainly were independent until the failed VW takeover attempt. They were just very good at getting their cousins at VW to pick up development costs here and there.
German vinyl is better than leather in every way. Why people fetishize sitting on the skin of dead cows baffles me.
It’s a huge downgrade. Don’t kid yourself. It’s nothing like leather and feels like a plastic and rubber cocktail. It looks exactly like what it is.
Wait til summer then talk to me. It just feels gross against your skin. Kills resale even when they’re LIKE NEW!
When hasn’t Porsche piggybacked on VW?
Don’t kid yourself either. I’m in no way a German car apologist, but…. Get off the high horse there.
Have you looked at it? Felt it? Smelt it?
No one has to apologize, luxury cars don’t have vinyl seats. And no car should. Or Truck.
Farm tractors? Hmmmm…
But it’s only the US/NA that automatically calls all BMWs “luxury cars”. I’ll bet BMW would differ.
Except German cars have the right look. A smooth and subdued elegance. The complete opposite of most everything, especially Camaros. Too many I’d love to own after the right “enhancements”…
LSX (conversion) FTW!!!
McLaren, Koenigsegg, Shelby, Ariel, and Morgan all come to mind and there are plenty of others.
“Hard to make the case for a company without talking about the strengths of the product, no?”
Precisely. Derek’s question is basically the equivalent of saying, “I want you to convince me that Mary Todd Lincoln had a bad night at the theater, but you can’t talk about what happened to her husband.”
He’s trying to get the readership to focus on the business issues, instead of going through the usual fanboy exercises that avoid the question at hand.
Except that the core business of the company is making cars (unless you want to make the contrarian argument that the core business is making batteries, of course). The B&B mocked Cadillac for moving to Manhattan, saying that the key parts of the company were in fact its marketing and finance arms. Derek is basically asking us to take this on faith with regard to Tesla as a precondition to answering his question.
Take another angle: Make the case for Apple, ca. 2003, but you’re not allowed to discuss its products.
While it’s nice that Tesla cars make some people happy, that alone doesn’t fix the many business problems that Tesla faces.
The C6 Corvette was a nice car but it didn’t save GM from filing bankruptcy. Focusing on the car’s specs and positive reviews in the press would miss the point.
Exactly
Well…yes. But its hard not to talk about his being a huckster without the huckster part.
To many, the entire plan is a con and I kind of agree.
And then today his big news was a “trip planner” as the end of range anxiety?
From Autoblog a few minutes ago:
“As part of Model S software update 6.2, new features called Range Assurance and Trip Planner will automatically make sure a proposed journey includes scheduled stops to recharge the car’s onboard battery pack and will alert the driver if he or she gets too far away from known charging points. Nice features, for sure, but hardly a technological breakthrough.”
Really? This was the big announcement we were waiting for today?
A big time modern day silicon valley huckster.
Of course he is a huckster and the entire plan is a con. But he is getting away with it because “he can.”
If his story had been Fiskars, Solyndra or A123, it would not be a story.
Tesla has managed to use internet money transactions to finance the revival of Tucker (if not in name, very close in design and badging and its focus on safety) as an American luxury brand.
When was the last time someone thought about buying an American built luxury car? When was the last time Cadillac, Lincoln or Imperial made headlines for any positive reason?
Without blessing the car itself as I haven’t tried one, despite them being ‘everywhere’ here in Norway (we all know why), I guess it wouldn’t be as successful if it was truly bad, but its specs on paper was probably enough for many, if not most of the buyers. Using electric power the way it should be used, as a way to get you seamlessly and quietly to massive dangerous speeds very swiftly.
Will it last? who knows, there is certainly still some ‘novelty’ left to make sales based on just being ‘the electric luxury car’ so far (just like the Prius is still ‘the hybrid’ ) .
Maing it reasonably practical and safe enough to make it useable and to get some sales here in Europe was a bright idea too. A lot of ‘hipsters’ still look at us Scandinavians and think ‘I wanna be like them’ for some reason. So the sales here in Norway has a certain PR effect too.
Long story short,a bright idea, well financed from the start, and well enough executed so far.
It’s the hype, the promise of things to come, almost evangelical-like. The ongoing attention in the media. It has almost become a business model in itself… to the astonishment of the rest of the car industry, no doubt.
The only kudos to him would be for pushing the direct sales scheme.
Everything else about Tesla is either skillful PR, sucking off Govt grants and producing flavor-of-the-day toys for rich electro propulsion geeks and ecologically self-righteous.
One wonders why Elon MUsk would refer to his own product as a “2 ton death machine!?”
Indeed, that is certainly not the best choice of words when you are a car salesman, no matter how popular ‘bubble-wrapping’ the world has become.
Because it doesn’t weigh 3 tons.
The company is well managed. When situations are tenuous, management talent (and luck) make the difference.
The management team has done an excellent job of building a brand. That wasn’t easy and they deserve a lot of credit for having done that.
The company still has inherent issues with scale and limited demand, so the long-term odds are against it becoming profitable. Assuming that Google and Apple don’t want it, I suspect that it will ultimately be acquired by an OEM (at a fraction of its current value) that will want the brand — not great for the little guy shareholders, but Musk has already won this game for himself.
Which OEM do you think it will be?
I whole heartedly agree with you. My question would be what will they do to his ‘vertically integrated’ supply base? Bid it all out? That alone would make each car much closer to profitable. However, quality would take a shot to the face.
I have no idea which automaker would acquire Tesla (at the right price.) Probably not GM or Ford or FCA. Possibly Daimler, BMW or VAG. I would place TMC in the long shot category.
I suspect that it would be more a compliance play than a full-fledged bet on EVs. If it’s about compliance, then volumes will stay low and the direct sales model could be maintained.
If there is an expectation to sell lots of cars, then franchising becomes necessary. I would expect the OEMs to use the typical tricks that they have in their toolkit to impose their ways on the franchisees, such as linking holdback payments to CSI scores.
RE: “When was the last time someone thought about buying an American built luxury car? When was the last time Cadillac, Lincoln.”
What difference do headlines make. At least Cadillac and Lincoln make money on every car. Tesla loses money on every car.
In the world as it is right now, headlines mean everything, that is also why BMW and Audi release a new model every forthnight. Like I said, I don’t know how long it will last, but Tesla has made a ‘big’ brand in what in car manufacturer years is ‘no-time’. Unlike Tucker they managed to make a lot more than 50 cars, and actually get them out to the public, and the majority of buyers are satisfied so far. Also, there hasn’t really been a competitive (word wide) American luxury car since Mercedes made the ‘Grosser’.
Lincoln and Cadillac may make money, but they haven’t been able to maintain, (or so far restore) a brand.
When what was once ‘the standard of the world’ is desperately battling german medium premium cars who were once at best the equivalent of Pontiac and Oldsmobile, you know you’re struggling.
RE: “They’ve entered in a high-margin niche, which is helping them fund development to enter the volume segment of the market.”
Just because they entered a high margin niche doesn’t mean their products are high margin. Au contraire.
RE: “Tesla’s plans for vertical integration will help them gain an enduring cost advantage.”
Their competitors have built in cost advantages. Their competitors don’t have to finance a retail network.
Today’s built-in cost advantage is tomorrows cash-burning balance sheet albatross. GM has taken the Rust Belt suicide bomber approach to ensuring its survival; Ford is wrapping tiny engines in flashy European wrappers; Fiatsler is selling antediluvian 700 HP boulevardiers and/or subprime crusher fodder. The Japanese actually have “cost advantages” but mostly make loathsome bug-eyed Rubbermaid appliances.
Thank goodness somebody in the car industry is finally thinking beyond freshman Econ 101 and builds something for the future…
In Econ 101, students learn about profit and loss. If a product continually generates losses, it isn’t destined for the future, no matter how rose colored the glasses of the product cheerleaders are.
>Their competitors don’t have to finance a retail network.
Maybe so, but by outsourcing their retailing they have distanced themselves from their customers and turned an opportunity to build brand loyalty into a distinct negative. Customers LOVE the Apple Store. Customers like going to their local car dealer about as much as they like going to the dentist. Apple marketing is controlled and classy. Local car dealer marketing is trashy and low class and cheapens their brand.
Meanwhile, in return for their wonderful service of financing retail distribution and alienating customers for life, car dealers make billions of $ of net profit that could be going to the manufacturers bottom line (even after capital costs) if they controlled their own sales network. And mfrs don’t get to decide which business model they like – they can’t distribute directly even if they are willing to bear the costs. Amazon has completely revolutionized the retailing of many product categories, but due to the laws that lock their model in place, cars still get sold in the same way as they did in 1915. I can go on manufacturers websites and configure a car, but I can’t actually order the car that I configure – I have to search for the closest thing within 100 miles and bargain with 5 different clowns.
I agree with the posters who say it is all hype. Tesla builds sharp looking, government subsidized toys for celebrities and wealth folks. I can’t see anytime in the near future where the electric car becomes even remotely useful. Lousy range and insane recharge times.
Plus, much to the dismay of the true believers electricity is not free. Nor is it”clean”(unless we go nuke) Just moving carbon from the tailpipe to the generating station. Electric cars have been around for over 100 years and they have made exactly zero progress in range or recharge times……
I can’t see a future where Tesla cars still work, not with pop-out door handles and computers that control the majority of the car.
“computers that control the majority of the car.”
I know, right! To think how reliable cars used to be back during the days of points and carburetors. It’s all been downhill since computers started controlling those functions.
Not really trying to express a point here, but imagine a modern car with technology that uses modern understanding of science and processes that runs without the computer but fully mechanical.
Don’t forget, the cars being built in first half of 1900s used technology of time and had owners with minimal understanding of maintanence, etc. Many didn’t understand the principles of changing the oil, keeping filters clean(dirt roads/farms) etc. So imagine those vehicles using engines built to modern tolerances, using modern oil with detergents…
Again, I’m not implying anything just throwing out thoughts.
Well, points involve significant mechanical motion and wear requiring frequent maintenance and adjustment. Electronic ignition has no moving parts and is self adjusting. It’s really no contest.
@markf: You’re incorrect on pretty much every point.
1. Government subsidies. Agreed; their Federal loan was paid back years ago. The corporate welfare they received from Nevada for the Gigafactory is akin to every mfr under the sun. I don’t like it, either, but that’s a political discussion that goes way beyond Tesla. If you’re referring to the $7500 Federal subsidy, talk to Nissan; they’ve benefited from that much more than ‘rich’ Tesla buyers. If you’re referring to the carbon credit economy, Nissan is #1 in selling them. But that’s not a taxpayer subsidy.
2. Celebrities and wealthy folks – OK, I guess, but do you say the same thing about the (fewer) buyers of S-Classes and A8s? Remember – the definition of a ‘rich guy’ is that he has $1 more than you.
3. Lousy range. Agreed; I driven a Leaf through 3 harsh winters. Oh wait, we’re talking about Tesla. 250 miles isn’t enough for you? I say 250, you say 300; I say 300, you say 400; I say 400, you say 500. I know the rules of this game.
4. Insane recharge times. True; 20 minutes is pretty quick.
5. EVs will never be remotely useful. Agreed; my Leaf’s 22k miles have all just been around my neighborhood, ’cause it might konk out at any time.
6. Electricity is not free. Correct; I pay $20 to run my Leaf 800 miles a month.
7. Pollution shift. This is debated endlessly on the interwebs, so I won’t even try.
8. No progress in range or recharge times. Laughable.
9. All hype. Tell that to the Tesla employees who have designed, built, and sold some 60,000 cars worldwide, and to the buyers who love them.
Sorry Derek – I broke a few rules here by discussing the car.
BEVs are still a small niche. That will only change if/when the combination of range and recharge times makes them very close to as convenient as ICE cars, or when the cost of gasoline quadruples or more. (A battery breakthrough would be wonderful, but I wouldn’t bet on it happening, especially not within the next 20 years. NOt sure I’d bet against it, though.)
Great QOTD. Others have already given great answers leaving out mention of the product. I guess–without avoiding mention of the product–that they’ve done a superb job on most every aspect of the car that they can affect. For this day and age, the exterior styling is A in both concept and execution, and I can’t think of another car that I’d rate so high (although I’ve heard that the interior didn’t come off quite so well, but have yet to get a good look inside).
They entered an industry where the incumbents have nearly a century’s head start, and have survived/thrived. They entered said industry as it was in possibly its worst economic situation ever, with a plan to sell >$100K luxury cars. They insourced all of their manufacturing, outside of their tech demonstrator (Roadster) and now operate a real, honest-to-goodness car factory (Model S, eventually the X and 3). They are building a battery factory to continue their in-sourcing approach. They have built the most extensive nationwide charging network, totally as a way to negate “range-anxiety” fear-mongering.
Name another company from the last 30 years that has done something similar, outside of computer hardware. I suspect the list is rather short. It is a notable indicator of their success that people have shifted from saying “it won’t work” to nit-picking quarterly reports.
Also, Elon Musk must be constantly trollololol-ing at how much impotent anger he stirs up in the auto industry with wacky hyperbolic statements. The hate threads on TTAC about Tesla are amusing to read, in the same way that the senile ramblings of old misanthropes often are humorous.
I actually think Musks ‘wacky hyperbolic statements’ is one challenge the Tesla brands may be better off without in the long run. If he gets to go on un-chained for too long, he may stir up the wrong kind of waves. He may be an innovative (or even brilliant) entrepeneur, but he’s not be the best spokesman for Teslas car business. He may be surrounded by too many ‘yes-men’ at the time.
Established as the “luxury” electric car that caters to owners of ICE luxury cars. Not a small feat considering they started with the roadster. The current model is a niche product that commands a high selling price, and a poor profit for Tesla.
The branding and market presence is exceptional.
The business case challenge is to expand to model line up to increase sales while ensuring a viable future. The assembly plant in Fremont could build several models of Tesla’s – Model S, Model X, Model Y, Model Z.
The ability to build several models does not capture the imagination like a battery mega plant in Nevada.
Lets capture the imagination, lets have our own dealers while not being embroiled with independent dealers, let show a new model that will eventually get built, lets build a battery plant to potentially sell Tesla technology to others, lets have our own charging infrastructure.
With the money that has been thrown at some Detroit luxury brands, Tesla would have the Model X, and a Model Y on the street by now.
Tesla is also influencing other folks in Silicon Valley to consider different aspects of the auto industry in the years to come with the increased technological content of all vehicles.
I know people who work at Tesla, and I get the impression that their cars are expensive in large part because they work like a software startup. They make little tweaks every few days instead of just designing a car and making it for a few years while designing the next one. There’s relatively little automation at their plant and a lot of manpower. Despite not being close to building cars as quickly as NUMMI did, the employee parking lot is massively overflowing.
That means there’s a lot of room for that cost differential to come down. It’ll have to if their attempts to go down-market are to work. If it happens, they have the brand strength and control over their suppliers (vertical integration) to be successful. I also think they’ll have an easier time transitioning to self-driving cars; their software team is strong.
Why the hate on Tesla? Elon is living in the future, the rest of us just haven’t caught up yet. I applaud the guy because he is a little off his rocker at times (see the Hyperloop). He thinks outside the box. Maybe Tesla fails, a full on crash and burn… or maybe its just the beginning, the tip of the spear of change.
Acknowledging possible negatives isn’t “Hating.”
A lot of it is coming from car dealers. If Musk was giving out franchises to these guys, the same guys that are here hating on Tesla would be extolling its virtues to the skies. And by direct marketing, not only is he depriving them of future Tesla franchises (which they are probably too dumb to recognize the potential value of anyway) but he is endangering their whole business model by setting a bad precedent. Someone else might get the idea that in 2015 and with all these computers and stuff, you don’t need Joe down at the local Dodge/Jaguar/Kia showroom to push the paint protection package when all you want is a car. I don’t blame them for badmouthing Musk – if was sitting in a comfortable government protected niche milking a cash cow and someone came around and threatened it, I would push back too.
“but he is endangering their whole business model by setting a bad precedent.”
No he isn’t he’s creating another outlet.
Dell championed direct sales and did well at it until they lost their focus on the customer. Eventually they started selling through established channels but still sell direct as well. Musk has said he isn’t ruling out dealers in the future, but he doesn’t want dealers while they are EV ignorant.
I don’t get the hate either. Good on Tesla and more power them. The more state dealer’s associations fight Tesla, the more I like Tesla.
Ruggles…seriously, you seem overly defensive on this topic. You MUST be in the business somehow, beacuse I see no other reason for the 50 posts on this thread.
Its car looks great (probably best looking sedan on the road). Other than that? not much. Its advantage is that it gives off the “techy” vibe but not much else. He should have made his SUV first instead of the sedan since the DATA would have suggested that’s where the market is and continues to go. Hey, but I’m sure they did all that data mining BS.
We give him waaaaaay too much credit for the engineering as I’m sure he didn’t do a single lick of engineering for the car. Whoever in the comments suggested he’s like Tucker, you must be joking; Tucker’s cars were so ahead of their time (so much so GM conspired to kill the company) unlike Tesla which is about as revolutionary as Morse code.
I’m the one, and I gree with most of your statement, as that is one reason why Tesla is doing a lot better than Tucker was. Tucker promised a lot more than he was able to keep. Musk managed to deliver something which to most American car manufacturers is still years into the future, while it’s still working a lot better than the first Tuckers were.
There are a lot of paralells to Tucker though, I think it looks like a modern Tucker Torpedo and just look ath the T logo in this Tucker ad http://upload.wikimedia.org/wikipedia/commons/f/fc/Tucker_Torpedo_Brochure_c._1947.jpg
And it is both safer and faster than most contemporary American sedans.
@Ihatejalops: Yeah, Tesla is so mundane that everybody builds a car like that. But to your point, selecting the lowly 18650 cell was genius – making something new from existing technology is called innovation, and that choice reduced the risk to Tesla by an order of magnitude.
This will surprise you, but most ‘innovative’ products today are merely clever reconfigurations of existing technology, with an improvement. Apple isn’t re-inventing soldering techniques or producing new plastics all the time.
I don’t think Musk takes credit for the engineering; he acknowledges his team. But he’s technical enough to know what is possible and to direct others to make it happen – that’s just one of his strengths.
The ‘revolutionary’ Tucker cars were technologically interesting, but that and a quarter will get you a cup of cheap coffee. Lots of good ideas die on the vine; you need many other elements to be successful, and that’s where Tucker failed. Musk is smart enough to work out those details so his ‘Morse code’ cars can sell.
SCE to AUX +1
Look at the iPhone. Apple didn’t invent the touchscreen, cellular antenna, CPU, battery or just about anything else in it. All they did was figure out how to slap it all together into a unique, well executed and highly innovative package that was way ahead of everything else at the time. Which was all that really mattered in the end.
Same with the Model S. Say what you want about Tesla as a business. There’s nothing else close to the product right now.
Oops I just violated Rule #1.
There are ample reasons why the Tucker enterprise failed without having to talk conspiracy theories.
The Tucker automobile wasn’t particularly advanced either. Four wheel independent suspension and a rear mounted engine make it stand out from other American cars of the late 1940s, but those hardly seem the stuff of making Detroit quiver. Also, the suspension is dependent on rubber springs that may not have proven up to the task if the car had gone into actual production. I know someone who is manufacturing reproductions of those rubber parts. Now it’s not like the 47 existing Tuckers are high mileage cars. Most are pampered.
While some of the Tucker car’s safety features like recessed knobs were innovative, how much safer a pop-out windshield makes a car is arguable, and some of the safety features were pure hype, like the car’s ‘safety cell’ where the front passengers were supposed to do something like duck and roll under the dashboard.
I don’t think that Tucker fairly treated by the government or that he was running a scam.
I also don’t think that GM put the streetcars out of business or that somewhere in a lab basement in Detroit there is a 200 mpg carburetor.
Stock is way overvalued.
Please Big Brother, protect us from ourselves…
“Some day human-driven cars will be outlawed”
Big Brother can not wait for the day that he and his cronies monitor not only our emails and calls but even dictate where we are allow to go.
David Icke warned us a very long time ago…
Do you believe in the Jew lizards as well?
You are missing my point Derek, do you trust Big Brother enough to dictate where you can go and how are you going to get there?
Not a chance. But I want to know if you believe in the lizard Jews.
Sure, if you will make the case for Apple without mentioning the iPhone or the iPad or any of its other products. Unless your company is just some sort of tax dodge, how is it possible to talk about any company without referring to its product? And a class leading company is only class leading because of its class leading products. Would Tesla be worth talking about at all if their product was a Nissan Leaf?
Apples brilliance is/was to a large degree to act as the ‘underdog’ to Microsoft long enough to get a large enough hardcore dedicated fanbase, much of which was connected to graphics and artists. Then came the turnaround with help of a great spokesman in Steve Jobs, and the aforementioned artists helping Disney make some fairly impressive fully digital movies, making the fanboys wet themselves completely, and in a world where said group of people were suddenly the people everyone wanted to be (graphics artists, digital designers, photographers etc,) was just the last nail in all the coffins of any opposition.
The I-pod/pad/phones were all important tools in the integration of the i-customer and the i-product base, but the products themselves were no more innovative than the Tesla Model S
(how did I do?)
Not great. At this point the Mac and its graphics artist base are just footnotes and Jobs is in Nirvana, but the iPhone earns 90+% of all profits in the entire world phone industry and the kids who love it have mostly never even heard of a Macintosh. Like all great inventions, the iPhone seems as if it should have always existed and all the other phones resemble it, but remember that before the iPhone there were mostly clunky flip-phones that look like dinosaurs now.
I still think they (Jobs and graphic artists) were vitally important for creating the ‘need’ in other people to own Apple products. Apple managed to create a free PR machine their fans. They may be footnotes to most Iphone owners now, but they were/are a huge inspiration to the Apple users that the ‘average joe’ apple users look up to today. Back when phones had no screens nd were foldable, ‘nerd’ or ‘geek’ was still an insult. By the time the Iphone was introduced they had a huge fanbase that would have bought it no matter how awful it was.
Apple makes decent products and was the innovator of many. I started on an Apple IIe before there was the PC and PC-XT.
But it is such a dynamic business, constantly in flux, that I would rate my iPad Air 2 as tops in Tablets today, but I would rate my wife’s Galaxy S5 as tops is SmartPhones today.
I am also on fire for the brand new MacBook, just introduced. Definitely gotta have one of those. That thing is a marvel to behold! Can’t wait for the Apple Store at the Base Exchange to get them in.
But what detracts many from owning an Apple device is that you have to get an Apple ID, and give away your personal information, and, up to just recently, a valid credit card to make the device anywhere near useful, download free Apps, buy Apps to tap its usefulness and potential.
You don’t have that problem with Microsoft and Android devices. They can be useful with even a bogus email address, and without giving away your life’s history.
For us, we use our Apple for Business account, regardless of who is using the device now. I wouldn’t want some pervert hacking the iPhones of my 8-yo grandkids, or that of my 17-yo grand daughter.
By passing the devices downward among family members, we safeguard them as best as we can. Several of them have the cellphone circuitry disabled so they can only be used on the Wi-Fi network. Works great for little kids.
And now that we all have learned that just about anything can be hacked, we have made our own cloud, and disabled iCloud access.
But Apple does make good stuff; until Samsung does them one better.
My Turn at the podium… I live in a state that is currently debating whether or not to let Tesla sell directly to the consumer. This would have never happened except for the fact that one of the State’s senators had to purchase his Tesla in New York, and was so blown away with the ease of the transaction that he wondered why there isn’t a dealer here.
The State’s Dealer Lobby is very powerful, and I really hate to say this, but I work for a dealer who despises what Musk is trying to do. I am rooting for Musk to succeed throughout the country, and once there is the slightest loophole in the franchise law, then the regular car and truck manufacturers can exploit that loophole.
So dealership owners, want to stop this slide to your eventual doom? Then charge realistic prices for the cars you sell, no adjusted dealership markups on hot models, no dealer conveyance fees, no aggressive markups in the finance office, no pushing sketchy third party warranties, and pay your people for outstanding service, not on how much they can make at the sale…
Sounds like you really know how to run a dealership. Why aren’t you doing it?
You virtually have to be made of money to own a front line dealership… I just read that a well respected Volkswagen Dealer in Western Connecticut is going under. Customers who purchased vehicles from this dealer love the dealer… unfortunately, the product is CACA…
You have to have some cash, some credit, and demonstrated expertise. That expertise needs to include understanding how to make money selling big ticket items to people. If you knew how to do that you wouldn’t make some of the statements you’ve made. You probably belong in an Apple store making $30K per year.
If you work for a dealer, and dealers go away, do you think you’d like working in a factory dealership? Ever talked to anyone who has?
In case you haven’t noticed, dealers aren’t exactly descending into doom these days. Their life has never been better. The average Ford dealer made around $850K last year.
My point is this… once Musk makes the case for this exception to the franchise laws, and it looks like he has for a few states (and will for CT as well) then is is rather easy to open up that loophole for other manufacturers if they choose to do so…
As far as factory stores… There are a couple of dealers that could be thought of as factory stores, and I would work for them. They have their quirks, but you will never have to put up with the loud mouth obnoxious spouse or bratty spoiled kids (even at 20 years old) at the dealership that expect you to get their coffee, or do some menial task because they are related to the owner…
Oh, one more thing I need to add… Mr Dealer Owner… You are not worth the money you are paying yourself, or your family members that work there. There is no need to be making 100 times the take home pay of your lowest paid worker at the dealer. And get rid of the spouse, the kids, and the in-laws while you’re at it.
RE: “Oh, one more thing I need to add… Mr Dealer Owner… You are not worth the money you are paying yourself, or your family members that work there. There is no need to be making 100 times the take home pay of your lowest paid worker at the dealer. And get rid of the spouse, the kids, and the in-laws while you’re at it.”
When you buy the store you can fire them all, and replace them with your own family, if you want. Until then, money talks and bullshit walks.
“you are paying yourself, or your family members that work there”
Yeah, that will always be a point of contention since it is an accepted standard for business owners, to employ as many of their family members as they can get away with, even if many don’t show up for work at all.
Because they are making one of the few (only) alternative fuel vehicles that people find compelling, versus something people buy simply because it’s cheaper. I have zero interest in a Volt, Leaf, Prius, etc. I desperately want a Model S P85D. You can swing the economics to make a Leaf, etc, viable or not viable economically, but if people WANT an EV in and of itself above and beyond the economics, THAT is the first step towards weaning ourselves off of foreign oil, AND it’s an American grown company.
Are they perfect? Absolutely not, but there are a lot of pros that outweigh most of the cons.
Foreign oil? This, while we’re sloshing around up to our eyeballs in domestic dino-oil.
I believe that panic is beginning to set in about the low price of oil and the present-day oil glut.
My money is on the politicians to double or triple the taxation on gasoline and diesel, while keeping aviation fuel at the current levels.
Several states have already proposed a massive tax-increase to offset the loss of revenue generated by the sale of oil and fuel.
Oil is a commodity, even by buying our own we prop up the world market, of which a large portion is owned by people who hate us.
And I work in the industry, no one thinks low prices is a 5 year problem. Guaranteed. It will be “solved” with the next regime change, hurricane, refinery shut down, etc. Heck, I paid $2.9999 for premium last night, already $.50 more than I was paying a month or two ago.
RE: “They entered an industry where the incumbents have nearly a century’s head start, and have survived/thrived.”
Survived? Yes. Thrived? Not until they are consistently profitable in a world without subsidy.
Anyone care to guess why there are so many Model S Teslas for sale?
“Thrived? Not until they are consistently profitable in a world without subsidy.”
Maybe that’s your requirement, but it isn’t based in reality. Approx. 95% of the manufacturing base of the US, plus agriculture, oil, telecom, etc use some level of subsidy to their advantage. The Elizabeth Warren’s of the world would take it a step further and say that any business with access to roads and utilities is “subsidized” by the 99%.
Keep moving the goalposts, though.
“Anyone care to guess why there are so many Model S Teslas for sale?”
Because the P85D was introduced?
Musk is following the Amazon business building model.
Plough all the available revenue into growing the business as fast as possible. They consider profits to be for companies that like to pay taxes.
You won’t see many profits at Tesla for a long time. Musk has said as much.
Same goes for Amazon.
“Anyone care to guess why there are so many Model S Teslas for sale?”
To a degree, not sure if I really care that much. All I know is what I see and in Chicago, Tesla Model S’s are everywhere. I just moved here from DC and they were very common there also. I also know about 8 people that have already put money down on a Model X.
Every car manufacturer has cars the sell and don’t sell and every manufacturer over and under produces.
RE: “By outsourcing their retailing they have distanced themselves from their customers and turned an opportunity to build brand loyalty into a distinct negative.”
An auto OEM’s customers are its dealers. End user consumers are the customer of the dealer.
RE: “Customers LOVE the Apple Store.”
Non sequitur. I love ice cream. So what?
That’s how it is now, but it doesn’t have to be (except for the pesky state laws). Apple could have sold their phones thru the AT&T/Verizon stores only and the other products at Radio Shack. Especially if Radio Shack got laws passed that required them to do so.
Nokia’s customers were the phone carriers. End user consumers were the customers of the carriers. How well did that work out for Nokia in the long run?
“RE: “By outsourcing their retailing they have distanced themselves from their customers and turned an opportunity to build brand loyalty into a distinct negative.”
An auto OEM’s customers are its dealers. End user consumers are the customer of the dealer.
RE: “Customers LOVE the Apple Store.” Non sequitur. I love ice cream. So what?”
——–
You know, if you would just reply to posts instead of starting a new post and adding multiple “RE”s followed by single line quotes, it would be far easier to actually follow the conversation. It’s like talking to someone that randomly changes topics on you.
And I LOVE the Apple store. Since I didn’t see the original post all I can cay is that because the experience is superior, I will seek out an Apple store before going to any of the multiple other stores that offer the same product.
RE: “Meanwhile, in return for their wonderful service of financing retail distribution and alienating customers for life, car dealers make billions of $ of net profit that could be going to the manufacturers bottom line (even after capital costs) if they controlled their own sales network.”
And you know this how? Let’s start out with where the auto OEMs would get the money to own their own retail network. Do you even have any idea what amount of money would be involved for say Ford to own its own retail network?
RE: “And mfrs don’t get to decide which business model they like – they can’t distribute directly even if they are willing to bear the costs.”
Wrong again: Auto OEMs had their choice and made their decision. It doesn’t make any difference if they are willing to bear the cost. They can’t come up with the money.
RE: “Amazon has completely revolutionized the retailing of many product categories, but due to the laws that lock their model in place, cars still get sold in the same way as they did in 1915.”
Wrong again. Who is telling you this crap. Business contracts, freely entered into by auto OEMs created the dealer network in the first place. No one held a gun to their head. The auto OEMs wanted access the local businessman’s capital and local connections.
RE: “I can go on their websites and configure a car, but I can’t actually buy the car that I configure – I have to search for the closest thing within 100 miles and bargain with 5 different clowns.”
And the FTC wants it that way. If you’re too lazy to negotiate a deal, or incapable, just pay MSRP. You don’t have to haggle.
So because of the business decisions that Ford & GM made 100 years ago, the dealer distribution model has to exist forever and ever, not only for them but for every new entrant into the market for all time? Elon Musk wasn’t even born when Henry Ford signed up with the great-grandpa of whoever owns the Ford shop in East Moose Jaw, but he’s bound by that contract too?
How about instead of paying MSRP, I pay invoice (less holdback) because that’s how much the factory is netting on the car from the dealer? I order it on my computer and the next day the Amazon truck drops it in my driveway.
Do you not test drive cars? And if you do, how do you see that working via Amazon?
If you think dealers will keep existing if everyone just goes for a test drive and then buys via Amazon, well… that’s amusing.
(I do think there’s a miscommunication there – ruggles is saying that the carmakers would want dealers even without the laws restricting direct sales, which none of the big carmakers really give a damn about.
They don’t WANT to run their own sales networks directly as Ford/Toyota/Daimler direct employees; that’s what retailers [dealers] are for.
The people who really, really want the direct sales ban laws to stay are the dealers (via their professional associations), to prevent competition.
That there are laws preventing direct sales is not what’s stopping Amazon from selling cars. What’s stopping Amazon from selling cars is that Amazon wouldn’t want any part of the process; it’s a bad fit for them.)
See, unlike boxed computers or household goods or small appliances, cars are not only insanely expensive, but a good that people almost entirely *refuse* – for good reason – to purchase without an in-person trial, because “fit” is so variable and so impossible to describe via words and pictures. Likewise driving feel, and so on.
And while “free returns” is a fine model for shoes, it’s less than ideal for a car that needs to be shipped on a dedicated car hauler.
People also want a trained service department, because cars always end up needing service – and this rounds to “dealer”, especially for anything like an uncommon car. (Lots of smaller cities won’t have A Dedicated BMW Specialist, say. Let alone, in my case, A Volvo Shop – fortunately I live in a city with multiple independent specialists.)
Dealers actually provide value to most customers; that’s the real reason they persist.
(And I say this, full disclosure, as someone who supports the immediate and permanent repeal of the prohibitions on direct car sales.
But that’s more a matter of allowing tiny-make competition and general free-market principles than any belief that somehow dealers will just disappear.
They won’t.)
If the market demands them, then they shouldn’t need any special laws. If the market doesn’t demand them but the laws keep them anyway, that’s horrible – the government is picking your pocket to make some rich car dealer even richer because he has bought the state legislature. That’s deeply corrupt. Repeal the laws and let the chips fall where they may.
“Showrooming” is an issue but there are ways around that. A test drive is a service. Charge for it like any other service. Unbundle it from the purchase price. Some people don’t want a test drive. They already own the same car and it was wrecked. They are loyal Brand X buyers. Whatever. (BTW, when some models are in high demand, dealers won’t give test drives if they think they can get away with it). Car rental companies would be natural places for test drive businesses. Even now for $30-$100 or so they will let you “test drive” the cars in their fleet for 24 hours. Car dealers (yes they will still exist) can charge you for a test drive but if you buy the car there, they will credit back the cost. It’s an easy problem to solve.
Same thing with service. Independent service only businesses are not unheard of. A lot of the local dealers who will be driven out of the new car sales business by Amazon for Cars will just change to service only plus used cars – that’s where they make a lot of their money anyway.
@Ruggles
How much would it cost Ford or Chevy to take direct sales through their website or a smartphone app, and just ship the car out when it’s built to order?
Yes, I know that would only constitute a minority of car sales even if it came to pass, but they can start there. Next, they can start opening a few direct stores in major cities and densely populated areas. They can expand out from there.
I don’t think franchise dealers will ever completely go away, and I’m not wishing them away. It’s just that you seem to think there’s no room whatsoever for a direct sales model to exist alongside it, and I think there is. I also think such an alternative sales model would force some improvements on the franchise system.
I think Tesla will look good on Elon’s resume. Let’s face it this guy has got loftier ambitions then building a car. It’s nothing but a stepping stone to bigger things
Someday when sitting around a Martian campfire we’ll look back at Tesla and laugh
RE: “And by direct marketing, not only is he depriving them of future Tesla franchises (which they are probably too dumb to recognize the potential value of anyway) but he is endangering their whole business model by setting a bad precedent.”
Well, those dealers are smarter than you are. They’re making a lot of money and you’re on the sidelines whining about them.
I know very few dealers who “bad mouth” Elon Musk. Where did that come from? Many dealers own a Tesla.
Simple question Ruggles. Why does it matter if Tesla sells its cars direct or not? You might have answered this before but I missed it.
Cartunez/riggle
It matters to dealers bc they worry about their own franchise, not the greater business arrangement. Any brand would love to sell direct in markets where dealers are underperforming or not toeing the line as a group. It’s all about self preservation of the individual. Imagine how badly a brand could savage a cities dealer network with their own store. Price, experience and visual appeal could all be massively improved and once the dealers have been brought to heel, they’d sell their flagship to a large franchise network with a robust agreement/understanding on how to conduct future business. That’s my take at least.
There’s the answer to the original question. Tesla is great because it’s the car company that car dealers prefer! They could drive any car on their lot for free but they want a Tesla!
@ruggles
>> I know very few dealers who “bad mouth” Elon Musk. Where did that come from? Many dealers own a Tesla.
Oh, I don’t know…how about this cheesy website by Connecticut car dealers, which tries to paint Tesla in the worst possible light. (Heck of a way to win their business!)
http://www.teslacrash.com/
Here’s one from the Texas dealers, mentioning “eccentric billionaire Elon Musk”.
http://www.texasfreemarket.com/
Keep in mind these aren’t individual rogue dealers speaking out of turn. They’re entire state organizations representing the dealers.
Ok. The cars look terrific. It is so hard to tell a Camry from an Altima from an Accord, but they have nailed the styling of these cars.
Very spacious, very sexy, very distinctive. Very important for people who want to stand out. Does this make it a good car? No, so don’t accuse me of going there.
The car goes like stink. People like this. Old people who used to hoon
in V8s, young people who had Subarus and Turbo this and thats. Does this make it a good car? NO, it make it want to self-destruct.
The car has double the range of other electric cars. Does this make it a good car? Maybe not because they charge the batteries up sky high and discharge them way down low. Very hard on the packs.
What do I win Mr. Editor?
“They might eventually ship the Model X”?
…
That’s all I got, within the parameters specified.
(Contra the comment from mor2bz directly above this … those comments boil down to “what good cars they are”.
Which is fine for car buying decisions – but not so relevant to the company itself, not directly.
An *awesome* car that’s barely profitable or not profitable means bankruptcy. A single awesome car that’s decently profitable still means a dubious *corporate* future – no diversification, betting the company on it always staying that competitive.
Tesla, Inc. is not the same as the Tesla Model S, thus the prohibition on praising the car as a defense of the company-as-a-company.)
Obviously, I don’t think these are good cars. I think they are important cars.
Forgive me, because even though the model S is not the company, I think it might have something to do with the company.
I think a good car should be a reliable car. I do not think the Tesla qualifies.
Perhaps you could agree with the following:
Musk IS the company. People like him, they trust him. They think he is a genius.
From a marketing perspective I think the best thing that Tesla has managed to do is make cars more like a tech toy or lifestyle item — à la apple — than a purely vehicular purchase.
Purely anecdotal here: we work with a lot of tech companies and I guess what you would call new age companies in their mid to late awareness stages. I know a lot of people in this area who had absolutely no interest in cars before Tesla and would never consider spending the kind of money a Tesla costs on any other car. Lexus hybrids seemed to make somewhat of an inroads, but never huge. Tesla now seems to be taking these guys who previously drove Accords, 3-series, Highlanders et al. as conquest customers. In this regard, I give them credit for pulling what seems like an untapped market for $100K+ cars out of the woodwork.
That said, I think the cars look great, but I’m on the side of the analysts that believe they are a tech company, not a car company, and will never bridge the lacuna between low-volume and mass production.
And …. the winner by post count, nobly upholding the superb job performed by the traditional dealership in all its glory, is Ruggles.
Yes NADA should give the man a medal for trying so hard. Who, once invested in the industry where additional fees are a mere line item only to be fully revealed after a vehicle purchase decision has been made, would want to change the business model?
Tesla’s main effect will be to beat down the dealer lobby, who not unexpectedly, are quite annoyed that their gravy train and me, me, me attitude should somehow change into something resembling a square deal for the customer.
Why, it’s downright socialist to even think that way! These businessmen have invested millions in new buildings and flashing lights, while keeping a massive supply of gaily-colored balloons in the drawer next to the latte supplies, for those SALE OF THE CENTURY NO REASONABLE OFFER REFUSED!!!! events.
Why it’s unAmerican not to maximize profit by shading the truth with dimwitted and poorer customers.
Ruggles, you are defending the indefensible. My best pal runs an upscale audio store, and one of his prime beliefs is to keep the customer happy. Buy a great set of speakers, haggle a bit, and guess what? At the counter, no PDI or document fees, nor paperwork you have to sign saying you refused the $39 Lemon Glade wood application, the 3M Scotchgard to keep the grilles in perfect nick. In short, no scam fees of any kind – the way it should be.
He’s going to argue home/car audio equipment vs automobiles is an apples and oranges comparison for a number of reasons, and he’ll be right.
As if the entire concept of upscale audio isn’t a huge scam in itself.
SpaceX.
Whether it succeeds or not, Tesla is a business that isn’t too hard to understand. They’ve committed fully to electric power, which is a differentiator. They’re running a very simple game plan of starting with high-end, high-margin cars.
Note how rare that is among electric car projects: the independents are undercapitalized enterprises focusing on cheap-ish conversions or penalty box designs. Of the mainstream EV offerings (Leaf, iMiev), only the BMW i3 is focused on anything like the high-end, and it’s focused on green credentials.
The current lineup has to be seen as a pilot project: train your company to build a small volume of high-margin cars, and then scale up once you have a lot of internal knowledge. They’ve progressed from a very low-volume roadster to a fairly low-volume sedan, with plans for moderate and high-volume cars in the wings. They’re generating cash flow, not profit, which is the way a business scales up (see also Amazon, which seems to be trying to take over the world before it commits to turning a profit).
Tesla makes sense as a business proposition if you think that, for one reason or another, electric cars will predominate in the market sometime soon (10 years, give or take?) That’s a bet, but it’s a reasonable one. It also depends on Tesla doing a good job of building cars: that’s not a trivial matter, but a lot of companies have blown up long before getting to the car count Tesla has already achieved.
“What’s so great about Tesla, ignoring that they make great cars and are a disruptive force?”
Tesla lets owners give the metaphorical middle finger to Middle East oil, which is great if you aren’t from the Middle East. Tesla is an American company, which is great if you are rooting for America. Tesla’s initial sales of the Model S embarrassed other luxury car makers, which is also great if you want to see other luxury car makers embarrassed.
But whether Tesla ultimately succeeds or fails, the company is great for the lessons it provides — lessons in entrepreneurship, politics, and technology. Only in America can a company such as Tesla emerge. Politics, regarding taxes, subsidies, loans, sales channels, are controversial, but are no less worthy of study and emulation.
Tesla continues to push technology — in its cars, in its supercharger network, and in its upcoming giga-factory — improving what works and discarding what doesn’t. The company learns and grows from its mistakes, whereas lesser companies ignore, hide, and repeat their mistakes in the name of “fiduciary duty to the shareholder.”
Getting as far as it has, without a profit (yet), makes Tesla great.
I guess this really does need an explanation.
First off, the subsidy issue is a red herring. Every single company gets tax breaks or subsidies of some sort. The major automakers have been bailed out by the government repeatedly, and fossil fuels are heavily subsidized by the government. People who complain about this very much remind me of what Jesus said – “Why do you look at the speck of sawdust in your brother’s eye and pay no attention to the plank in your own eye?”
Now, on the Tesla itself. Basically, Tesla is doing major work in making electric cars and batteries better. An electric car can basically be powered by any energy source that can be turned into electricity. In this time of low gas prices we get to pretend that there is infinte oil and we can pretend that there are no negatives to gasoline. Neither of these things are true. Even totally ignoring the volatile Middle East and global warming (I know it’s a trigger phrase for some of you, please breathe deeply), gasoline is a toxic, volatile chemical, and not in infinte supply.
Tesla is basically making options. The car can run on coal (if that’s what your utility burns), or natural gas, or hydro, or wind, or solar. When gas gets expensive again, Teslas will be running just the same as today. Additionally, the development of better batteries makes it possible to store energy more effectively, which makes solar and wind power more useful (as you either have to store energy or only use energy when the sun is up and/or the wind is blowing). This makes it more possible to transition to less poisonous forms of energy. I don’t understand why people find this offensive.
Thirdly, Tesla wisely decided to aim for the rich first and build up the technology to go mass market down the road. They didn’t even build a car at first, just a powertrain that they dumped in a Lotus. Then they built a car. They’ve been improving it steadily and are planning on building more models over the years. Eventually this means that mass market electric vehicles will become much better, because they’re building the tech for it. Just their presence prompts other automakers to devote more resources to electric vehicles. It shows they are clearly practical, can build a strong following, and can be even faster than gasoline vehicles.
Those are the reasons Tesla makes sense.
Tesla will not survive as a car manufacturing company. As soon as any major car manufacturing company decides to do what tesla has done, tesla will be done. There is a lot to be desired in the model S at it’s price point and it could never hope to compete with the LS’s, S classes, or the 7 series of the luxury world.
Tesla will become a battery supplier for other car manufacturing companies because they will have the infrastructure with their giga-factory.
“As soon as any major car manufacturing company decides to do what tesla has done, tesla will be done.”
The major car companies are burdened with factory tooling optimized for ICE engines. Notice how hybrids are retrofitted into existing vehicle architectures — engine in front, batteries in back. This is optimal for cost savings, but won’t produce an optimal electric car.
Microsoft set out to beat Apple and make their own iPod. Surely with Microsoft’s wealth and reach , Apple will be done. Do you remember the Microsoft Zune?
That’s not necessarily true about innovation; many create something from scratch that isn’t off the back of others. I never brought up Apple, but whatever. Tucker’s ideas didn’t die on the vine, they died because they were crushed from the cozy relationship with big business and government. Tesla survives because of this. Many of his advancements were used later on for cars. The REAL Tesla was innovative, unlike Elon’s company.
Their design is interesting (well the sedan, the SUV blows), but EV’s have been made and attempted around since electricity and will be archaic soon. They’re hardly engineering marvels. They’re inefficient and often not practical. Sometimes it’s just timing, not genius.
RE: “Labor participation rate (at all time lows) and median income (frozen since 1968 by “official” inflation rates, been going down by actual inflation rate comparisons) are all that matter, because they are the only metrics that are not yet purposely manipulated to lie, where-as pretty much all other metrics from GDP, NON-GAAP earnings, U3 unemployment, and inflation are out-and-out lies.”
So you are saying someone else could have engineered a faster recovery? Is that it? Is there another country you have in mind that things better overall?
RE: “@Ruggles – How much would it cost Ford or Chevy to take direct sales through their website or a smartphone app, and just ship the car out when it’s built to order?”
BILLIONS and BILLIONS – Are you talking about building to order? No retail outlets? Selling only to people are are fast track credit or cash with trade equity? You are talking about giving up 80% of the market. Plus, they’d have to buy out all of their partner dealers, about $58 billion each including buying back all of the dealer inventory. How would the states collect their sales tax?
Start with the fact that a third of buyers are BHPH or Sub Prime. Around 22% have a credit score of 720 or more, and many of those have debt to income issues making them a ticking credit time bomb. In addition, many of them also have trades they owe more on than they are worth. In between, you have near prime, the various credit tiers. Many of those get packaged by dealers in with really good paper to get an approval tier for the borrower the borrower couldn’t get in his/her own. And many of those have negative equity. They can’t sell their car to Carmax or their neighbor without coming up with cash to pay off their old car loan.
BTW, auto OEMs understand this even if they are poor at operating their own sales point.
RE: “It’s just that you seem to think there’s no room whatsoever for a direct sales model to exist alongside it, and I think there is.”
Just because the franchise system doesn’t please everyone doesn’t mean it isn’t good. Are you suggesting auto OEMs compete with their own franchise dealer partners? Are you suggesting a supplier compete with its own customers? Are you sure you’ve thought this out?
>> BILLIONS and BILLIONS – Are you talking about building to order? No retail outlets? Selling only to people are are fast track credit or cash with trade equity? You are talking about giving up 80% of the market.
Yes, I believe that’s why I used the phrase “minority of car sales”. (To clear up some confusion, when I said Ford or Chevy could set up their own sales point, I didn’t mean they would shut down their existing dealer network.)
20% sounds about right. And personally, I wouldn’t buy a car without test driving it first, so likely that 20% would not include me, unless I drove a buddy’s version or something. Or test drove from a factory store, a la Tesla.
>> Plus, they’d have to buy out all of their partner dealers, about $58 billion each including buying back all of the dealer inventory.
Why? I was referring to build to order here, not existing inventory. The dealers can keep their existing inventory, and continue to be replenished with unsold stock. No buy back needed. Even the introduction of company stores wouldn’t directly subtract from dealer inventory, as the direct stores would basically be brick-and-mortar outlets for build to order, with a few test models on hand.
>> Start with the fact that a third of buyers are BHPH or Sub Prime. Around 22% have a credit score of 720 or more, and many of those have debt to income issues making them a ticking credit time bomb. [snip, more on customer credit situations].
Then the direct Web sale wouldn’t be for them, and they would still go to a franchised dealer. Again, I agree you’re looking at 20% of the market to start for direct Web sales.
>> BTW, auto OEMs understand this even if they are poor at operating their own sales point.
But they can still chase that 20% to start. And there shouldn’t be any state laws forbidding them that.
>> Just because the franchise system doesn’t please everyone doesn’t mean it isn’t good.
I never said the franchise system was bad, though I think it could stand some improvement. In fact, I’ll go you one further and readily concede that you, along with a couple of other posters in different forums, did get me to realize the franchise system does have some intrinsic value that I hadn’t thought about. Mainly as an inventory buffer.
>> Are you suggesting auto OEMs compete with their own franchise dealer partners? Are you suggesting a supplier compete with its own customers? Are you sure you’ve thought this out?
I think “competition” is the wrong way to look at it. The franchise system is better in some instances, and the direct sales model is better in others. Even in a totally free market, I doubt either would prevail entirely. There’s an equilibrium point in there somewhere, and if it were found, the world in general would be better for it. But we aren’t allowed to find it, thanks to all the dealer protectionist laws. The franchise system is forced on us for every transaction, whether or not it makes sense. How is that good economics?
RE: “Plough all the available revenue into growing the business as fast as possible. They consider profits to be for companies that like to pay taxes.”
So what’s the purpose of growing a business? At some point, no profits means stockholder bail, and the stock goes all to hell. At some point, companies need to borrow. No profit lead to no loans OR to higher interest loans. A company not focused on stockholder value won’t last long. Market timers might make some money buying, selling, and shorting but profits are required for a company to be sustainable. Amazon isn’t far away from having to show profits to keep investors and lenders engaged. Same with Tesla.
RE: “Anyone care to guess why there are so many Model S Teslas for sale?”
Answer: “Because the P85D was introduced?”
Why not trade them in for the tax break? Assuming a sales tax rate of 8% and a trade in value of $60K, the sales tax benefit to trade in is $4800. Is that inconsequential to a Tesla owner?
RE: “There’s the answer to the original question. Tesla is great because it’s the car company that car dealers prefer! They could drive any car on their lot for free but they want a Tesla!”
Dealers are curious and want to see what all the hubbub is about. Most of what I know about Tesla first hand experiences come from dealers I know. That’s how I know about Tesla issues in extremely high heat (Phoenix) and extremely cold. (Maine)
RE: “If the market demands them, then they shouldn’t need any special laws. If the market doesn’t demand them but the laws keep them anyway, that’s horrible – the government is picking your pocket to make some rich car dealer even richer because he has bought the state legislature. That’s deeply corrupt. Repeal the laws and let the chips fall where they may.”
Repeal what laws? Some one has blown smoke up your ass. You certainly don’t understand the issue. Franchise dealers exist because auto OEMs want them and entered into contracts to gain access to their local expertise and capital. The FTC likes it that way. The franchise laws are a different thing. Despite the contracts between OEM and dealer, there have been many instances where the OEM has tried to bully its on partner. That was the beginning of state franchise law. There ARE some dealers paranoid about Tesla. But most are afraid that if the Tesla model is allowed to stand the next thing that could happen is for a Chinese OEM to come to the U.S. to sell direct. The primary issue there is the way the Chinese government works. At one point, the Chinese government decided to take over the global plastic injection molding business, and they were successful. They offered cheap loans and heavy subsidies to Chinese companies in the plastics business. U.S. car dealers don’t want to be in the position of competing with a foreign government or a foreign company subsidized by a foreign government. Further, state franchise laws are also in place to protect consumers. It might be something as simple as forbidding a car dealer from selling off of grass or gravel, or demanding that all sales records be kept on premises for ease of audit. After all, do you think a state wants to have to hire investigators to audit sales tax forms and payments? Some dealerships requirements have to do with signage, tools, number and types of lifts. Dealers who have already made an investment in their business aren’t anxious to have to suddenly compete with a new competitor not required to play by the same set of rules. Most dealers aren’t concerned about Tesla. I certainly am not. They ARE concerned about setting the precedent. The LAST thing for dealers to worry about is their own OEM undermining them by circumventing them selling direct. In fact, the sharp ones hope their OEM might try. But the legacy OEMs are just too smart for that. Besides, they know they don’t know how to retail cars.
>> But most are afraid that if the Tesla model is allowed to stand the next thing that could happen is for a Chinese OEM to come to the U.S. to sell direct.
Wait, you’re the one who keeps insisting the franchise system is the only way to go, and OEMs couldn’t sell their own cars with both hands and a flashlight. If you’re correct, how is that going to be any different for Chinese OEMs? As soon as they arrived onshore, (according to your beliefs) they’d be racing to the franchise system as fast as their legs could carry them. It would be in their own self-interest.
>> U.S. car dealers don’t want to be in the position of competing with a foreign government or a foreign company subsidized by a foreign government.
You mean as opposed to domestic companies bailed out by our own government? And I actually favored the bailouts, but c’mon.
>> Further, state franchise laws are also in place to protect consumers. It might be something as simple as forbidding a car dealer from selling off of grass or gravel, or demanding that all sales records be kept on premises for ease of audit.
Okay, you’ve made some good points here and there on TTAC, but this is ridiculous. You can’t have those same laws apply to direct factory stores? Fine, don’t let OEMs sell on grass or gravel. And here in 2015, I’m sure OEMs can set up to give you any records you want from their electronic sales databases, anywhere, anytime.
>> The LAST thing for dealers to worry about is their own OEM undermining them by circumventing them selling direct.
Well, if you’re right, and the franchise system is the end-all, be-all, only way to sell cars, the dealers wouldn’t have to worry for long.
You are right and wrong in turns here. Dealers do benefit manufacturers and are here to stay. Otoh dealer franchise laws serve to protect poorly performing dealers or dealers with deep disagreements with manufacturer policy from manufacturer competition. Neither direct to consumer or third party franchise is inherently more beneficial to consumers, the difference lies in the execution.
Do away with forced franchising and the brands will immediately move on their worst business partners. Other dealers would quickly improve but I suspect you are right in the other respect, the brands would be looking to sell out of retail once their mission was accomplished. Too much durable overhead and liability running manufacture and retail in this industry at the scale of the us auto market.
RE: “Car rental companies would be natural places for test drive businesses. Even now for $30-$100 or so they will let you “test drive” the cars in their fleet for 24 hours. Car dealers (yes they will still exist) can charge you for a test drive but if you buy the car there, they will credit back the cost. It’s an easy problem to solve.”
BRILLIANT! Maybe you can start a new career as a consultant to the auto OEMs to teach them how to retail vehicles for a profit.
RE: “I would expect the OEMs to use the typical tricks that they have in their toolkit to impose their ways on the franchisees, such as linking holdback payments to CSI scores.”
Holdback isn’t linked to CSI scores.
RE: “The people who really, really want the direct sales ban laws to stay are the dealers (via their professional associations), to prevent competition.”
Prevent competition from whom? If you buy a Tesla, everyone pays the same. You would rather have price fixing than bargaining? If so, start lobbying the FTC.
RE: “Yes, I believe that’s why I used the phrase “minority of car sales”. (To clear up some confusion, when I said Ford or Chevy could set up their own sales point, I didn’t mean they would shut down their existing dealer network.)”
Why would existing Ford or Chevy dealers continue to buy Ford and Chevys from their OEMs if their manufacturer did such a thing? The first thing that would happen would be the OEMs would be taken apart by dealer lawyers. A supplier can’t undercut the retailers it supplies. A supplier with any sense wouldn’t alienate its partners, who are also its customers. Second, the exec who came up with such a plan would get shot in the head by the OEM’s BOD. There are laws against entering into a contract, then breaking that contract. The sales agreements between OEM and dealer are very specific. Do you think for a moment that a businessman would invest millions of dollars in a business with the possibility that his/her own supplier might try to circumvent him/her and sell direct? If an auto OEM violated its on contracts, what would that do to its reputation, even aside from the legal ramifications?
So picture this. Ford announces it is going to sell direct. It doesn’t try to buy out its current dealers, it will circumvent them. Ford dealers get together and all terminate their dealer agreements at once. Ford has to cough up around $5 million per dealer times about 3500 dealers. That’s $17.5 BILLION to buy back the dealer new vehicle inventory. Where do they get that money? Add to that the cost of transporting all of those cars. Where will they put them? I’d be charging them dollars per day per car for storage until they got their cars off of my property. Imagine the PR nightmare.
>> Why would existing Ford or Chevy dealers continue to buy Ford and Chevys from their OEMs if their manufacturer did such a thing?
How about to stay in business? Last time I checked, dealers don’t make the cars they sell. They need an OEM to supply them.
>> The first thing that would happen would be the OEMs would be taken apart by dealer lawyers. A supplier can’t undercut the retailers it supplies.
Really? Even if the (partial) undercutting is good for the supplier, the end customer, and the general economy? That’s a sad state of regulatory affairs.
>> Do you think for a moment that a businessman would invest millions of dollars in a business with the possibility that his/her own supplier might try to circumvent him/her and sell direct?
It didn’t stop Best Buy from doing business with Apple. It sure hasn’t stopped franchises in Germany from doing business with BMW and Mercedes, both of whom are free to sell direct there.
>> So picture this. Ford announces it is going to sell direct…Ford dealers get together and all terminate their dealer agreements at once.
And all go out of business that very same moment? I think Ford dealers are going to want to keep their doors open. For that, they need Ford. This is a two-way relationship. That’s why I mentioned an equilibrium point.
RE: “Why would existing Ford or Chevy dealers continue to buy Ford and Chevys from their OEMs if their manufacturer did such a thing?
How about to stay in business? Last time I checked, dealers don’t make the cars they sell. They need an OEM to supply them.”
Dealers sell used cars. Most sell other brands. Besides, they typically don’t make money off of selling new vehicles. And what a statement it would make for dealers to band together and start terminating their franchise agreements. Dealers could bring an OEM to its knees quickly. But that would never happen because OEMs aren’t stupid enough to make the move in the first place.
>> The first thing that would happen would be the OEMs would be taken apart by dealer lawyers. A supplier can’t undercut the retailers it supplies.
RE: Really? Even if the (partial) undercutting is good for the supplier, the end customer, and the general economy? That’s a sad state of regulatory affairs.”
Yes, REALLY. Use your head. What business person would do business with a supplier who undermines their business? Would you? If the answer is “yes” or “I don’t know” I suspect you’re an employee working for someone.
RE: “Do you think for a moment that a businessman would invest millions of dollars in a business with the possibility that his/her own supplier might try to circumvent him/her and sell direct? It didn’t stop Best Buy from doing business with Apple. It sure hasn’t stopped franchises in Germany from doing business with BMW and Mercedes, both of whom are free to sell direct there.”
There are serious restrictions on those factory stores in Europe as there are with factory stores in Japan, with which I have a LOT of experience. They aren’t allowed to undercut the independent dealers. That would frustrate the American consumer expecting to get a better deal from a factory store. In Japan, there are factory stores all over the place. They all lose money for a variety of reasons. One, they are mostly in high price real estate areas. Second, they are staffed by very unproductive employees who don’t get paid on production. In Japan, depending on the franchise, the average car sales person sells 2 – 4 units a month. In the U.S. it is 8 – 10. In Japan there are restrictions that prevent a dealer from selling a new vehicle out side of the area covered by their taxing authority. I have heard that is also the case in Europe. A customer in Nagano, where I worked a month each year for 18 years, can’t buy a car in Tokyo or Nagoya without having a legitimate address there for use in the tax collection process.
RE: So picture this. Ford announces it is going to sell direct…Ford dealers get together and all terminate their dealer agreements at once. And all go out of business that very same moment? I think Ford dealers are going to want to keep their doors open. For that, they need Ford. This is a two-way relationship. That’s why I mentioned an equilibrium point.”
Terminating a franchise is not going out of business. Who told you that? They would keep their doors open selling pre-owned vehicles AND the other make/models they sell. In the meantime, other OEMs will be recruiting the best ex Ford dealers for their own products while Ford languishes and its BOD executes the perps. In the meantime, Ford will continue to pay for the dealers to do warranty work or Ford customers will be SOL. Imagine the PR nightmare. You mention a two way relationship. What possible reason would Ford have to ruin a relationship with its partner dealer? What would they have to gain? They’re already getting the sales. Ford dealers acting collectively could bring the OEM to its knees in a matter of days. Market chaos and collapsed stock price isn’t anything an auto OEM wants to consider.
RE: “But they can still chase that 20% to start. And there shouldn’t be any state laws forbidding them that.”
Their own sales agreements forbid them. What makes you think dealers would tolerate its own supplier competing with them? The OEM is already getting the 20% through the dealer’s efforts. Why would they instigate chaos to sell those cars direct when they are already getting those sales?
RE: “Ruggles, you are defending the indefensible.”
What do you think I’m defending? I’m defending the facts, whether you like them or not. And if you don’t like the things you’ve mentioned, go to a dealer that doesn’t do that stuff. Don’t you have phone access? Internet? Vote with your feet. Don’t be a victim and whine all the time.
RE: “Maybe that’s your requirement, but it isn’t based in reality. Approx. 95% of the manufacturing base of the US, plus agriculture, oil, telecom, etc use some level of subsidy to their advantage. The Elizabeth Warren’s of the world would take it a step further and say that any business with access to roads and utilities is “subsidized” by the 99%.”
You want to move the goal posts on the definition of the word “thrive.” Yes, there are different levels of subsidy out there. TESLA hasn’t made any money even WITH the subsidies. I suggest you wait until they do before using the word “thrive.” Then no one will take issue with you.
RE: “As far as factory stores… There are a couple of dealers that could be thought of as factory stores, and I would work for them.”
Well, you might if they would hire you. And you might until they close. They have a consistent record.
RE: “You virtually have to be made of money to own a front line dealership…”
No you don’t.
RE: “I just read that a well respected Volkswagen Dealer in Western Connecticut is going under. Customers who purchased vehicles from this dealer love the dealer… unfortunately, the product is CACA…”
That’s probably why they went broke. But why don’t you buy it, sell the new vehicle you say a crap for cost to make everyone happy, and make your money selling used cars? Show us how its done. Hell, it must be easy.
RE: “Ruggles… I’m sorry, but the MSRP is pure bull****, and with the dealers getting back the holdback, and target achievement money, and other compensation, the vehicles should really be sold for a lot less than they do…”
So don’t pay MSRP. Bargain. Negotiate. But for Christ sakes, stop whining about. You can’t have it both ways unless you get price fixing cleared with the FTC. Dealers will be glad to fix price like Tesla has.
How much would YOU have to make to sell a new car? Sounds like all you’d have to do to be successful as a dealer is to give consumers what they want, right? Just undercut other dealer’s price and bask in the glow of happy buyers. So how much? Let’s see you demonstrate your business acumen.
RE: “Getting as far as it has, without a profit (yet), makes Tesla great.”
Commendable? Yes. Great? Too soon.
From the CT site: “We don’t understand why Elon Musk wants to introduce legislation that would circumvent the auto laws and rules that we all follow, particularly since this past week Musk said at the Automotive News World Congress he is open to working with franchise dealers.”
First, I find the page repugnant and stupid. Their association’s point is that Tesla is trying to gain a new set of rules just for itself while legacy dealers still have to abide by the current statutes. For example, most states won’t permit new vehicle sales without accompanying service facilities. In many states there is a lift requirement based on expected volume.
Having said that it is extremely poor form to say, “Ct. dealers want to sell Tesla” then to post every negative headline they could fine. While I believe the current system is not going away any time soon there are many dealer practices I abhor. But I know consumers can vote with their feet and I always hope the market will teach poor dealers a lesson.
NADA and the dealer associations just need to STFU. Someone must have spooked these guys into think Tesla is some kind of boogie man. The boogie man to fear might be some Chinese OEM trying to sell direct without following state law, which I repeat, exists largely to help consumers NOT protect dealers. Legacy dealers are protected from having to compete with their own OEMs by the OEMs own sales contracts.
However, I repeat. I know VERY FEW dealers concerned about Tesla. The noise is being made by association staff who are trying to justify their existence and don’t understand that legacy dealers are already protected from having their OEMs try to circumvent them. Further, why would an auto OEM even want to?
RE: “Wait, you’re the one who keeps insisting the franchise system is the only way to go, and OEMs couldn’t sell their own cars with both hands and a flashlight.”
Well, the auto OEMS have proven that consistently.
RE: “If you’re correct, how is that going to be any different for Chinese OEMs?”
Idiots can make something “work” if they “dump” the product? AND if the Chinese government is involved, anything is possible. I’m personally not worried about it but there is considerable potential for chaos. Ford had deep pockets but bailed out of their Ford Collection experiment after losing hundreds of millions of dollars. But Fords pockets aren’t as deep as the government of China.
RE: As soon as they arrived onshore, (according to your beliefs) they’d be racing to the franchise system as fast as their legs could carry them. It would be in their own self-interest.”
That’s why I’m not particularly concerned about it. Some dealers are.
RE: “U.S. car dealers don’t want to be in the position of competing with a foreign government or a foreign company subsidized by a foreign government.
You mean as opposed to domestic companies bailed out by our own government? And I actually favored the bailouts, but c’mon.”
Yes, exactly. There was great concern that had GM and Chrysler gone down, they would have taken North American auto production along with them, including a Ford BK. And who would have been available with cash to buy up the pieces for a song? There was no credit available. There was no liquidity. It was tied up in mortgage backed securities.
RE: “Further, state franchise laws are also in place to protect consumers. It might be something as simple as forbidding a car dealer from selling off of grass or gravel, or demanding that all sales records be kept on premises for ease of audit. Okay, you’ve made some good points here and there on TTAC, but this is ridiculous. You can’t have those same laws apply to direct factory stores? Fine, don’t let OEMs sell on grass or gravel. And here in 2015, I’m sure OEMs can set up to give you any records you want from their electronic sales databases, anywhere, anytime.”
So work that out with the state governments. They regulate the hell out of car dealers, as well they should. Do you think working that out will cause legacy auto OEMs to sell direct, circumventing their own dealer/partners and their sales contracts?
RE: “The LAST thing for dealers to worry about is their own OEM undermining them by circumventing them selling direct. Well, if you’re right, and the franchise system is the end-all, be-all, only way to sell cars, the dealers wouldn’t have to worry for long.”
Dealers don’t have to worry now. But it makes no difference what I think. The OEMs like the current system. They started it in the first place. The FTC likes it. The work to preserve it. Dealers who price fix aren’t treated well when the FTC sics the DOJ on them. BUT give an OEM a monopoly on their own product and they allow price fixing. That’s how Saturn did it. How well did that work for them?
THERE IS NO DOUBT THAT ALL OF THESE OTHER WAYS TO SELL VEHICLES TO CONSUMERS WILL BE SUCCESSFUL WITH SOME. BUT NOT IN ENOUGH NUMBERS TO BE VIABLE.
That said, I’m going to bed. It will be a long day at Caesars Palace tomorrow.
This is what I don’t understand about your arguments: if the direct sales model is not economically viable as you insist, why do car dealers need special laws to force it to be used? We are supposed to live in a capitalist society where the market decides what the best distribution model is, not the government. If it’s so economically inconceivable for all the reasons that you give that Ford would sell all or even any cars using direct sales, why do the dealers need special laws making it illegal to do so?
Sure we need consumer protections to some extent. You can’t sell something that costs $30,000+ without having a way to service it. You have to keep records so the government can collect sales tax. But some of these rules aren’t really consumer protection at all, they are just ways to raise the cost of market entry and protect existing dealers. Does EVERY dealership need a service department? In other industries, manufacturers contract with an authorized service center which might be independently owned. What if the manufacturer brought you a loaner and came with a flatbed? What do you care where they take it after that?
The feeling that I get from you is that the distribution model we have now is the one that was decreed by God and Henry Ford and has always existed and WILL always exist from now until eternity in exactly the way it exists now. It’s IMPOSSIBLE to change it or improve on it. Maybe so, but ask Sears or Radio Shack or Circuit City whether there is anything permanent in this world.
And to expand upon this, Tesla is not asking to be excluded from the laws governing dealer franchising because of some special favors, it’s asking to be excluded BECAUSE IT DOESN’T HAVE ANY EXISTING FRANCHISEES. It would be perfectly fine for most consumers if the courts said “yes, the original laws were to prevent manufacturers competing with their franchised dealers, so either you can have franchised dealers, or you can have manufacturer stores, but not both. If you don’t have existing franchisees, have a blast with your factory stores.”
The fact that the NADA is fighting this tooth and nail as the nose of the camel in the tent, WHILE AT THE SAME TIME telling us that the franchiser model is the best for consumers is laughable. Either it’s best, or it needs legal protection. Don’t tell me that Tesla can’t pull it off because it isn’t the best way but they shouldn’t even be allowed to try to protect dealers because the argument is contradictory and absurd.
The question of the day should be .” What is behind Derek’s obsession with Tesla?”
I like Tesla, to to get right to it, I root for them for the simple reason that I want to see them to continue to fight the dealer structure. Just makes me like Tesla more and more.
RE: “Simple question Ruggles. Why does it matter if Tesla sells its cars direct or not? You might have answered this before but I missed it.”
Sorry to be so tardy with this answer. It must have gotten lost in the maelstrom. In my world I don’t care one way or another if Tesla sells direct as long as they have to abide by the same rules other dealers also have to live up to. For example, if state law requires a new auto retailer to have an address to maintain records, to maintain a service facility with a certain number of lifts, or that auto retailers maintain a showroom WITH service facility, Tesla should have to abide by that or the states should change the law for ALL dealers. Of course, when they do that they might open the door to the next round of newcomer OEMs who like Toyota and Datsun signed anyone with a gas station who could afford a couple of cars, a few parts, and a sign. Certainly it isn’t Tesla’s intention to do something like that but everyone should play by the same set of rules. I do see that an exception for Tesla has been made in NJ, but capped at a certain number of showrooms. I have no problem with that. I’d prefer to see their business model succeed or fail on its own.
However, there won’t be any changes in the traditional auto OEMs and their dealers. The sales agreements are already in place. Those OEMs don’t have the money to buy out the dealers. They are too smart to even want to. While there are already many laws already in place about “illegal competition” I have no problem with any laws that prohibit an OEM of any kind from scamming business people by agreeing to a deal to entice that business person to make a substantial investment that also benefits the OEM, then having that OEM back stab and circumvent that same business person. Based on some of the stupid things legacy auto OEMs have done, I’m sure some protections make dealers sleep better at night….. think Jacque Nasser, Cerberus, Rick Wagner, and Roger Smith.
And for anyone who wants to show dealers how it should be done, there is always the opportunity to put one’s money where one’s mouth is and go beyond idle theory.
There is supposed to be “ground breaking” research released at a conference in NYC in a couple of weeks. It is supposed to show what auto buying consumers REALLY want. Instead of going to the people who deal with consumers every day, the research company interviewed buyers BEFORE they visited showrooms as well as after the transaction. In fact, they went TO the dealership with the consumers, although they weren’t a part of the deal in any way. This is supposed to PROVE what consumers really want.
There are a lot of bad practices in auto dealerships, primarily due to lazy dealers trying to manage their stores with pay plans alone. Mostly, the bad practices are poor execution of decent approaches. These sub standard dealers should be punished by consumers voting with their feet. If you aren’t happy with what you are getting, WALK!
Having said this, there are many things that upset consumers with dealerships that aren’t valid. For example, a consumer with aces credit goes into the dealership. They have $8500 negative equity in their trade and no cash. Their DTI is edgy, but credit is “735.” They want to buy the hot new model that just came out. Low supply, high demand equals no discounts. No rebates. No trunk money. Customer is told they CAN buy, just not the vehicle they want without substantial cash. This is controlled by lenders, NOT the dealer. But the dealer has to relay the message in most cases. Consumer takes delivery, but has a bad taste and scorches the dealer on the CSI survey.
Another example: Consumers today have MORE information but KNOW less than in previous decades. Gen Y customer comes in having done all sorts of research but not having the ability to properly interpret that info. Customer expectations aren’t met. Consumer gets cranky. Dealership wins the argument but loses the sale to another dealer who says the same thing but didn’t have to argue with the customer because the issue was resolved at the previous dealership.
Another example: On a really busy day consumer has to sign a mountain of papers in the business office. These papers are largely the result of regulation and are disclaimers and disclosures that everyone should read all the way through. But few do. Consumer is paying cash, or so they think. OR they have pre-approval from their CU. All they want to do is to pay and go but the dealership forces them to sign the disclosure docs on their trade in. How unreasonable, having to swear to the mileage and body damage disclosures. They are forced to sign all of the title and sales tax docs as required by the state authorities. They are forced to sign a bunch of “turn down” forms that keep dealers out of court. For example, if a consumer isn’t offered credit life, and something happens to the borrower, a spouse or dependent could sue the dealership. The dealer had better have a turn down form in the file showing it was offered. Same with service contracts. If a dealer offers it, he/she had better offer it to everyone.
Some of the stuff that goes on in dealerships is reprehensible. Some of the stuff consumers do is also. I can’t tell you the times a consumer brings the trade to the dealership without the same tires, battery, or sounds system it had when appraised. Its impossible to count the times buyer trades are grossly misrepresented. This happens less now thanks to Carfax. Yes, dealers use it to protect themselves. I can’t tell you how may times consumers will try to pass of defective vehicles on dealers. Carmax is a target now as many people sell their cars outright to them. Leaky head gaskets, cracked heads, cracked blocks, etc. are often passed of to Carmax.
If you want an easy transaction, shop until you find a dealer who will give that to you. Don’t be a prick. But walk if you have to. If your credit is in order and you don’t have negative equity, it will be a lot easier to do business. If you fall into that category you might be part of the 20% who can get in and out quickly. HOWEVER, those people USUALLY are the ones who are the toughest negotiators on dealers. They mostly know they have good credit and trade equity. And they grind and grind. Its everyone else who wants the quick deal. And they are least equipped to get it.
RE: “If dealers of a particular make got together to fix prices you would all pay the same margin” – That’s precisely what many people want, and it wouldn’t be price fixing it would be the franchiser stipulating the price franchisees can sell their product for, happens all of the time in other industries and certainly doesn’t lead to a lack of competition or higher prices, otherwise McDonalds would be selling Bic Macs for $15.”
Tell that to the FTC. They disagree and they rule.
RE: “What’s so difficult about haggling?” – Besides the fact that many people don’t enjoy it? And the fact that women especially feel that they are being taken advantage of and they have no position of strength at all? Besides the fact that people have come to me in the past to have me help them with the dealer because they consider the event so stressful and frustrating? That most people feel that they are at a disadvantage negotiating with a car salesman? That many people I know would rather go to CarMax just to avoid the whole idea of negotiating with a car salesman? It is an incredibly difficult situation for many people.”
Being an adult is a bitch!
Vote with your vote GO to Carmax if that’s what pleases you.
RE: “Ruggles…seriously, you seem overly defensive on this topic. You MUST be in the business somehow, beacuse I see no other reason for the 50 posts on this thread.”
Yup, the topic interests me and I need the practice. I’m trying to cool NADA and the dealer associatins for their stupidity while still being mindful of the facts. I am defensive of the facts. I’m fine with Tesla selling direct within certain constraints. I’d be fine with the dealer associations and NADA just STFU. But its just stupid to think legacy OEMs are going to try to sell direct. I say, “Let ’em go for it, if that’s what they want to do.” It will end badly.
RE: “You know, if you would just reply to posts instead of starting a new post and adding multiple “RE”s followed by single line quotes, it would be far easier to actually follow the conversation. It’s like talking to someone that randomly changes topics on you.”
No shit. You ought to try to find the post you’re trying to respond to. I don’t have time for that after a point. Feel free not to read anything I write.
With regards to the original request.
Mr. Kreindler didn’t ask about Elon Musk. So set aside whatever feelings you have about him. After all when we talk about Mustangs no one brings up the CEO of Ford. Yes Mr. Musk is polarizing to a lot of people in many industries. So is Gates, Ellison, Brin and Jobs. Get past that.
Derek didn’t ask about the cars either.
So what is so great about Tesla? Not their sales model surprisingly. Yes I like their sales model. Control the experience of the customer from the time they walk in the door until they take delivery. Every good business understands that concept. Yes the dealer network model has its pros, if enjoy or are willing to play their game. Many people want to buy a car the same way they buy a TV or toaster. No haggles. Up front and clear cut prices. There’s is nothing inherently wrong with either method. Remember this though, if the Tesla’s direct sales model isn’t where the industry may be headed, why are dealers fighting against it so hard? What Tesla is doing best is showing a stodgy industry that everything can be done better.
Electric cars are not feasible! I believe the Big 3 said basically the same thing about small, 4 cylinder economy cars in the ’60’s and ’70’s. We all know how that worked out for them. Tesla set out to prove there was a market for the product and are succeeding. They are proving that electric cars, with our current level of battery technology work for some consumers. They aren’t right for you? Great, there are plenty of ICE cars to pick from. Say what you will, they are taking a risk and sometimes that is what’s needed.
Maintenance on a car is expensive and time consuming! Take your car to the dealer(each dealer seems to have their own maintenance “schedule”, hmmm) and see how long software updates take to perform. Yay. Wait with a Tesla they push them over a 3G network. As if by magic you wake up in the morning and your car is better than the day before. I’ll take some of that thank you. Oh wait, no other manufacturer offers such a thing. Yes at some point you will need the hardware maintained. They have service centers. Granted not many right now but neither did ICE cars when they first started either. Also Tesla offers pre-paid service plans. The services includes brake pads and wipers too! Who else can say that? And they come to your house, pick up the car and give you a loaner. Win!
Yep it’s all about the batteries. That’s not a bad thing by the way. Look around at how many devices we now have in our lives that use a rechargeable battery. Compare that to 20 or even 10 years ago. It’s astonishing how fast these things have crept into out lives. For crying out loud even my paintball marker in 2002 had a rechargeable battery! Tesla is pushing the bounds of battery tech and this will improve every phone, tablet, camera, game controller and yes even ICE car batteries. Tesla doesn’t have a choice. It’s the heart and soul of their product. For them every incremental improvement either in the hardware or software of their cars can be likened to what fuel injection, turbo charging, and aluminum engines have done for MPG ratings is ICE cars. Even if Tesla goes under we will reap the benefits of the R&E in this field.
Look here’s the thing, love Tesla, hate them whatever. They are doing things that no other car company is doing. Or willing to do at this point. I can’t tell you if they will be around forever or not. But I know this, when a newcomer in any industry meets resistance from the old guard, you can bet the industry will change. And it always benefits consumers.
I really like it that ruggle is on here with his pov. We’re getting more in depth on both sides of this issue than we would have otherwise.
Thank you. What you’ll get from me is the unvarnished truth. A current dealer is never going to come out and say some of the things I’ll say. But then I don’t do that any more. I respect what they do. I castigate them when they screw up. Loudly. I deplore some of the things they do. Consumers hate certain results while I hate the root cause AND the poor results. I have no problem ratting out dealers I see breaking the law. I tend to be an advocate for the business by criticizing the bad actors. But I also understand the psychology of negotiating price on big ticket items with complicated trade and finance issues. Some dealers handle the negotiation thing artfully. Others are just incompetent. Whether anyone likes it or not, a “good deal” is a state of mind. And some have to pay more so some can pay less. That’s just the facts of life. Decide which you want to be, put on your big boy pants, and go out and make a business deal. Or stay on the porch and whine. I don’t really care. After all, I’m not doing that any more.
“But then I don’t do that any more.”
Oh? If I may be so inquisitive… what do you do now? Did you retire from your previous line of work?
RE: “And to expand upon this, Tesla is not asking to be excluded from the laws governing dealer franchising because of some special favors, it’s asking to be excluded BECAUSE IT DOESN’T HAVE ANY EXISTING FRANCHISEES.”
What Tesla is asking for varies from state to state. It isn’t exemptd from laws covering businesses that that sell new vehicles because it is also an OEM and doesn’t have franchised dealers. There are a variety of laws on which Tesla has run aground. It isn’t the same from state to state. The issues aren’t the same. In most states they haven’t had any problems. To characterize all issues as being the same, that dealers are fighting Tesla isn’t correct. In some cases they are. In some states Tesla had no problems. In other states Tesla has tried to circumvent the law. One example is in states where to sell new vehicles you have to also have service facilities with a certain number of bays and/or lifts. Your statement might be correct in some states. In certainly is NOT in most states.
RE: “It would be perfectly fine for most consumers if the courts said “yes, the original laws were to prevent manufacturers competing with their franchised dealers, so either you can have franchised dealers, or you can have manufacturer stores, but not both.”
I have it on good authority that you don’t speak for all consumers. They certainly don’t all think the same. Having said that, my personal opinion is that if Tesla agrees to ONLY sell direct, AND complies with other state measures applied to all car dealers, they should be allowed to do what they do without opposition from anyone. And dealer associations, largely run by people trying to justify their existence, should just STFU.
RE: “If you don’t have existing franchisees, have a blast with your factory stores.”
ABSOLUTELY!!!! As long as everything else that other dealers are required to do is complied with.
RE: “The fact that the NADA is fighting this tooth and nail as the nose of the camel in the tent, WHILE AT THE SAME TIME telling us that the franchiser model is the best for consumers is laughable. Either it’s best, or it needs legal protection. Don’t tell me that Tesla can’t pull it off because it isn’t the best way but they shouldn’t even be allowed to try to protect dealers because the argument is contradictory and absurd.”
I find it personally embarrassing that they won’t shut up about it. What difference does it make if the franchise model is best or not? I happen to think that it is. But that should be Tesla’s choice to make as long as they comply with all the other rules so that the playing field is level. Where it might get interesting is if Tesla builds out more retail points and needs to sell them off. They would need to sell them all to one buyer OR go through a period with factory stores competing against privately owned stores. As previously discussed, this can be done as it is in Japan and Europe. But consumers won’t like it because the deal will be the same at the factory stores while it might be possible to get a better deal at a privately owned store. Once there is more supply than demand, the whole “everybody pays the same” model goes out the window.
RE: “This is what I don’t understand about your arguments: if the direct sales model is not economically viable as you insist, why do car dealers need special laws to force it to be used?”
You might notice that Tesla is already in business in many states. Don’t try to paint them all with the same brush. Obviously, car dealers don’t need special laws to force the franchise system to be used in those states. The sales agreements initiated by the legacy OEMs already take care of that. There might be some state laws that reinforce those agreements but those agreements, initiated by the OEMs, came first. You confuse state laws to protect consumers with dealer lobbying group laws protecting dealers from their own OEMs, AND laws that keep the playing field level. You need to understand the difference and not assume every state law came about as a consequence of dealer lobbying efforts. Many times dealers lobby AGAINST some of these laws, and lose.
RE: “We are supposed to live in a capitalist society where the market decides what the best distribution model is, not the government.”
Sounds great doesn’t it. Capitalism doesn’t work without a little socialism (regulation) to keep it from collapsing under its own weight. Capitalism depends on contract law for it to function. It seems you’ve missed the entire point.
RE: “If it’s so economically inconceivable for all the reasons that you give that Ford would sell all or even any cars using direct sales, why do the dealers need special laws making it illegal to do so?”
I repeat, Ford’s Sales and Service agreements already spell out who can do what. Why are you so insistent that there are laws to force OEMS into a franchise system they decided on themselves? Ford, in particular, has already tried to LEGALLY sell cars direct from company owned stores and lost hundreds of millions in the attempt. What they didn’t try to do was to sell into private dealer’s sales territory via the Internet. That would be against the law. A dealer’s Sales and Service Agreement with the OEM specifies a specific market area, or area of responsibility. And dealers agree to a certain MSR (Minimum Sales Responsibility) usually tied to national averages, with a few variables. For example, a Ford dealer in Tonawanda NY isn’t expected to penetrate the market compared to GM like the rest of the country because the largest GM engine plant in the world is up there and half the population works for GM.
RE: “Sure we need consumer protections to some extent.
Creeping socialism.
RE: “You can’t sell something that costs $30,000+ without having a way to service it. You have to keep records so the government can collect sales tax. But some of these rules aren’t really consumer protection at all, they are just ways to raise the cost of market entry and protect existing dealers. Does EVERY dealership need a service department?”
Most states think they do.
In other industries, manufacturers contract with an authorized service center which might be independently owned. What if the manufacturer brought you a loaner and came with a flatbed? What do you care where they take it after that?”
A vehicle is different from a toaster oven or electronic gadget.
RE: “The feeling that I get from you is that the distribution model we have now is the one that was decreed by God and Henry Ford and has always existed and WILL always exist from now until eternity in exactly the way it exists now.”
Henry Ford is one of the biggest reasons state franchise laws exist. Ford had no compunction about partnering with people, resenting the hell out of them afterwards, and trying to bully them and take advantage of them in many ways. You should read up on old Henry and his investors and partner dealers. Fact is, the relationship and its associated statutes has evolved over the years.
RE: “It’s IMPOSSIBLE to change it or improve on it.”
Results vary from state to state. I’ve seen laws change for the worse as well for the better.
RE: “Maybe so, but ask Sears or Radio Shack or Circuit City whether there is anything permanent in this world.”
And if auto dealers are gone, you can gleefully piss on their graves. But you might want to wait for them to die first. In the meantime, I’d like to see Tesla allowed their own great experiment, within parameters that don’t give them an unfair advantage over other dealers, just as I was thrilled to see Saturn try theirs, PriceLine try theirs, Green Light theirs, Ford theirs, etc. etc. etc.
RE: “You are right and wrong in turns here. Dealers do benefit manufacturers and are here to stay. Otoh dealer franchise laws serve to protect poorly performing dealers or dealers with deep disagreements with manufacturer policy from manufacturer competition.”
Your definition of “poor performing” might be different from others’. There has to be an objective way to measure performance when you’re talking about someone’s major investment. It can’t just be whimsical or you’ll get laughed out of court.
RE: “Neither direct to consumer or third party franchise is inherently more beneficial to consumers, the difference lies in the execution.”
One is easier to execute than the other.
RE: “Do away with forced franchising and the brands will immediately move on their worst business partners.”
What do you mean “forced franchising?” Are you trying to say OEMs are forced to franchise? Have you studied the history of this. They weren’t forced. They seized an opportunity and have taken advantage of local dealer’s capital and expertise. This was never forced on them. Even Tesla hasn’t been forced to franchise. Look how many retail points they have with no franchised dealers.
RE: “Other dealers would quickly improve.” Improve, how? What are your objective standards? What are the OEMs? The objective standards applied by the legacy OEMs include MSR, CSI, Image (facility) and service capability (special tools, equipment, parts inventory, AND financial strength. They have no use for dealers who make their customers happy while losing market share and going broke doing it. That’s how most rookies run car stores. They sell the easy customers, make very little money doing it, over appraise the trades to keep the customers happy and to make skinny deals, and do a poor job of getting paid for service and parts.
RE: Any brand would love to sell direct in markets where dealers are underperforming or not toeing the line as a group.”
Define under performing and not toeing the line. The OEMs know how inept they are at retail. In the case of true “under performing” dealerships they try to find a performing operator to but it out. The LAST thing OEMs want is to retail vehicle themselves.
RE: “It’s all about self preservation of the individual. Imagine how badly a brand could savage a cities dealer network with their own store. Price, experience and visual appeal could all be massively improved and once the dealers have been brought to heel, they’d sell their flagship to a large franchise network with a robust agreement/understanding on how to conduct future business. That’s my take at least.”
Sales and Service agreements already exist. A company store, selling to retail consumers for less than they sell vehicle wholesale to their dealers will find them drug into court in a heartbeat. In this business OEMs aren’t allowed to undersell their dealers direct to consumers, and that’s exactly what the Sales and Service agreements deal with. If an OEM had a history like that, how would they find business people to invest in their dealerships? There is competition among OEMs for the best dealers. And the best dealers by an OEMs measure are probably different from your own measure.
@ HDC – RE: “Oh? If I may be so inquisitive… what do you do now? Did you retire from your previous line of work?”
I made a conscious decision about 20 years ago to never again invest personal money in a new car store. If someone gave me one today, I’d have it sold tomorrow. But I do consulting work for dealers and the auto finance trade as well as write columns for trade pubs, moderate panels at conferences, sit on panels at industry conference, pet my cats, and travel around with my wife. In my spare time I sometimes function as “click bait.” :) Its like moot court for me. So when I’m in front of a live audience, as I occasionally am, I’m not having the discussion for the first time, or the second, or the third.
After I began my regular gig in Japan, I was able to pursue things that interested me as opposed to having to pursue things that made the most amount of money.
BTW, how’s my buddy for whom Clint Eastwood once baby sat?
” I do consulting work for dealers and the auto finance trade as well as write columns for trade pubs, moderate panels at conferences, sit on panels at industry conference, pet my cats, and travel around with my wife.”
Oh, so THAT hasn’t changed. I misread your comment and left with the misunderstanding that you had abandoned your current line of work, as outlined in LinkedIn. Glad to see you didn’t. You’re one of the few affiliated with the industry that I would seek counsel from, as others have.
And you’re still doing the “live audience” gig. That’s great!
You have been a welcome addition to the comment section at ttac, and it is truly refreshing to know that someone such as you, with a wealth of knowledge and research in his automotive portfolio, is willing to take the time to enlighten some of the heavy-breathing google and wiki-edified know-it-alls who tell us the total sum of their knowledge in 25 words or less, on any subject.
I’m fine, but cutting back on my forays to industry-related sites like ttac, automotivenews, autodigest, WSJ-auto et al. No need for it any more. No longer in the bid’ness.
Several of the other guys we both know are no longer visiting ttac and other automotive sites. I haven’t seen their screen names in a coon’s age. I miss them. We all went back a long, long time.
Keep up the good work! People appreciate your input.
TYVM. Some do. It seems some don’t. But I’m good with that. I appreciate the opportunity to exercise. It would be boring if everyone agreed. In the business world we used to say, if two of us agree on everything, one of us is probably unnecessary.
When I said, “I don’t do that any more,” I was referring to the fact that I haven’t owned or run any retail automotive stores since 1992. I have been in the trenches with dealers, sales people, lessors, and business managers on a daily basis since.
R$E: “Many people want to buy a car the same way they buy a TV or toaster.”
This is a fact. But there aren’t enough of them to make the business model viable. Dealers who attempt this model find that consumers take their posted price to a competitive dealership and use it to but from the competitor. Hence, consumers kill what they say they want. Go figure.
RE: “No haggles. Up front and clear cut prices. There’s is nothing inherently wrong with either method.”
Except one works and the other doesn’t.