Car dealers are awful. It's time to kill the dumb laws that keep them in business.

[dsm363]

I'm confused. I'm no fan of car dealers, but exactly how will eliminating dealers eliminate excess inventory? The dealers don't create excess inventory, the manufacturers do (and consumers who expect to walk in and buy the exact car they want). Even if the manufacturers owned all of retail outlets, the excess cars they build would still have to sit somewhere, and would still cost money.

If they went to more of a build to order model it would. It would likely be a hybrid system with some cars there on the 'lot' ready to go but custom cars would be ready in weeks. People aren't used to that model though.

 

[Rarity]

I also hate dealing with the traditional car dealer, and salemen in general. However that being said they do serve a valuable function. They provide the capital to allow for a large network of sales and service location. Thats something that hurts Tesla, particularly with their refusal to let anyone but them work on the cars.

I suspect that Tesla can obtain capital at better rates than almost all of the dealerships.

 

[TexasEV]

It's easy to rag on dealerships for creating additional costs related to purchasing a vehicle and the generally poor experience people have. In fact, I agree. But the idea that there will be some massive reduction in prices to consumers as a result of a direct sale model is absurd. Companies will protect their distribution channels. I simply can not walk up to a company and get the wholesale price on a product even though I'm buying direct. Electronics, for example, are sold through a variety of "dealers" which make a profit selling that product. But although I can buy direct from the manufacturer, I can't do so for any less than I can from a big box retailer. In fact, sometimes it can be more expensive to buy from the manufacturer.

U.S. Department of Justice study found that state laws prohibiting car manufacturers to sell directly to the public raises car prices about 8%. This report has been cited here many times and is used by Tesla when this issue comes up in various states:
http://www.justice.gov/atr/economic-effects-state-bans-direct-manufacturer-sales-car-buyers

 

[liuping]

I don't think Tesla store managers are compensated on volume.

I know they get bonuses if they meet certain sales numbers be quarter's end, but I don't know any more details than that.

 

[FlatSix911]

Kind of ironic that the lead photo in the story shows a Clean Turbo Diesel ... :wink:

 

[tezzla]

Wait, are you sure dealers are bad? Has Bob Lutz seen this report? I don't think he's ever been wrong!

 

[S'toon]

How much do people hate car dealers? They'd rather give up sex and do their taxes than buy a new car through a dealer.
http://www.autoblog.com/2014/06/03/americans-hate-car-shopping-so-rather-give-up-sex-do-taxes/

 

[physicsfita]

The only way I see Tesla getting in to Michigan (where they are completely locked out) is either by playing ball with the dealers or somehow finding a winnable legal angle in federal court. I don't think it's a stretch to say that customers hate the dealers, but I'm having a very hard time imagining that they would ever organize to the extent that they could exceed the dealers' campaign contributions. The dealers stand to lose millions -- the average customer stands to lose hundreds. This isn't going to motivate a customer to give a $10k or so contribution to get legislation changed so s/he could save a few hundred bucks on a car purchase. The dealers, on the other hand, are perfectly happy to drop a few grand to save millions.

On second thought, Tesla does use a lot of Michigan suppliers. If they get to Big 3 size (which the dealers will make sure they won't), they might be able to swing their weight around with the legislature.

 

[wdolson]

My father discovered back in the 50s that if you don't want to deal with sales people at car dealers, ask for the fleet manager. They give you a flat price with no negotiation and you can order directly from the factory. My family has bought their cars that way ever since.

However, I have had some dealings with car sales people here and there. They do try to push you into what's on the lot. Apparently it's effective. I read many years ago that some very high percentage of car sales are impulse purchases. I did find this article which says 69% of car buyers regret their purchase. Personally I find that alien, when I make a major purchase, it's like planning the invasion of Normandy. I take my time and make sure I'm making the best decision possible.

http://press.autotrader.com/2014-11...pers-Surveyed-Have-Experienced-Buyers-Remorse

 

[autodidaddict]

... when I make a major purchase, it's like planning the invasion of Normandy. I take my time and make sure I'm making the best decision possible...

And I thought I was the only one. I'm awaiting delivery of my Model S, but I've been planning, scheming, running the numbers, and getting reviews from the Internet and friends for years before I finally pulled the trigger. I will spreadsheet the hell out of any major purchase, especially one that I'll have to live with for as long as a Tesla.

 

[JohnQ]

U.S. Department of Justice study found that state laws prohibiting car manufacturers to sell directly to the public raises car prices about 8%. This report has been cited here many times and is used by Tesla when this issue comes up in various states:
http://www.justice.gov/atr/economic-effects-state-bans-direct-manufacturer-sales-car-buyers

And yet manufacturers can do much (not all) of this right now. Why don't they? It's not because of dealership laws. The key savings identified on a $26,000 car were:

• $832 from improvements in matching supply to demand
• $575 from lower inventory
• $387 from fewer dealerships
• $381 from lower sales commissions
• $50 from lower shipping costs ... fewer dealers, fewer distribution points

Manufacturers can move to an online ordering system that will control inventory and "match" supply and demand. And they can do so right now. Of course they have to have labor contracts that allow them to slow down production while not paying for idle workers. So, they have to have an order backlog resulting in wait times for delivery to which consumers will have to adapt.

Fewer dealerships is a problem as there are contractual obligations and lawsuits to contend with ... that impacts items 3 and 5.

Sales commissions? Eliminate spiffs and incentives to the dealership, then publish the actual vehicle cost to the dealer and consumers will have the information to drive a great deal. Sales commissions eventually go down because the sale is on customer service and support rather than "best price."

So, approximately 80% of these savings are available today. Why don't the manufacturers take advantage of them? They could pad their profit by not passing all of them along to the consumer so you'd think they'd do so.

 

[jaguar36]

So, approximately 80% of these savings are available today. Why don't the manufacturers take advantage of them? They could pad their profit by not passing all of them along to the consumer so you'd think they'd do so.

Because those savings don't look at the complete picture. The cost of lost sales because Joe Consumer doesn't want to wait months to get his car. The cost of missed profits because the salesman convinced Joe Consumer to get the one on the lot with $10k more in options. The cost of less sales because despite consumers hating them, the hard sell tactics of conventional dealers end up making more money. The cost of lost sales because Joe Consumer doesn't want to drive 80 miles to go visit a Ford dealer when there is a Chevy dealer right here.

 

[JohnQ]

Because those savings don't look at the complete picture. The cost of lost sales because Joe Consumer doesn't want to wait months to get his car. The cost of missed profits because the salesman convinced Joe Consumer to get the one on the lot with $10k more in options. The cost of less sales because despite consumers hating them, the hard sell tactics of conventional dealers end up making more money. The cost of lost sales because Joe Consumer doesn't want to drive 80 miles to go visit a Ford dealer when there is a Chevy dealer right here.

yes, the answer to my rhetorical question

 

[electracity]

So, approximately 80% of these savings are available today. Why don't the manufacturers take advantage of them? They could pad their profit by not passing all of them along to the consumer so you'd think they'd do so.

Obviously lack of internet access. If they only had this knowledge, eh?

I don't know what business you are in. But whatever it is, I'm sure you find novice "experts" with little experience in your field tiresome.

In some states, laws protecting dealers are undemocratic and monopolistic. The rest of what you are complaining about is the result of a free market. The market is not obliged to organize to give you the very best deal. You can't have the model S AND some sort of centrally controlled economy that is designed to maximize efficiency. If you want the Soviet Union, you get iron curtain cars.

 

[JohnQ]

Obviously lack of internet access. If they only had this knowledge, eh?

I don't know what business you are in. But whatever it is, I'm sure you find novice "experts" with little experience in your field tiresome.

In some states, laws protecting dealers are undemocratic and monopolistic. The rest of what you are complaining about is the result of a free market. The market is not obliged to organize to give you the very best deal. You can't have the model S AND some sort of centrally controlled economy that is designed to maximize efficiency. If you want the Soviet Union, you get iron curtain cars.

My post was in response to a prior post listing the DOJ study that references a Goldman Sachs study from 2000. The numbers listed in my post come from the GS study.

To be clear, I do not believe that 8% of a car's cost will magically go into consumers' pockets. In fact, my point is that if it were that simple, manufacturers would be doing it now (and keeping some of that profit). And it's not that simple for a large number of reasons including some of those you outlined. Evidently my sarcasm did not come through in the final two questions of my post.

 

[jvonbokel]

And I thought I was the only one. I'm awaiting delivery of my Model S, but I've been planning, scheming, running the numbers, and getting reviews from the Internet and friends for years before I finally pulled the trigger. I will spreadsheet the hell out of any major purchase, especially one that I'll have to live with for as long as a Tesla.

+1 for "I will spreadsheet the hell out of any major purchase"

I still have the spreadsheet I made back in mid-2012 when I was debating whether to put down a deposit on my Model S. The "gas savings" didn't pan out how I'd projected*, but I couldn't care less.

*At the time, gas prices in my area were $3.50/gal and rising. I figured over the years I'd own my Model S, they'd average $4-5/gal. Ah well, prediction is hard, especially the future.

 

[wdolson]

And I thought I was the only one. I'm awaiting delivery of my Model S, but I've been planning, scheming, running the numbers, and getting reviews from the Internet and friends for years before I finally pulled the trigger. I will spreadsheet the hell out of any major purchase, especially one that I'll have to live with for as long as a Tesla.

My father always did the research thing, though it was mostly pre-spreadsheet and pre-internet. At least when I was living there.

My SO does it with her major purchases too, so she doesn't get on me for researching the heck out of everything. The really frustrating thing is when I make up my mind before I have the money together as is the case with the Model S.

 

[Petra]

+1 for "I will spreadsheet the hell out of any major purchase"

I still have the spreadsheet I made back in mid-2012 when I was debating whether to put down a deposit on my Model S. The "gas savings" didn't pan out how I'd projected*, but I couldn't care less.

My wife and I usually take this approach with everything (right down to accurately modeling annual costs of TOU electricity rate schedules) and certainly took this approach when we leased our Leaf back in 2012 (our projections were mostly right, we saved about $3k over the life of the lease vs. keeping the wife's turbo Jetta (2.0TSI) and selling it right around now). We didn't bother for the Model S, though... we ran numbers to make sure that the purchase wouldn't significantly interfere with anything financially and thoroughly researched the car, but we knew going into this that the Model S was a really dumb purchase from a purely financial standpoint given our use case.

To paraphrase my father in-law: "Buying my airplane was a stupid decision, from a purely financial standpoint... but I can afford it and it makes me happy. Sometimes you just have to make purchases like that. After all, what's the point in budgeting, investing, and building wealth if you can't have fun with it every now and then?"

 

[jvonbokel]

we knew going into this that the Model S was a really dumb purchase from a purely financial standpoint given our use case.

Agreed. I was making a financially "dumb" decision either way, but I cross-shopped a 2012 Mustang GT @ ~$40k vs a 2012 Model S 85 @ ~$80k, and projected that it would take 6-8yrs for the fuel savings to approximately offset the addition upfront cost.

To paraphrase my father in-law: "Buying my airplane was a stupid decision, from a purely financial standpoint... but I can afford it and it makes me happy. Sometimes you just have to make purchases like that. After all, what's the point in budgeting, investing, and building wealth if you can't have fun with it every now and then?"

Your father-in-law sounds like a cool dude.

 

[jaguar36]

Evidently my sarcasm did not come through in the final two questions of my post.

Whoops, sorry I missed that completely!

I also spreadsheet the hell out of any significant decision. Mine even had different scenarios based on future gas/electric prices.

Course I will frequently also do tons of work on a spreadhseet and then ignore the results and just do what I want anyway.