Has it dawned on anyone?

[Jason S]

But the argument that is being used by our competitors is that there is harm by allowing Tesla to implement this model when none of the other competing manufacturers are allowed to adapt in order to compete. It brings harm to everyone else.

WHO isn't allowing competing manufacturer to compete in this way? The dealerships, that's who. So in order to help the other manufacturers escape their now bad business model, Tesla needs to adopt it? Clearly that argument sucks. Next!

And the crux of the issue is that these laws were implemented to protect the dealers from their own manufacturers - so clearly these states do want to protect their dealers, whether they be from their own manufacturers or from a competitor such as Tesla. We can ignore this reality all we want but I think we're only fooling ourselves if we do. We are jumping through a loophole because we know what the intent of the law was (to protect dealerships) but you're suggesting we use a technical argument and ignore what we know is the real intent of that law. I don't think we're going to win if this is the stance we take.

The laws are essentially contracts that have been codified. Tesla decided not to follow that contract, so they should be punished for using a different business model? This isn't a loophole any more than Amazon's business model follows a loophole or Walmart's business model uses a loophole.

Is there a counter-argument to those points?

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This is an excellent and thought-provoking thread (I repeat myself). There has been a good amount of input causing many, including me, to step back and re-examine earlier-held, possibly nonchalantly-thought-out positions.

I have some questions, but little in the way of answers.

1. What are the salient arguments for TM NOT to form dealerships? I am not blindly going to agree that a dealership format would necessarily raise final price by 30%. It very likely would, however, lower TM's profit margin - I can accept that, even if, as a shareholder, I might not love it. That being said, as a shareholder I would dearly prefer holding stock in a company with a 15% margin and 25X sales over one with a 25% profit margin and X sales.

What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

That's a pretty good question. Why not form dealerships?

What benefit would the dealership provide, outside of legal cover? That is, if it turned out that these laws are overturned or it turned out that overturning the laws is cheaper than a network of dealerships, why would one create a dealership network now?

Another question: why did Saturn fail? Is the dealership model incompatible with fixed price?

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Why doesn't Tesla offer to allow a franchise in a difficult state provided:
1) The dealership must be "Tesla only"
2) Wholesale price and internet price will be the same (no change in Tesla's margins by sales method)
Would any dealer agree to these terms?

Question becomes what is in it for the dealer? There would need to be a separate contract between Tesla and that dealer that gives the dealer appropriate legal distance from the manufacture. What is the separation of dealer from service center? Could Tesla just call their service centers dealerships and be legal? Why or why not?

 

[dsm363]

This is an excellent and thought-provoking thread (I repeat myself). There has been a good amount of input causing many, including me, to step back and re-examine earlier-held, possibly nonchalantly-thought-out positions.

I have some questions, but little in the way of answers.

1. What are the salient arguments for TM NOT to form dealerships? I am not blindly going to agree that a dealership format would necessarily raise final price by 30%. It very likely would, however, lower TM's profit margin - I can accept that, even if, as a shareholder, I might not love it. That being said, as a shareholder I would dearly prefer holding stock in a company with a 15% margin and 25X sales over one with a 25% profit margin and X sales.

What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

Elon Musk talked about this during his visit to Texas at the House hearing on the bill that didn't go anywhere. He basically said they would entertain the dealership model if they felt that was the best way to sell their cars but as a startup, he didn't feel Tesla would succeed selling through a dealer network. He asked something to the effect of (paraphrasing here):
When was the last time a startup car company survived using a dealer network? Fisker and Coda are two examples that went that route and it didn't work out for them.

He also pointed out that the dealers would like push their products to the back of the lot. Selling ICEs is easy as both the sales people and the buyer know how they work and they can focus on what cool new features it has, what gas mileage it gets, if the Trucoat options is included...etc. Selling something like an EV requires a sales staff willing to spend time and educate customers about not only Tesla but EVs and why they should be considered. Take a commissioned sales person and ask them "Would you rather sell a car than takes 5 min to explain or one that takes 20 min?" and see which one gets more of their attention. By only selling through their own stores with their own employees, Tesla knows the correct message is being delivered and doesn't have to worry about the sales person saying 'you don't need to worry about EVs as the technology isn't perfected. Why don't we check out the new S class instead?'

 

[woof]

What are the salient arguments for TM NOT to form dealerships?

Three of the "value adds" that dealerships provide the manufacturers are local inventory, local media buys, and local financing, none of which are needed by Tesla at the moment.

The only other product I can think of that some states dictate how it's bought or sold is alcohol, and those laws are legacies of Prohibition.

The big three are Alcohol, Tabacco, and Firearms (thus ATF which regulates those industries) all of which are still under a Stamp Tax, with the stamps themselves strictly regulated, as well as restrictions on to whom the products may be sold. There's also pharmaceuticals (regulated by the FDA) which can only be sold to customers in the US who have written permission from a licensed medical practitioner.

Oh, there's also encryption software, which is considered a "munition" , which may not be exported outside the US without government permission.

 

[AudubonB]

Woof and Texas EV:

There also is medicine - try getting medical service without the provider being accredited by a state approving the person be qualified as a doctor or dentist; law - ditto; hamburger - your joint has to pass Health Inspection; a house - that contractor has to be registered and there is that dratted county Inspector showing up any time Johnny Quickblow swings a hammer.... you can't get a haircut without Ms Sharpshears being certified by her state... it is, in fact, very difficult to find any product or service whereof the state doesn't qualify how it can be sold and by whom.

 

[dsm363]

Woof and Texas EV:

There also is medicine - try getting medical service without the provider being accredited by a state approving the person be qualified as a doctor or dentist; law - ditto; hamburger - your joint has to pass Health Inspection; a house - that contractor has to be registered and there is that dratted county Inspector showing up any time Johnny Quickblow swings a hammer.... you can't get a haircut without Ms Sharpshears being certified by her state... it is, in fact, very difficult to find any product or service whereof the state doesn't qualify how it can be sold and by whom.

True but the state doesn't determine the kind of business setup in medicine or many other areas at least. Your physician can open a solo practice, be a part of a group practice or be hired by a hospital. The physician isn't forced to offer their services through the major hospital in the area although that is likely what happens. The physician must have a license but after that is allowed to offer their services in the way that works for them. Same with lawyers. Main difference is that these two fields are people providing services, not a physical product. As long as Tesla meets the same safety and regulatory requirements the other manufacturers do and aren't violating an existing franchise agreement it should really matter to the state how the car is sold.

The hamburger can be sold by a startup company or a large chain. As long as you pass the health inspection (crash testing in the Tesla analogy) you can sell your product. If the state forced you to sell your product through a chain like McDonalds then that would be different.

As a consumer product (TV, household item, computer..etc) item though can you name anything else that is forced by the state to be sold through a small network of licensed dealers? Tesla should simply pass all of the safety and consumer protections the state says they value then get a manufacturer's license to sell in the sate with the caveat that if they open up a single franchised dealer in the sate that they have one year to sell all of their factory stores and service centers to a franchisee. That way the people are 'protected' from the manufacturer but the manufacturer can still see their product in the manner they see fit.

You are correct in that the state has a say in almost anything but with the internet, you can buy almost any product directly from the company that makes it. The state very rarely says you must give up the right to sell your product directly to the customer and must instead sell that right to someone in the state and give up control. Most companies do that anyway but at least they have the option.

I am not forced to buy a backpack through a sporting goods store but can instead buy it directly from the manufacturer. People would find it crazy that the state forces all backpack sales to be sold through a franchised license system of sporting good stores (when 15% gets added to the price) but for cars it is accepted simply because it has almost always been that way. And the laws are such to help keep it that way.

 

[NigelM]

I can answer this question quite easily for you. Its because they lie.

How do we know you're not.....? NADA has a lot more to lose being caught in a publicly stated lie than an anonymous individual on the internet. I'm not making any personal accusations, just finding it hard to believe that your one experience in Canada is a good average representation of the entire American dealership business model.

 

[jerry33]

Three of the "value adds" that dealerships provide the manufacturers are local inventory

A dubious added value at best. Car salespersons are good at manipulating people and they get them to purchase what's on the lot rather than what they want. This leads to buyer remorse and general bad feelings.

local media buys

Often subsidized by the car manufacturers. Presumably Tesla will use local media when they are in a position to do so.

local financing

Every time I've purchased a car (other than a Tesla) the financing was done by the financing arm of the car manufacturer. Not much local about that.

 

[Zythryn]

...hamburger - your joint has to pass Health Inspection; a house - that contractor has to be registered and there is that dratted county Inspector showing up any time Johnny Quickblow swings a hammer.... you can't get a haircut without Ms Sharpshears being certified by her state... it is, in fact, very difficult to find any product or service whereof the state doesn't qualify how it can be sold and by whom.

As a follow up to dsm's response...

Yes, to all your examples. And Tesla must also meet lots of business, safety and other regulations.

However, your hamburger joint can choose to be a franchise or not. Heck, you can have two McDonalds on the same block, one that is franchise and one that is not.

The barber is not limited in that they can be a franchise, LLC, Indepedant owner, etc.

Johnny the hammer swinger can be a contractor, part of an LLC, Incorporated, etc.

 

[Jeff Miller]

Woof and Texas EV:

There also is medicine - try getting medical service without the provider being accredited by a state approving the person be qualified as a doctor or dentist; law - ditto; hamburger - your joint has to pass Health Inspection; a house - that contractor has to be registered and there is that dratted county Inspector showing up any time Johnny Quickblow swings a hammer.... you can't get a haircut without Ms Sharpshears being certified by her state... it is, in fact, very difficult to find any product or service whereof the state doesn't qualify how it can be sold and by whom.

Many of these laws exist only because the relevant trade group lobbied the state legislatures to enact them. Their primary motivation for doing so was not, unsurprisingly, the common welfare, but to set up legal barriers to entry to their business and thereby limit competition. Consumer protection is the fig leaf frequently used to justify the result, but the consumer on the whole is frequently made worse off by the legislation: worse product, higher prices. This case is a textbook example of this phenomenon in action.

 

[Krugerrand]

This case is a textbook example of this phenomenon in action.

Known from this day forward as the: Fig Leaf Phenomenon - FLP for short. :tongue:

 

[rlang59]

My take on this whole thing is whether it be Telsa, GM, Toyota, BMW, etc, I should not have to buy a car from some middle man because they have built a building and invested their money in a business, that isn't my problem. If I am willing to wait to get the car then I should be able to place it directly with the manufacturer, heck the dealers already want to charge you for their cost to have the car delivered to their lot. Dealerships will still have their place with people who don't want to wait or like to haggle on price. Personally I hope the ultimate outcome of this is that every manufacturer gets the right to direct sales, not just Tesla.

 

[huntjo]

My take on this whole thing is whether it be Telsa, GM, Toyota, BMW, etc, I should not have to buy a car from some middle man because they have built a building and invested their money in a business, that isn't my problem. If I am willing to wait to get the car then I should be able to place it directly with the manufacturer, heck the dealers already want to charge you for their cost to have the car delivered to their lot. Dealerships will still have their place with people who don't want to wait or like to haggle on price. Personally I hope the ultimate outcome of this is that every manufacturer gets the right to direct sales, not just Tesla.

YouTube

Woof named a few potential value-adds above, and while those are valid, I agree that Tesla does not need them and therefore should not be forced to go through a middle man.

I am relieved that in the last several pages of posts, at least some respondents have taken the OP's devil's advocate points as an opportunity to apply a critical eye toward what the lawmakers motivation may be beyond simple corruption. If we counter their fears/ concerns rather than simply lumping carogan in with "the enemy" then we can appeal to the lawmakers' sense of duty to their community. Example: Hey there Johnny lawmaker, can't you see that this dealership is taking an additional 6-10% extra on car prices from the members of your community? Allowing Tesla to sell direct will actually create jobs in their stores and service centers, but the stores/ service centers do not need to make its own profit so the consumer can keep costs down.

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My take on this whole thing is whether it be Telsa, GM, Toyota, BMW, etc, I should not have to buy a car from some middle man because they have built a building and invested their money in a business, that isn't my problem. If I am willing to wait to get the car then I should be able to place it directly with the manufacturer, heck the dealers already want to charge you for their cost to have the car delivered to their lot. Dealerships will still have their place with people who don't want to wait or like to haggle on price. Personally I hope the ultimate outcome of this is that every manufacturer gets the right to direct sales, not just Tesla.

http://m.youtube.com/#/watch?desktop_uri=%2Fwatch%3Fv%3DnV7u1VBhWCE&v=nV7u1VBhWCE&desktop_uri=%2Fwatch%3Fv%3DnV7u1VBhWCE%26desktop_uri%3D%252Fwatch%253Fv%253DnV7u1VBhWCE

Woof named a few potential value-adds above, and while those are valid, I agree that Tesla does not need them and therefore should not be forced to go through a middle man.

I am relieved that in the last several pages of posts, at least some respondents have taken the OP's devil's advocate points as an opportunity to apply a critical eye toward what the lawmakers motivation may be beyond simple corruption. If we counter their fears/ concerns rather than simply lumping carogan in with "the enemy" then we can appeal to the lawmakers' sense of duty to their community. Example: Hey there Johnny lawmaker, can't you see that this dealership is taking an additional 6-10% extra on car prices from the members of your community? Allowing Tesla to sell direct will actually create jobs in their stores and service centers, but the stores/ service centers do not need to make its own profit so the consumer can keep costs down.

 

[ggr]

So, I have a modest proposal. Tesla Motors should spin off and IPO a new company, let's call it "Tesla Dealers Inc." The new company would be born with a bunch of showrooms... err, pardon me, dealerships, and service centers, and an existing dealership contract with a car manufacturer, to justify its book value at IPO. The dealership contract would specify that for some period of time the deal is exclusive in both directions; that's a normal business practice. The contract could also specify the manner in which sales and service are conducted, although that may be unnecessary. TDI would make its money off a fixed commission per car sold, and a fixed amount for servicing, per contract. Since the company IPO'd, it has different shareholders (although initially the same, that would last about 10 minutes), separate management, separate Board of Directors (although probably many in common).

The problem with this approach is that I'll bet some states don't want to issue new dealer's licenses, although it would be interesting to figure out the rules, since this dealer would not be in direct competition with other dealers for the same cars.

Tesla Motors probably already has some sort of structure like this in place for its foreign sales offices, although at the moment they'd be wholly owned subsidiaries I imagine. That doesn't mean they wouldn't need to separately account for all sorts of stuff like what proportion of the sale stays in the subsidiary/country.

It seems a little like when GM spun off Delphi... oops... maybe not such a great idea. ;-)

 

[AudubonB]

Many of these laws exist only because the relevant trade group lobbied the state legislatures to enact them. Their primary motivation for doing so was not, unsurprisingly, the common welfare, but to set up legal barriers to entry to their business and thereby limit competition. Consumer protection is the fig leaf frequently used to justify the result, but the consumer on the whole is frequently made worse off by the legislation: worse product, higher prices. This case is a textbook example of this phenomenon in action.

This is correct and, to the extent that it is so, represents the extent to which TM and those of us who support it must be wary AND clever in how it and we craft our responses to - and anticipatory actions against - state legislative actions, NADA shenanigans, and so forth. We aren't dealing with unbridled free markets here - perhaps someone like me, way out in Bush Alaska, can get away without governmental information much of the time (but even I deal with some regulations), but 99.9+% of American businesses can't ever be so lucky.

 

[brianman]

It is my understanding that Tesla is free to set up dealerships anywhere they want.

You can sell any kind of ice cream you want as long as you use our methodology of hiring a middle-man to sell that ice cream and, as a result, get assaulted with a pile of legacy laws on that methodology.

Nobody in their right mind would accept these constraints or consider them reasonable.

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What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

Funny how all such examples tend to point to failed car brands.

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So in order to help the other manufacturers escape their now bad business model, Tesla needs to adopt it? Clearly that argument sucks.

It's exactly the kind of argument that convinces politicians, and results in laws.

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Three of the "value adds" that dealerships provide the manufacturers are local inventory, local media buys, and local financing, none of which are needed by Tesla at the moment.

Perhaps I need to put on my rose colored glasses. All of these "value adds" sound to me like "overhead, overhead, overhead" which seems more like "subtracts".

 

[huntjo]

They are value adds to the manufacturer. Not to the customer.

 

[brianman]

They are value adds to the manufacturer. Not to the customer.

Not to Tesla they wouldn't be.

1. Production-constrained. Filling parking lots with unsold cars makes that worse, and ties up inventory that could already be sold.
2. Production-constrained. Media spend is a waste of money. Especially with Elon spoonfeeding them tweets regularly.
3. Redundant. See Tesla Financing.

 

[stopcrazypp]

1. What are the salient arguments for TM NOT to form dealerships? I am not blindly going to agree that a dealership format would necessarily raise final price by 30%. It very likely would, however, lower TM's profit margin - I can accept that, even if, as a shareholder, I might not love it. That being said, as a shareholder I would dearly prefer holding stock in a company with a 15% margin and 25X sales over one with a 25% profit margin and X sales.

At this point (supply constrained), all dealers will do is get an extra cut from Tesla's margins without helping sales at all. Plus dealers suck at selling EVs (except for a couple of EVangelists like Paul Scott).

When we reach a demand constrained point (probably Gen III), then maybe dealers will make sense, but not right now.

What is the model that GM had with Saturn? My recollection is those vehicles were sold at a one, fixed price - no haggling. Can this be used by the pro- or anti-TM forces?

Saturn's failure had nothing to do with the no haggling. They failed because there were plenty in corporate that did not like the idea, plus Saturn didn't have cars to up-sell people on (they had a single compact platform during the SUV craze in the 1990s to 2000s) and was too slow to release new models. There was also UAW pressure. Near the end Saturn was really not that different from other GM divisions (selling rebadged Opels).
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2366

 

[CommonSense]

Any business in America should be able to sell direct!

That is free enterprise in its simplest form.

God Bless America

 

[huntjo]

Not to Tesla they wouldn't be.

1. Production-constrained. Filling parking lots with unsold cars makes that worse, and ties up inventory that could already be sold.
2. Production-constrained. Media spend is a waste of money. Especially with Elon spoonfeeding them tweets regularly.
3. Redundant. See Tesla Financing.

I know. Woot already said these value adds were unneeded by Tesla. I was only pointing out that they are intended to be value add for a manufacturer in their original appearance. I do not think thy add any value currently.