We already know that Tesla has some serious advantages over Big Auto:
One of the many advantages I listed was "no third-party dealers" for Tesla.
Why are third-party dealers so toxic for Big Auto?
As you can read below this original post was inspired by @Red Sage's and @mntlvr23's remarks. It got me thinking, why does Big Auto insist on a losing strategy even after Tesla has shown how broken that strategy is? Here are a couple of main reasons I will explore:
1) Mis-placed loyalty—Big Auto's customers are third-party dealers NOT the driver of their cars
2) Legacy agreements and conventions—Dealerships are legislated and contracted mini-monopolies
One reason why Apple is so successful is that Steve Jobs insisted on making the customer's experience the primary concern of their designers. Big Auto's customers are third-party dealers not the drivers of their products. This is not to say that Big Auto completely ignores the needs & wants of drivers, but they do make decisions clearly focused on helping Dealerships instead of the end-user.
Here are few examples:
Planned obsolescence -- Dealers make most of their money on service; Big Auto wants people to buy as many versions of their car as possible, a 5-to-10-year life cycle "ensures" repeat sales
The Wrong Way
In the U.S. brand loyalty and halo effect of high-end cars used to drive buyers to dealers. People often simply bought the new version of their last car since it's what they were used to and it felt comfortable (literally). But the pressure first exerted by Japanese and German imports and the ability to share information over social media caused a massive drop in brand loyalty. This has forced Big Auto to adjust. Quality has increased dramatically, but the 100K to 300K lifespan of a typical ICE forces drivers to keep buying and repairing.
The Tesla Way
Why does Tesla care if their cars last or not? Tesla believes in sustainable transport. Elon believes it is immoral to force people to pay to fix problems w/ designs of your product. For Tesla, Service will not be a profit center.
Ludicrous mode is the result of trying to make a Million-mile drivetrain. Once they realized the extra power possible w/ this new technology they replaced Performance Insanity w/ Ludicrous Speed. This high-end feature will subsidize the improvement of this technology and at some point it will likely be available in all Teslas. You just might need to pay to turn on the ability to launch.
The final reason that Tesla cares if their cars last is that Transportation as a Service TaaS w/in the Tesla Network is part of the new End Game:
"Master Plan, Part Deux" https://www.tesla.com/blog/master-plan-part-deux
Over-the-Air (OTA) Updates -- Dealers want to charge you for updating the software/firmware in your car, and up-sell you other services
The Wrong Way
Driver: "There's something wrong."
Dealer: "We have an open appointment next Friday at 4:00pm."
Dealer: Plugs into diagnostics terminal... updates firmware.
Dealer: "That will be $200 please."
The Tesla Way
Driver: "Zzzzz" (asleep)
Tesla: Downloads new OTA update to car
Driver: "Cool I have more range and better driver profiles."
(This is not to say that changes go perfectly every time, but the fact remains most updates improve the car.)
In addition to the firmware/software/map updates available OTA, Tesla can also:
- Diagnose issues
- Open API to drive w/ your phone (recommended for emergencies since loss of signal is bad)
- Open API to pre-condition the car (hot or cold)
- Call back home w/ Autopilot data
- Catch a NY Times "reporter" in a fib or two ➥ https://www.tesla.com/blog/most-peculiar-test-drive
and so on....
LEGACY AGREEMENTS AND CONVENTIONS
Dealerships are Mini-monopolies -- To ensure that a dealer's investment in building a sales floor, storage lot, and service center is viable for years to come they are sold exclusive rights to an area by Big Auto.
The Wrong Way
The car-buying experience is widely regarded as one of the most stressful and unpleasant experiences people go through. You are forced to interact w/ the next-up sales person who will try to convince you that the best deal is the car that has been sitting on the lot the longest. You need to drive around (or call around if you are able) to find cars that meet your specific needs/wants. Or you can get what's on the lot. Once you find a car you like you need to haggle endlessly to get a good deal. Then financing will try to up-sell you on car coatings, service plans, and loans.
The New Way
The car-buying experience has changed beyond Tesla. The Internet has enabled people to see what a car really costs and to avoid haggling (almost) entirely. But you still need to get what they have to sell you.
The Tesla Way
- Every car is priced the same (end of quarter and inventory deals do happen)
- Tesla will search the whole country to help find what you want/need.
- You get what is in inventory (for convenience or a slight discount) or;
- You have one built to order.
You get what you want/need.
Autoworkers and pensions -- Would you rather have a (unfunded) pension from GM or a matched 401(k) + Employee Stock Purchase Program from Tesla?
I have no idea if Tesla does that, but that is common at tech companies in Silicon Valley. A big part of GM's bankruptcy was figuring out what to do w/ legacy pension and healthcare costs.
Protective dealership legislation will fail...soon -- At some point the U.S. will open up direct-to-consumer sales for cars across the nation.
Even before Tesla is able to sell directly across the U.S. they already are out-selling the MB S-Class and BMW 7-Series, *combined*. See @Red Sage's sales numbers regarding Cadillac below for even more.
Make & Model choices -- The conventional wisdom at the dealership is you need variety to cover your bases.
Before The Great Recession Big Auto had a variety of both Makes and Models that basically competed against each other. Differentiation in the market varied for GM from Chevy to Buick to Cadillac w/ other marks, Saturn, Saab and Hummer, squeezed in between.
Check out the list of Ford hybrid/Energi/electric options:
Realize that the prices range from $24K to $39K depending on what size and trim package you choose. Which one is Ford making the most on?
BWM has a "Series" for every taste:
1, 2, 3, 4, 5, 6, 7, X, Z4, M, and i
or these categories:
Sedans, Coupes, Convertibles, SAVs & Sports Wagons, Diesel, iPerformance, and Electric
It will be interesting to see how Tesla diversifies over time. We know they are planning:
Model Y (CUV, smaller cousin of Model X)
CHANGE THE GAME
Elon has mentioned that he believes he does not need to go "down market" to succeed. He wants to build cars obviously better than the competition. TaaS means that high-quality, efficient options will draw customers while others can pick up the scraps. When most people do not even own a car, dealerships will be completely obsolete.
MY INSPIRATION FOR THIS POST:
@mntlvr23 combined some comments from me and @Red Sage, "Notice how GM spends ~$3B on ads per year in the U.S. alone" ... "that means they spent at least $1,000 in advertising for every vehicle they sold in the U.S."
Then added: "I would imagine that this figure only includes corporate advertising - and that there is an additional few (to several) hundred dollars per car spend by individual dealerships."
@Red Sage added:
"Here is how the Model S is doing versus Cadillac in 2017 YTD, through the end of April:"
__ UNITS ___ Model____
___ 4,751 ___ Cadillac ATS
___ 3,382 ___ Cadillac CT6
___ 3,359 ___ Cadillac CTS
_______7 ___ Cadillac ELR
___ 5,592 ___ Cadillac XTS
___ 7,200 ___ Tesla Model S
"[@Red Sage] sees this as an indictment of the 'franchised dealership system' as well. GM has over 900 locations for their Cadillac division. Tesla has barely over 100 locations in the U.S., and is allowed no Sales presence at all within 24 States."