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Tesla Franchise Dealerships. Blasphemy. Sooner or Later?

Tesla Franchise Dealerships. Blasphemy. Sooner or Later?

I am a Tesla fan, own TSLA, and my 4 ½ year old “S” is the best car I have ever owned - better today than day it was delivered. Also, I have worked at several auto dealerships over the years (BMW, Audi-Porsche, Jeep, Subaru) . I agree Tesla selling direct was the smart move for the first 5 years, however, I suspect the Tesla’s sales model will soon evolve (dealerships and direct on line). Why? Let’s focus on the Model 3 and the Model Y.

Production. Dealerships purchasing inventory will allow Tesla to improve planning, expansion, production line efficiency and manufacturing. It will also improve Tesla deliveries from the factory via carriers or rail.

Sales/Deliveries. Expanding dealerships increases visibility. The Model 3 will directly compete with the ICE Age BMW 3 Series, Audi A4, Lexus, Infinity, Cadillac, etc. “Test drives” are the single most effective sales closer Tesla has and customers will want/need to test drive and compare.
Tesla already offers a $1,000 incentive for referrals, so a dealer agrees to sell their new Teslas at MSRP and receives the referral cash. Dealers will likely raid the tesla showrooms to hire knowledgeable associates and provide a Tesla quality delivery experience. Tesla will get all the direct sales and deliveries they can handle (and then some). Independent dealers will be gravy. Keep in mind Wall St., the Fourth Estate, and reservation holders are going to be impatient and demanding. We all know the Model 3 is going to be a home run seeking a tape measure. The real test is ramping up to fulfill the reservations and the future demand.

Trade-ins. Often dealers make most of their profit on trade ins. Typically a dealer under values the trade in – instant profit. Tesla seems to’ job out’ their trade-in opportunities. So this will be a great incentive for dealers to seek a dealership.

Finance and warranties. While Tesla may offer their own financing and warranties, dealerships may be able to offer competitive financing, and to develop and offer second market warranties. Another point is BMW, Audi, MB, etc. have two weapons to stay competitive with their 20th Century designs – sub vented lease rates and deeper discounts. Most buyers/lessees narrow the selection of vehicles they want, and ultimately it comes down to down payment and monthly payment. The best value usually wins, not so much the best car. Dealerships may be able other alternatives beyond what Tesla offers.

Paint and Body. Tesla planned to increase the number of “Tesla Certified” repair shops. Dealerships may provide an excellent source to expand.

Service and Repairs. All warranty, service, and repair work is done at the most convenient Tesla Service center. We all love and have wonderful things to say about Tesla service, especially when it is covered under warranty. How will you feel when your standard warranty or extended warranty expires. A very, very, very expensive proposition.

Just my thoughts and opinions. If Tesla went Hybrid (direct online sales and through independent franchise dealerships) what do they really have to lose? Life changes, evolves … there is a big difference between 100K annual premium automobile production, 500K, one million, ++++.

rxlawdude | 18 juni 2017

I agree, because there is no way the current SvCs can scale to the M3 volume.
I've been expecting that announcement one of these days.

David N | 18 juni 2017

Several years ago Elon said that something on the order of a dealership type business plan would most likely be needed in the future as sales totals that are being forecasted with Model 3, Model S, X, Y. make it necessary.

Rocky_H | 19 juni 2017

@petero, There is a big BIG problem with this that you're apparently not aware of. You mention this:
"Tesla will get all the direct sales and deliveries they can handle (and then some). Independent dealers will be gravy."

No. Unfortunately, this is an either/or thing; it can't be "and". You may have heard about the 2 or 3 states where Tesla can't sell, right? That's because those state dealership laws are written to just straight-up forbid any auto maker from selling direct. They don't have a solution there.

But the bigger issue is the other 15, 20ish states who have their dealer laws written to say that any auto maker who has granted franchises to dealerships, cannot sell direct. While Tesla has not granted any dealership franchises, those laws in those large collection of states do not apply to them, and that is their way around it. As soon as they grant a franchise, they become a "franchisor", and ALL of those state laws kick in and block them from selling in about half of the U.S. That would be what they call "a bad thing" (TM).

So they don't want to drop that legal bomb on themselves! They will want to put that off as long as they can while trying to get those laws modified so it won't be a giant punch in the face.

rxlawdude | 19 juni 2017

@Rocky, but the risk of your legal bomb is far less than the PR risk of 100,000 unhappy M3 owners complaining about service delays.

TeslaTap.com | 19 juni 2017

Not a fan of the dealer model. Some of these might be fixable, but generally:

1) Commissioned car sales people seem to get the worst deal for the customer.

2) Price depends on your negotiating skills, and even then you are never sure you got a good deal.

3) Dealers outside the manufacturer's control try to stick customers with expensive add-ons, often close to worthless (undercoating, nitrogen tire fills, etc.).

4) Having all that inventory on hand is a huge expense, although it does allow for impulse buyers.

5) Car company sales/profits are hidden behind all that inventory. A manufacturer sells cars to dealers and it may sit on a lot for 6 months, but manufacturer considers the cars sold. Sort of a hidden scam to shareholders.

6) Dealers add their own markups, increasing the vehicle cost that the manufacturer can't control. If a dealer had the Model 3 to sell, you can bet they would add on a $5K markup for no reason other than they can.

7) Repairs are encouraged by a dealer, even if unnecessary, as it is a high-profit margin part of the business.

8) Dealers have an exceptionally low approval rating. Almost as bad as Congress!

9) Dealer's objectives are poorly aligned with the manufacturer. They want to sell the highest profit margin vehicle that will have the poorest reliability.

I could go on, but you get the idea.

iaeen | 19 juni 2017

I agree with everything TeslaTap says. Direct sales is a big feather in Tesla's cap as far as I'm concerned.

Tesla will sell every car they can produce for the foreseeable future, and there's no reason they can't scale their service centers every bit as fast as independent dealers could build them up (excepting, of course, where politics is getting in the way).

Neither Tesla nor we as consumers need anyone in the middle taking a cut.

rxlawdude | 19 juni 2017

"there's no reason they can't scale their service centers every bit as fast as independent dealers could build them up..."
I hope you're right, but am a realist.

Haggy | 19 juni 2017

I'd just as soon have customers get the $1000 for themselves, be able to order the exact configuration they want, not be pressured by a sales person, since they might want to go home and research things or simply find out what it will cost to get an outlet in their garage. Under the current model, if it means going home and then placing an order online, it works well.

If this were replaced with a dealership model where a dealer got the $1000, then what would stop somebody from going for a test drive and then going home and buying on line with a referral code? It would probably be the laws that protect franchisees from manufacturers. So Tesla would have to stop selling online. And dealers would have to make sure you bought the car before you stepped off the lot. Everybody in the state would pay $1000 more but get no benefit from doing so.

All in all, it would be a switch from an experience that works well to one that is reviled throughout America by almost everybody, with the possible exception of those who sell cars, and by that I mean cars that aren't made by Tesla.

p.c.mcavoy | 19 juni 2017

Do I think it will ever happen? Never is a really long time so I won't say it will never happen.

If it does happen I do not think it will be for any of the reasons listed by the OP because of some mystical superiority in purchase or service experience for the consumer.

The most likely reason I could foresee is the financial capital requirement associated with Tesla needing to scale up to the level of any of the more traditional auto manufacturers. That was one of the fundamental reasons that many businesses end up going a franchise route; it allows them to tap into capital of many others.

I agree totally with the point first raised by @Rocky_H about the legal barrier to continuing direct sales model in parallel to fanchising. That says it would need to become a do it or die type of situation before I'd see this happening.

I do think Tesla will Iikely start to take on some of the traits of more traditional vehicle manufacturers long before they pull the franchise lever. I think we are already seeing that in terms of how they are moving more to standard configurations, limiting the number of interior trim choices, etc., as well as the option to immediately get a list of inventory vehicles close to your spec as a potential subtle incentive to not customer order. This starts to provide some operational efficiency advantages/improvements that will support significantly higher volumes and shorten delivery lead times. I expect more along these lines long before I expect to see anything about a franchise.

Just my opinion.

vp09 | 19 juni 2017

Petero, not sure where you are going with this.

Do you have an agenda? It's okay if you do, but do you want to share it with us?

You have been on board a lot longer than I have, so I trust your words.

vp09 | 19 juni 2017

Petero, you wrote this: "Production. Dealerships purchasing inventory will allow Tesla to improve planning, expansion, production line efficiency and manufacturing. It will also improve Tesla deliveries from the factory via carriers or rail."

Not sure I understand.

How would dealerships improve deliveries? I stood in line 3 hours on 31 March last year, and watched a truck with a trailer of 6 or 7 Model S Teslas pull into the Buena Park Service Center. And Show Room.

How would they being a "dealership" improve their deliveries? I bought 2 Model Ss within a few weeks after seeing that-- still have my Model 3 on order-- I'm not sure where you are going with your writing ....

vp09 | 19 juni 2017

they ::: their

Why don't we have an editing function here? Moderators ?????????????????????????

vp09 | 19 juni 2017

Un Fucking Believable that we can't edit a fucked up post.

vp09 | 19 juni 2017

So I can post "FUCK" and " un fucking believable" but I can't edit a mistake?

Why are you all on this site?

Over at Tesla Motors Club, they have a good web site, where you can EDIT your posts... FUCK

McLary | 20 juni 2017

Tesla is currently paying for every location for sales and service, with very few locations being a positive contribution to earnings. Rolling out a large quantity of cars could swamp the service capabilities and cause serious damage to the Tesla name.

Franchises make a lot of sense in that the independent operators take over much of the costs of the sales operation and overhead. That money would allow Tesla to do much more, or to pay down debt etc. You can have franchises and still have no hagling pricing. Tesla needs a franchise model of some sort for service. Sales will be meaningless if the company remains a small niche automaker, due to horrible after sales service. This is not a small risk. It could be a terminal risk.

petero | 20 juni 2017

Vp09. No agenda other than wanting to see Tesla and SpaceX succeed.

Dealerships buy inventory and Tesla scheduling dealership orders along with on line orders may bring a higher level of efficiencies to ordering parts, batching similar cars on the production line, and certainly transportation, etc. I made an error in using the term “deliveries,” perhaps I should I have said arranging transportation more efficiently, ie. groups of car being sent by truck or rail from Fremont to similar district, rather than arrange shipping one car at a time. My use of delivery was not intended to refer to the process where the ultimate customer takes possession of their car and drives away. Thank you for pointing this out to me (honestly).

Rocky_H | 20 juni 2017

@rxlawdude, Quote: “@Rocky, but the risk of your legal bomb is far less than the PR risk of 100,000 unhappy M3 owners complaining about service delays.”

Why, why, why do I keep seeing so many people think it is axiomatic that the only way to avoid service backups and delays is with dealerships. People seem to take this as a given that Tesla is incapable of increasing service capability to meet increasing service need. This is exactly the same fallacy I see with:
“Woe unto Tesla, for there will not be enough Superchargers when there are a ton of Model 3s on the streets.”

It’s doing that same thing, where people mush together the present and future and pretend that they are the same time. It will take a couple of years of selling Model 3 to have a ton of them on the roads, but people think Tesla won’t increase the corresponding services during that time, despite collecting HUGE amounts of revenue from a couple hundred thousand cars sold.

Besides, actual physical service centers aren’t absolutely necessary. They have been doing service very well for pretty cheap with ranger service.

@vp09, Quote: “Why are you all on this site?
Over at Tesla Motors Club, they have a good web site, where you can EDIT your posts... FUCK”

It’s because of the people. This site is fun. Tesla Motors Club is full of uptight people with sticks up their asses clutching their pearls and fainting at the slightest sarcasm or snark and moderators with severe Napoleon complexes that make the site really annoying to participate in. Just a few weeks ago there were two commenters (falsely) telling this guy he was wrong and had no understanding at all and insulting him. I told them to knock it off and leave the guy alone. MY comment was what got removed by a moderator and got a private message telling me I was out of line. And another time, someone asked what gauge wire should be used for installing the 14-50 outlet, a question that is specifically spelled out exactly in the pdf install guide on Tesla’s website. He got five answers from people, four of which were wrong, and no one bothered to post the link to the Tesla install document that correctly answered the question. I commented to give the link and say I was disappointed in the existing owners that no one was pointing him to the real source for accurate information on that, and that it was a question that should be answered by the straight up documentation, not by opinions of people on the internet anyway. I got a nastygram from someone about the negative “tone” and my “attitude”.

So yeah, TMC has better tools, but a much worse community.

TeslaTap.com | 20 juni 2017

@Rocky_H - 100% agree what you say about TMC. Rather sad. I rarely look there anymore.

bp | 22 juni 2017

Under Tesla's direct sales model, a portion of each sale helps cover the cost of the local service center and store/gallery. So it is possible Tesla could allow 3rd parties to serve as showrooms and service centers, and who could get some revenue from each vehicle sold/delivered and from service.

But, the amount of that "per sale" revenue is relatively low compared to what a dealership typically make from their vehicles sales - so it's unlikely current dealerships would be interested or motivated to sell and service Tesla cars.

However, there may be additional revenue Tesla isn't (currently) tapping into - that a 3rd party could generate. For example, the Houston Galleria gallery discontinued sales of Tesla merchandise - a 3rd party might be able to generate revenue from selling Tesla and 3rd party merchandise (apparel, vehicle accessories, ...). Similarly, additional services could be provided beyond what Tesla currently does at the Service Centers - such as having a body shop, doing detailing, applying film/tinting, ...

Another factor is Tesla's ability to keep up with the rapid expansion of their showroom/service center network as they quickly ramp up the number of vehicles sold and the total number of vehicles on the market. Supporting a 3rd party showroom/service model should be easier to scale - and at a lower capital investment for Tesla - especially if they could get some of the dealerships with existing facilities partner with Tesla.

Tesla has a similar problem with the Supercharger network - and while that network has significant value today, justifying the huge investment cost Tesla is making to expand the network, in advance of growing vehicle sales, as the other manufacturers bring their long range EVs to the market, there will eventually be a network to support them - and once that happens, there could be less value in Tesla continuing to own their own network - and we could see the superchargers also shift to a combination of Tesla and 3rd party fast chargers.

We shouldn't be surprised to see Tesla evolve their business model as they transition from a low to higher volume manufacturer. And it seems almost inevitable that Tesla will also begin embracing 3rd parties to help accelerate expansion and lower Tesla's "field" investments.

DTsea | 22 juni 2017

Sigh.

It is simple.

Dealers would have to invest money.

They would need to make a return.

That money comes out of Tesla or out of customers pockets.

The question is whether dealers can do that more efficiently than Tesla.

If the model is to carry inventory that is inherently less efficient. That will destroy value.

SUN 2 DRV | 22 juni 2017

Simple: It's Quality vs Quantity.

If Tesla want's to continue the high quality buying experience to educate and entice people to consider an EV, they will continue the direct sales model.

If Tesla want's to scale faster than they themselves can invest and build, then they'll find a way to leverage partners and other sales channels. But it might not be through the traditional car dealers. Note they've has kiosks inside Nordstroms... so their scaling strategy might be highly innovative, even if it's not direct Tesla stores and people.

DTsea | 22 juni 2017

We have to face the reality that retail for non perishable goods is a dying distribution model. Local storage of inventory is a wasteful use of capital and thats why the Amazons of the world are driving the Sears of the world to extinction.

The exceptions are where retail creates a superior experience eg Nordatrom stores.

I have never heard ANYONE say a visit to a car dealer is such an experience.

carlk | 22 juni 2017

Elon wants vertical integration for good reasons. He believes he could do things better and faster than anyone else could. To do things yourself is hard but he's not the type of person who would avoid challenges. In the end the pay off can be great. I can't imagine there is one thing your local dealership could do that Tesla could not do (eventually), and do it better.

carlk | 22 juni 2017

DTsea Agreed but wants to add even Nordstrom is having difficulties nowadays.

DTsea | 22 juni 2017

Right Carlk. The economic power of just in time, custom, low inventory is too strong to ignore.

Haggy | 22 juni 2017

Score:

Audi:187
Porsche: 189 (north America)
BMW: 339
Mercedes: 380
Tesla: 121 (north America)

Tesla may be behind in terms of stores compared to the number of dealerships that the competitors have in the US, but considering the volume of cars they sell compared to the others, they have far more of a presence when it comes to the ratio of locations to vehicles produced. People who think that Tesla has a small fraction of the network that others have are probably taking things out of proportion.

For now, Tesla doesn't have to worry about having multiple competing stores in the same geographic region (not that they'd be competitors even in the future) and if you take the other companies and eliminate dealerships that are within a short driving distance of others, I doubt they have more of a tangible geographic presence than Tesla in most areas. There are parts of the US with no presence, but it's not as if that will cost Tesla any sales for a long time.

In the early days of automobiles, it was common for a franchisee to carry vehicles from multiple companies. They also fixed cars, so even if the manufacturer went belly up, the dealership would be there. These days, there's no such concern and a dealership is more likely to disappear than a major manufacturer, but if a manufacturer did go belly up, it doesn't mean that you'd still be able to take your Yugo to a Yugo dealer.

There simply aren't customers demanding dealerships from Tesla. I don't hear of people saying "I'd buy a Tesla if only they had franchisees to haggle with me and try to sell me a car today." There are competitors and dealer associations arguing that Tesla needs dealers but I haven't heard from any customer who wants it.

Also I'm pretty sure that you couldn't order a car on the Web in 1900 so dealer showrooms were important even to find out what cars existed.

SUN 2 DRV | 22 juni 2017

Haggy: There do however seem to be a fair number of people concerned about how close (or not) they are to a Tesla service location.

McLary | 26 juni 2017

"Local storage of inventory is a wasteful use of capital"

Amazon never has to store any goods. They hatch the goods at the unicorn farms behind USPS and UPS.

SamO | 26 juni 2017

Which products does Amazon produce?

I vote later. The day after hell freezes over ought to do it.

DTsea | 26 juni 2017

Mclary key word is local. Amazon has warehouses. They are highly automated and much more efficient than the number of retail outlets needed to cover the same territory.