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Why the worry about dealerships?

Why the worry about dealerships?

Tesla has showrooms and service centers in many states now, with many more to come as affordable models hit the road.

Why not just call them "dealerships", do the paperwork, pay the fees, go to the annual dealership party...must be a lot cheaper than going to the Supreme Court or something.

Faceless ownership groups own dealerships now. Dealers now sell "at invoice", offer huge rebates, there are factory incentives and so on. Tesla does not need to take a hit on profits, nor should the price be affected. Tesla can control the entire process.

It would seem there will be an exodus out of upscale malls and out to more traditional, spacious and accessible locations simply because there is more utility in doing that and there will be an ever-decreasing need for the boutique experience to sell Teslas.

And these are perfect spots for much needed city Superchargers. Charge up, wander around the Tesla showroom, maybe look at a used Tesla, or a newer one, upgrades, gear...all that. Better than having owners run off to some mall to spend their money.

I see dealerships, run the Tesla way, as a big advantage, not a problem to be avoided.

Brian H | 13. mars 2014

The goals and SOP of stores and dealerships are far different. The former tries to sell product. The latter tries to maximize profit to the owner. In the car biz, this currently (since 2007) means maximizing service and parts sales.

GeekEV | 13. mars 2014

The biggest problem is that dealerships must be franchised and not owned by the manufacturer. This means giving up the control you talk about and also giving a cut to middlemen.

jordanrichard | 13. mars 2014

I think the only way for Tesla to have a "traditional" dealership set up and still maintain its profit margin is if wealthy individual stepped up and became a franchisee, but made no money from it.

I'll admit that I had given it some thought. If I won the Mega Millions lottery, I would love to open a Tesla store right across the street from a Cadillac or Mercedes dealership. Since all cars are made to order, one doesn't need to carry any inventory. Just 1 maybe 2 cars for test drives. I assume there is no law telling a car manufacturer who they give a franchise to. If that said individual choses to do it for free, then monetarily, there is no middle man.

blue adept | 13. mars 2014

@carlgo

As GeekEV and Brian H alluded to, it's all of the additional overhead ($$$) that would accompany the transformation from the present market and sales model to that of a conventional third-party dealership business model, overhead that would be transferred to the buyer through a variety of seemingly innocuous and somewhat vague additional ("overhead") expenditures (lot fees, transportation costs, property and product maintenance and upkeep, associated business insurances, security costs, etc., etc., etc.), all of which would be passed onto the poor, unsuspecting buyer, you know, just like it happens today on new and used car lots all across the world.

Tesla's is simply the best, most economical & cost efficient, common sense business model non-par.

grega | 13. mars 2014

@jordanrichard
I'm not sure it has to be run at a loss though. Can a "franchise" be paid a fixed fee regardless of what they sell? Pay them the same amount it currently costs to rent the shop, pay the staff, training, upkeep, any stock etc. Whether it's Tesla or a private company running it, it should theoretically cost the same...

SolarCity could make a store (in relevant states), that showcases and sells both their solar cells and Tesla.

carlgo | 14. mars 2014

I understand the arguments, but all of them are based on the way dealerships have traditionally been operated, rather than the way Tesla could operate them.

There are undoubtedly ways to formulate "ownership groups" which are friendly to the process.

blue adept | 14. mars 2014

@carlgo

That's just it, Tesla IS operating their business in the manner which car dealerships have "traditionally been operated" for years, they're merely omitting the whole "lot"/"stealership" experience from their business model by letting the buyer order directly from them (the "factory") and have their new car "factory delivered" to insure that the prospective buyer gets just what they're paying for as, again, the whole point is to avoid extraneous charges so the savings are passed onto the buyer to insure that they get just what they pay for and no other so-called "hidden fees".

Grey Model S85 | 15. mars 2014

As it is, the Toronto Yorkdale Mall location is the busiest Tesla Mall store in the world.
It is a huge revenue source for Tesla!
The mall stores will only increase. They are coming very soon to Vancouver and Montreal!
To %ell with traditional dealerships.
Now if we can only get some Superchargers in this country!

sambb | 16. mars 2014

I welcome dealers!
If you look t tesla's gross margins, they are >25%, while other car companies are 10-15%. When dealers compete, the margins can go down, and the prices will go down for all of us.

I don't think dealers are that bad, I'm not worried about $500 here or there, I am worried about a margin of 20% vs 10% on a 100k car.

jordanrichard | 16. mars 2014

When there is competition, there is number fudging. BTW that 15% you mentioned is what the factory makes selling to the dealer, not you. Add the dealer's markups and what you are paying is about 25% above the real wholesale price. So for Tesla they get to keep that 25%, not having to split it with the dealer. This is why the traditional car companies are keeping a close eye on Tesla. If Tesla can start selling some serious numbers of cars, don't think for a moment, they won't try and follow suit.

This is what the NADA is seriously worried about.

Brian H | 16. mars 2014

sambb;
As I've just replied elsewhere, people approve of TM's margins. Dealer margins, not so much.

bigd | 16. mars 2014

@sambb-- I agree, as I have tried to tell others, Brian don't listen well (kidding brian). The uproar should be to make it legal for all car manufactures to sell direct if the manufacture choses this method. To make a regulation that lets Tesla sell direct and others don't have that option would be unjust, period. But again, it is in no way just tesla that has the regulation and until it is changed for all then it is just for Tesla to have to go through a dealership.

Captain_Zap | 16. mars 2014

@sambb

Don't forget that with a traditional dealership you are paying for the manufacturer's margin, plus the dealer's margin, along with their outrageous overhead and unsold inventory expenses.

With the Model S you definitely get more car for the dollar even with the larger margin that Tesla receives. From what we have seen so far, comparable EVs will cost you 2x to 10x more through your traditional dealership. Even a comparable ICE will cost you more.

I think that the Model S was a great deal even with the margins. I knew exactly what I was paying for too.

Captain_Zap | 16. mars 2014

@bigd

Existing franchise dealerships have contracts with their manufacturers that have to be honored. They are in a different situation than Tesla. Franchise dealerships are in that situation by choice.

Homebrook | 16. mars 2014

I like Musk's idea of simply doing an end-run around the dealership issue:

"It should also be noted that this regulation deals only with sales, so our service centers will not be affected. Our stores will transition to being galleries, where you can see the car and ask questions of our staff, but we will not be able to discuss price or complete a sale in the store. However, that can still be done at our Manhattan store just over the river in Chelsea or our King of Prussia store near Philadelphia."

The customer gets almost everything they need from a dealership from the Tesla galleries. I think most customers want to physically see a car and do a test drive. That they can do at a gallery. Then they can complete their purchase over the internet, or make a special trip to an out-of-state dealer, although I don't know why they would take the trouble. Hopefully Tesla will use galleries in all the states prohibiting direct sales. Leave it to Tesla to change the rules and factor out the whole issue.

sambb | 17. mars 2014

I've always gotten a better deal with dealers competing. Never on a fixed price. With the high margins of TM (and I don't approve of them! - I want to save money on a car!), I think dealers would be really great and would level the playing field with other cars. Would love to see the competition between them, and incentives to move vehicles. NJ might have gotten it right. Why not test it out and see if it lowers the price? If it does then that's great for consumers. I think this would get more cars out there.

Nevertheless, there should be a level playing field so all dealers and all consumers can compete and be transparent. NJ could have done the opposite, and sanctioned all manufacturers to sell direct.

Perhaps this is about consistency, not innovation. That seems fair, even if there are better options.

bp | 17. mars 2014

Dealership margins would be above what Tesla (or any manufacturer) is charging for the cars today - which is why the dealership lobby wants to block manufacturers from direct sales - they wouldn't be able to compete against their own manufacturer.

DC | 17. mars 2014

You clearly don't understand the concept of a middleman. You're never going to be able to realize prices as low as purchasing direct from the factory when you include a middleman. You're not saving money on "regular" cars by having dealership competition. As stated by Captain_Zap, the margin you quoted for current car manufacturers of 10-15% is what they make when the dealership purchases the car from them. After this increase is price, there's an additional 10-15% passed on to you the buyer from the dealership.

The reason that TM decided not to use dealerships is for one they wanted to be able to offer a custom car buying experience. This means that you get the exact car you want with the options you want, not what is available on the lot. Additionally, as a new company and a new technology, their sales volume is less than a typical car company. This lower sales volume means that they need to make more margin on each sale in order to cover their costs. When you consider the non-recurring investment to design/build a car, which will include the design process and purchasing the equipment to manufacture you should assume that TM’s expenses for the Model S are far greater than a normal car that hits the market. This is because for one they are a new company, so they had to invest significantly more to purchase all the manufacturing capability, and they’re working with a new technology which will require a lot more testing. Also, they have limited designs or practices to carry over from an older model, which is a large portion of how most companies iterate their products. All this adds up to an increase in the total cost of designing and building the Model. This higher cost has to be made up in a greater profit margin on the final product, especially since the initial sales volumes will not be that high compared say to a Honda Civic. It is mainly this reason that TM went with a direct sales model. If they had dealerships as you propose they would still need to be making the 25% you quoted, but then the dealership would add another 10-15% onto that, making the price for you up to 40% markup. Apple initially did the exact same thing only selling their products online or through and Apple store. Now you can get them at other stores, but those purchases cut into Apple’s margin on the product, however, they’re a big enough company now that they can afford it.

Captain_Zap | 17. mars 2014

@sambb

What makes you think that you deserve a better price than other customers that are buying the same car?

sambb | 17. mars 2014

I have never paid an additional 10% from the dealer. Usually can get a car at invoice or a few hundred dollars higher when dealers compete. It is quite common, and just requires one to purchase that day and tell dealers that you are shopping around. Prices can come down with dealers, and that means more teslas on the roads. It seems to work quite well, and Iike the concept. I don't see any downside to dealers competing for my business. It works pretty darn well. Without it, I think we might be paying a higher margin overall.

Competition is great for america, and I am confident that Tesla can compete fairly and win. In fact, it will bring lower prices, like the rest of the car industry has. Would love to see the model S or X at 10-15% lower in price. Would blow the sales records even more. Dealers can do that well with competition against each other. Would be really awesome for tesla.

bigd | 17. mars 2014

@Captain_Zap I was under the understanding that it is a regulation that the vehicle had to be sold through a dealership franchise in NJ. If I am in-correct and they only apply this regulation to Tesla, than I agree it is wrong to change the rules on Tesla. To be honest I have done little research on the subject as we don't have the regulation in my state. I will return to my original statement. If the regulation is in place for all manufactures then Tesla should follow the same regulations. Or get around it like Homebrook mentioned. If the regulation is not in place, Tesla should not have it apply to just them.

@DC "You clearly don't understand the concept of a middleman." Why do you have to be condescending here? You have a different opinion - fine - but don't be a @$$ about it. You and I understand there is more cost with the middle man. However, if it is a regulation for ALL manufactures to go through a "middleman", Tesla should. The uproar should be to change the regulation and not have an exemption for one manufacture.

blue adept | 17. mars 2014

@sammbb(primarily);@jordanrichard;@Brian H;@Captain_Zap (somewhat surprisingly);@Homebrook;& @DC(but only to the extent that they've overlooked the traditional direct sale aspect as well)(all by proxy):

I'm afraid to say that you are all a bit off as you don't quite understand what you're trying to argue in that the ACTUAL means of lowering margins isn't through competition between dealerships, rather, it is accomplished through direct product competition between the manufacturers.

@bp has it right in that 'stealership' margins ARE higher because they're out to put the squeeze on buyers with termed payments that serve to run the purchase price up over margin (part of what those 'percentages' @Captain_Zap referenced) over the course of the payment period (even on those "at invoice or a few hundred dollars higher" @sambb) to afford kickbacks to the dealer, the bank (if you take out a loan to cover the purchase price) and, yes, even the manufacturer who the 'stealerships' are franchised through/under contract with (sneaky bastards aren't they?!), though you've also overlooked the traditional manufacturer-to-customer direct sales practice as well.

Bottom line, no one is talking about Tesla asking for preferential treatment, allowances that aren't traditionally available to any other manufacturer (custom-order/manufacturer direct sale), &/or even to be allowed to practice business in a manner that would, in any fashion, prove detrimental to conventional industry practices.

No, all that Tesla has done/is doing is eliminate/eliminating a largely extraneous, somewhat convoluted step in the auto purchasing process, serving to both secure and ensure a more efficient customer experience as the all too beneficial byproduct.

blue adept | 17. mars 2014

EDIT:

...as I've attempted to explain in my previous comments.

blue adept | 17. mars 2014

EDIT:

"...all too beneficial..." should be read as 'all SO beneficial'....

bigd | 17. mars 2014

@just an allusion -- Im sad you left me out :-(. Actually, for the most part, I agree with what you said (OMG there will be a second coming). However, you claim "allowances that aren't traditionally available to any other manufacturer (custom-order/manufacturer direct sale)", please set it strait once and for all. Is the regulation set up so that all (not just Tesla) NEW cars have to be sold through a dealership in NJ?

Homebrook | 17. mars 2014

@just an allusion Not sure how I got on your list of those supporting 'competing dealerships'. I do not support dealerships in any way, shape, or form, nor did I say that. What I did say was that Tesla's gallery idea is a great way to get around the problem of states like NJ & TX. I am in complete agreement with Tesla's approach of eliminating the middleman and controlling advocacy of the superiority of their electric car technology. Dealerships are rightfully sensing impending doom and I, for one, cannot wait for it to happen.

blue adept | 17. mars 2014

@bigd

I was just waiting for you to weigh in, as I KNEW you would, because I knew that you don't like be left out, ha!

But, no, it is that state motor vehicle officials in New Jersey have approved a regulation that would require all new car dealers to obtain franchise agreements in order to receive state licenses to sell vehicles in the state, a regulation that was sponsored by the New Jersey Coalition of Automotive Retailers and effectively serves to prohibit companies from using a direct-sales model, which cuts out the middleman and allows the sale of vehicles directly to customers through smaller retail establishments, a move critics say will hurt the electric-car industry's attempts to expand.

I am still reviewing the New Jersey statutes for the specific codes stipulating new car sales though, so far, I've not found anything that deviates from the nation-wide regulations regarding traditional car sale practices.

I'll reply back when/if I find anything contrary to the position I've forwarded throughout my participation in the discussion of this subject.

blue adept | 17. mars 2014

@Homebrook

My comments in regard to your input on the subject were oriented towards your seemingly overlooking the fact that Tesla wasn't doing anything outside of the standard, traditional, industry-specific practice(s) relating to car sales as the option to custom order or buy a vehicle directly from the manufacturer has ALWAYS been available to any potential buyer, ALWAYS, and now New Jersey seems to be tacking on the additional requirement of establishing/contracting third-party "franchises" in the state in order to sell there AFTER telling them (Tesla) that they could run with their preferred direct sales business model and letting them for a period of time...A classic "bait and switch".

Honestly, I don't know why everyone is skimming over this facet of automotive sales and focusing instead on the one issue raised by the opposition as you NEVER allow your antagonist to define the parameters of the engagement/conversation/etc.

Here is an article I picked up from a New Jersey media outlet that provides a fairly complete overview of the situation:

http://www.nj.com/politics/index.ssf/2014/03/motor_vehicle_commission_pa...

Brian H | 17. mars 2014

Anyone can sell Teslas by logging on to their website. Making money from it is rather harder!

jamesd567 | 18. mars 2014

Tesla's strategy regarding dealers is correct for Tesla. Besides that, it rocks the dealer's boat :-)

Since its obvious the challenges with the dealers is a long term problem, I would suggest Tesla boost their selling on the web. How to do this? I could give you a thousand examples of how to make buying a car over the web more comfortable. But I don't need to do this. Tesla can figure it out on their own.

I will give you one example though. Tesla could create a virtual factory on the web so buyers can watch the progress as their car is built.

carlgo | 19. mars 2014

@jamesd567: BMW offers video viewing of X5s in production. I imagine people download and edit this and make a little movie of their car being made. Put it to music.

drax7 | 20. mars 2014

Dealers add no value. Cut the middle man.
They are imposing a cartel by buying politicians,
No different than the crony third world countries.
They offer competition is pure nonsense.

blue adept | 20. mars 2014

@drax7

No different than some mafioso crew muscling in on some small shop owner just to get a cut of their profits for themselves.

Strong arm tactics are suppose to be illegal in this modern world, as are back room dealings, bribery, and other such illicit shenanigans.

khuyentong1606 | 09. kan 2014

"ANALYSIS OF WHY WE WORRY"

Of these points the principal and most urgent is that which reaches the passions; for passion is produced no otherwise than by a disappointment of one’s desires and an incurring of one’s aversions. It is this which introduces perturbations, tumults, misfortunes, and calamities; this is the spring of sorrow, lamentation and envy; this renders us envious and emulous, and incapable of hearing reason.

That's just part of my understanding of why we worry.
but I want you to understand more about that definition. and I would recommend to everyone documentary about it.
http://www.docstoc.com/docs/169488491/WHY-WORRY

carlgo | 09. kan 2014

Also, look into the philosophy of Alfred E. Neumann.

300k | 09. kan 2014

What most people do not understand is the creative book keeping the big car manufactures use, the price of a car is not shown on any paperwork the buyer will ever see, all the invoice etc paperwork is bullshit. This is done by having monthly discounts, quarterly discounts, semi yearly discounts, yearly discounts and etc.
Remember the slimy guy pressing you to buy now before the offer expires? Reason-he gets a percentage of the selling and add-ons total price,don't expect him to share that with you.
Also remember Tesla is a start up company bucking the established market, why do you think all the naysayers on TV news and financial programs go out of there way to say negative things that are half truths.
Tesla needs the extra profit to start the EV battery car revolution,do you see any other manufacturer trying to build a car with more than 200 mile range and a charging system? The big car makers are in bed with the oil companies, have you ever noticed the changing cost of gas when vacation time comes? They want to continue milking the public for every dollar possible.
Also remember global warming,we need to stop burning fossil fuels--worldwide.

Remnant | 14. kan 2014

In the country of "free trade," anyone should be free to sell anything legal to any adult anywhere.

The mandate imposed on manufacturers to sell cars through a dealership should be deemed unconstitutional.