How Tesla is Circumventing Dealerships
autos.yahoo.com
autos.yahoo.com
Ready to drop $65k on a new vehicle I walk into a dealer and the first thing that happens is the sales man walks me to a desk, pulls out a piece of paper and starts asking questions and writing "whats your name?, how much do you want to spend per month?, what is credit like?, we can offer you really great financing." I had to interrupt him to explain that I just wanted to have a normal conversation first to even see if he could get the car. Turns out they couldn't.
After many other slimy conversations with car dealers (and being hassled in the parking lot before I even walked in the door) I finally found a dealer that was willing to special order the car I wanted at the price I wanted. I waited 4 months for the car and 2 weeks before it was ready to arrive a the dealer they called to tell me they didn't want to sell it to me for that price anymore and they were going to sell it for $10,000 over MSRP. Long story short, I had to threaten legal action just to be able to buy the car that I had put a deposit on and waited for 4 months for.
This is not the first terrible experience I have had with buying cars. The "car sales man" attitude is fundamentally wrong. About 80% of the sales people that I talked to at dealerships did not even know about the car I wanted to buy, mentioned the wrong engine or did not even know it existed.
I'm waiting for the day that I can just click "buy now" online and purchase a car with Zappos-like customer support at one fair, up front, low price without all the bullshit in between.
http://www.edmunds.com/car-buying/confessions-of-a-car-sales...
All that aside, I love Tesla's direct sales idea. It is disruptive, but I would think a few forward-thinking states are going to allow it (or not stand in the way of it), and people who want to buy a Tesla direct will just arrange road trips there to pick up their cars. Eventually word will spread, public demand will build, and the political barriers will fall elsewhere.
This graphic (from CR) shows how depreciation accounts for most of the cost of owning a car, over time. http://imgur.com/wrOQu
CarWoo.com saved the day for me simply because I got a price narrowed down before they even knew who I was. The only person I had to say no to after that point was the financing guy who tries to sell you tint, pin striping, and all that extra stuff. (Disclaimer: I have no affiliation with carwoo at all.)
Perhaps it's all about supply - in my case, they had over-supply and were willing to play ball. If you have to get a car special ordered, you're already over the barrel as far as they are concerned.
Most dealerships now have dedicated online sales managers that workd more like fleet sales than a traditional salesman. You email, tell them what you want, and often get pretty straightforward answers. You can do the whole thing online, and walk in with a cashiers check the day you want to pick up your vehicle. Or often have them drive it to your doorstep.
It cuts through much of the bullshit of going to a dealership. This is really the only worthwhile way to buy a new car, particularly a special order.
Plus, you have a paper trail.
After that it's just a matter of keeping your eyes open as they can sometimes try to change the price on you or some other cheap shot. The internet managers at dealers generally seem a bit easier to work with but beware of their managers that start pulling out all the tricks. I've even had a dealer finalize a price, hand me the papers to sign and they conveniently added a $2,500 fee that "they add to all purchases"
When you go from working with internet companies all day to old-fashioned car dealers suddenly the convenience of straight forward "honest prices, no surprises", zappos customer service and a generally painless sales process is gone.
Maybe I'm spoiled from buying too many things too easily on Amazon all day with 1 click purchasing at fair prices but even if I am, why can't car sales be this way? It even seems like less hassle for the dealership and the ethical thing to do.
Oddly enough that was the most patient I ever was with a car dealer. With places like carmax available it doesn't make sense to deal with any hassle.
Further, the credit crunch a few years ago would have wiped out enough of the US Auto industry to put a lot more dealers out of business. The rebate bill that was passed was a massive handout to US auto dealers. All those people making $500K to $1m per year owning dealerships are essentially on welfare.
If more of the industry has been allowed to restructure after the credit crunch, Tesla would not have to worry as much about a legal battle. The public would rightly view Tesla as offering an innovative approach that will benefit consumers.
The worst part of it is that the reason the automotive OEMs tried to sell directly a few years ago was to put an end to predatory practices (dishonesty, etc.) by auto dealers. There is no reason car dealerships should quote a price and engage in haggling, etc. Many customers (particularly the elderly and the poor) are the direct victims of these practices, and they are supported by the Federal laws that prop up auto dealers.
[1] http://www.nakedcapitalism.com/2009/05/how-is-chrysler-close...
Chrysler was able to force some to close by holding over the dealer organizations' heads the threat that the government would not do the bailout and all Chrysler dealers would go away.
Unlike a market-based failure, the government-led restructuring was surely not done fairly and likely some reputable and honest owners were penalized for not being more politically connected.
If the American auto industry had totally collapsed, there wouldn't have been any cars to sell.
There was at least one offer to buy Chrysler (from Penske). I'd be surprised if there weren't any offers to buy GM.
Of course, those offers involved real bankruptcy. The resulting companies wouldn't have kept the UAW contracts and pension obligations and they wouldn't have been able to keep the tax-loss carry-forwards either.
They'd have kept dealers based (more) on economics instead of political pull.
And, the bond holders would have gotten their cut first.
GM makes sense at the right expense point.
Okay.
> buying a company the size of GM at the time of the bailout would still have been a very difficult proposition.
As you point out above, GM could have been sold in parts. (Some of the brands and models are independent of the rest.)
Basically it would have been a no-reserve auction with the money going to the bondholders. (They'd have taken a loss, but wouldn't have lost everything.) The winning bid is based on what folks are willing to pay, not what someone thinks GM is worth, book value, etc.
There's actually a lot of money available for such deals. Yes, 10s of billions and hundreds for "special" deals.
Maybe Japan, Korea, and Europe would have had most of the business for a while. Ford was already international and didn't take any of the bailout either.
Nah. Democrats and Republicans alike would have us all believe we'd be riding bikes and horses to work because, magically, no cars would exist for at least five years.
Total shit.
The PBGC has been under-funded for a long time (due to crony capitalism and corruption benefiting both parties and the firms, at the expense of workers' security) and the result was that the automakers had a lot of extra leverage in bailout negotiations b/c the alternative for the government was the dissolution of the PBGC and the public realization of the fraud that had been going on.
Among other things, the PBGC only guarantees pensions to the tune of $45k/year with no benefits (unlike the UAW pensions).
Basically, you fly over there, show up at the factory, you get treated like a dignitary, they show you "baby pictures" of your car being built, and then you drive off with it and get to cruise around Europe for 30 days. When you're done, you drop the car off at one of a half dozen ports and fly home. Your car arrives a few weeks later.
You get about 10-15% discount and it's a very cool experience. A friend did this for Porsche and while the car was great he said the experience was a little lacking. That they do such lower volume they didn't have the program as perfected and it was more about just showing up and taking possession of the car.
Anyway, that's obviously not what Tesla is doing -- but they should. They should definitely have a California Delivery program. They probably already do.
European delivery works out because you don't pay new car tax if you buy the car in Europe, drive it enough so it's no longer new (~100 miles or so) and ship it home. This exemption was originally put in place because a bunch of GIs wanted to bring home the sporty little cars they drove in England during WWII.
http://www.bimmerfest.com/wiki/index.php/ED_Summary#Why_is_E...
There is a huge forum just dedicated to BMW European delivery if you are interested and it helped me out a lot when I was researching this back then. Also someone there every year I believe posts the internal pricing for BMW US/Euro wholesale and with dealer markup so I just went to my local US dealer told him I would give him $1k above German wholesale and he filled out all the paperwork for me. I flew to Munich a few months later showed them my passport and off I went. It was great.
Link here: http://www.bimmerfest.com/forums/forumdisplay.php?s=68aa7500...
In fact, once BMW ships it to the states you normally pick it up at the dealership anyway. I believe some eager beavers pick it up at the New Jersey dock but I think most wait until the car is delivered and titled in your home state (and any shipping damage is discovered/rectified).
Also, there is a recommended break in period on the new engines, precluding you from going above 6k RPM, IIRC. Still, if you did a European delivery, it'd probably be very possible to legally drive 100+ MPH on the Autobahn.
No, not 'probably very possible' - it's entirely legal to do 155mph+ on the Autobahn. There's one heading straight out of Munich. (most German cars except Porsche are limited to 155)
Still, running in the car first might be a good idea.
They can't give the same discount (the discount stems from avoiding new car taxes).
But as an American example, Corvette has a program where you get to participate in the car building process and you take delivery in KY. What makes that program cool is that you get to see the heritage (the Corvette museum)
[1] http://www.bmwusa.com/Standard/Content/Experience/Events/Eur...
[2] http://www.mbusa.com/mercedes/european_delivery_program/excl...
[3] http://www.volvocars.com/us/sales-services/sales/volvo_overs...
As of February 2012, the Porsche European Delivery Program is available at no additional charge (italic emphasis is mine):
"Porsche Cars North America today announced several enhancements to its European Delivery Program. The revised experience provides customers the opportunity to purchase their new Porsche vehicle from any participating authorized Porsche dealer in the U.S. and take delivery of their new car at their choice of one of the automaker's two German factories. The program is now offered at no additional charge to customers and includes access to discounted airfare and hotel accommodations." [1]
I wonder if the power hookups for refrigerated containers are beefy enough to keep a Tesla charged…
There are no laws "currently" is a better phrase. Should Tesla become a serious maker of cars; having one model and a goal of only 35k a year keeps them at the size of Porsche; then they are going to attract attention. That they have received Federal money and their cars are subject to incentives by the federal government and states will put pressure on legislatures to extract "something" from them.
To put their sales goals into perspective, a luxury brand like Lexus can sell over 20k a month. The top five sell a hundred thousand plus cars per month. Chart of August sales is at http://www.autoblog.com/2012/09/04/august-2012-big-jumps-edi...
Amazon's recently experiences with sales tax collection shows that a motivated government will keep its eye out for "business presence" and then regulate when it becomes politically useful. Freedom's just another word for something too small to bother regulating.
On another note, states already have rules dealing with buying a car in another state, so it is settled law.
When Amazon was "just" an online "catalog", it could take advantage of cases like Quill Corp, which held that a catalog with no physical presence in a state and which sold few goods into that state did not have sufficient nexus to establish the state's jurisdiction to tax.
However, Amazon is the single largest retailer by volume in nearly every state in America, topped only by Walmart. It sells a substantial volume of goods into every single state. Legal commentators, including numerous former SCOTUS law clerks, have noted that if Amazon were to challenge state sales taxation today, it would lose because the justification set forth in Quill does not apply. And that's with a significantly more conservative/libertarian SCOTUS than in Quill.
Transit through a state is not considered a business or a business activity, hence the trucking company could not be regulated. It could be different for a travel company, but in such case that would be services income which is not subject to a sales tax.
With a travel company, the distinction is that the journey is as much a part of the business activity as reaching the destination.
FB link: https://www.facebook.com/photo.php?fbid=10151155042807801...
Direct image link: https://sphotos-b.xx.fbcdn.net/hphotos-ash4/376922_101511550...
I also know a guy that sells cars and he managed to get a customer to pay $2.5K over the price for a NEW car for the USED car... Same model and accessories.
I'm glad that theyre pioneering this as I think it's going to be a viable business model
I wish Elon Musk would go into some kind of medicine/healthcare startup next, after fixing cars and space.
But unfortunately, it is very unlikely according to what Elon said in an interview: Source: http://www.gq.com/news-politics/newsmakers/200901/elon-musk-...
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Elon: "It's important enough to be on the scale of life itself, and therefore goes beyond the parochial concerns of humanity," Musk says of our interplanetary destiny. "We're all focused on our little things that are of concern to humanity itself. People think of curing AIDS or cancer as being very important, and they are—within the context of humanity. But curing all forms of cancer would improve the average life span by only two to three years. That's it."
"In other words, while eradicating disease is a worthy pursuit, and would extend the lives of individual human beings, my life's work is extending the life span of life itself."
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Interesting to hear that coming from someone who has 5 kids. http://www.forbes.com/pictures/mkm45fjlie/elon-musk-10/#gall...
By the way, Elon did talk about some projects he would like to do if he had the time. http://www.youtube.com/watch?v=5FESP1h7IZM
""" "People don't necessarily enjoy that whole transaction," Blankenship says. "If we can be in front of people on a day-to-day basis when they're not thinking about buying a car…after a while, they'll drop back in again, in an environment where there's no pressure. """
The Roadster has a base price of US$109,000 in the United States, GB£86,950 in the United Kingdom, A$191,888 in Australia, and €84,000 in continental Europe.[5]
Yes, the showroom in Chelsea is "Cool". But its like any other Art gallery, with hot underpaid 23 year olds staring blankly at iMacs. Ie, its just another White Cube. With a car parked inside.
But I think your last point is the key one!
That leaves 54k unaccounted for. This is cash straight into the back pocket of Tesla. Shipping might be around $2000 per vehicle - assuming they pay 'full freight'.
Similar figures apply to any premium brand - a $55k BMW will set you back about $110k in Australia. It gets worse as you go up the scale - a Lamborghini Avantador costs $379k in the USA, but $745k in Australia.
The reason this price gouging goes on is because there is a further regulation that prevents parallell imports - you cannot import a vehicle (personally) unless you have lived in the country of purchase for 12 months, and used the vehicle for that entire period. It is also impossible in most states to register a LHD vehicle under 30 years old.
These regulations prevent people from flying to SF (or London), ordering a new RHD Tesla from the dealer there, and shipping it home on a boat. Thus they hand Tesla (and other makers) the ability to gouge Australian buyers by 40, 50, 100k - whatever they think they can get away with.
All these regulations and taxes are created with the idea of protecting the tiny local car industry - 224k cars made last year - but, to add insult to injury, the government regularly gives the foreign-owned car makers (Toyota, GM and Ford) cash payments to stay and keep producing.
So Australians get more expensive cars, and pay higher taxes so that global car companies don't close the unprofitable operations.
The entire thing is a poster child for the damage bad regulations and policies can cause.
EDIT : I also forgot about 'ADR' - which is Austalian design rules. These force a manufacturer to re-do compliance testing for local rules, which, although very similar to EU standards (and in some cases less stringent) - require a manufacturer like Tesla to re-crash a vehicle and modify it in insignificant ways. This raises the costs of bringing low-volume vehicles even higher. There has been talk of adopting EU standards, but it has never gotten anywhere.
You should hear Toyota Australia go on about parallell imports - they condemn the cars as unsafe - despite those cars being built in Toyota factories in Japan. It is mind boggling.
Meanwhile, the last round of Federal Government 'assistance' (or co-investment, as they now spin it) that was given to GM was mostly used for redundancy payouts for factory staff.
Support for the regulation + taxation + duty protection for the Australian car industry has bipartisan support - so it's not likely to go anywhere any time soon.
FYI - Never, ever simply walk into a dealership for anything but a test drive. You can avoid a lot of the car buying bullshit by getting your own financing and dealing strictly with an "Internet Sales" department.
This. you can price, including out of state, etc. for in-demand models w/ price markups or inventory issues, this can be an eye opener. they e-mail you an invoice. that locks in a price. the prices are pretty decent, and benchmarked to invoice.
Alternatively, https://www.truecar.com/ can be used by anyone, is mostly using the same data and dealer network, but the prices might be slightly higher.
(Disclaimer: I'm a TrueCar employee.)
Apparently, they've wised up since then, because the link doesn't work:
I found a bunch of links that talk about that: http://www.theatlantic.com/business/archive/2009/08/why-sell...
I have a hunch a large part of retail sales in the post amazon economy( or after best buy) will transition to this model. Large brands set up stores in malls where you can touch and feel your product. You can then go online and deal with the paper work/ordering.
it also surprises me the legality of forcing you to sell via dealerships has not been challenged.
This is a key idea on the modern manufacturing floor. It is pretty much a straight Toyota Way play. I'm guessing they are using a different name than 'kanban' though. :-)
I visited the factory in Munich and you can see a big line of doors, seats, carpets, etc feeding up to the assembly line. Each is computer controlled, and when the intended vehicle gets to the seat install station, the correct seat (style, fabric, RHD/LHD) meets the correct car. When the doors arrive, they've got the right interior bits already in them, and all the wiring loom bits match up with what is already in the car, even if the prior 20 cars have all had different options (color, trim, options, etc).
Meanwhile, at the back of the factory, JIT delivery trucks are delivering the next set of seats/steering wheels/seatbelts etc - all barcoded, all ready to be loaded onto the assembly lines in the correct order.
It's truly eye-opening to watch a highly automated factory like this in operation. When a dealer in the USA presses the 'order' button - suppliers, factory, workers - everything lines up and out pops a fully finished, completely unique car.
Also, I've heard that you can get quite a deal on Japanese imported cars into Europe if you know what you're doing. They've some strict regulations which adds to the cost of owning a secondhand car, meaning that they look to sell off cars quicker than other countries.
But there is another factor here that determines what you’re buying in the secondhand car market: the notorious “shaken.” This consists of all the bits of bureaucracy you need to keep your car on the road — weight tax, vehicle inspection and compulsory insurance (car tax and more comprehensive insurance coverage are separate). If you buy a new car, you have three years until you need to jump through the hoops and start forking over cash. After that, you have to do it every two years, and it can easily cost you over 100,000 yen each time.
The end result of this is that people tend to sell their cars when the “shaken” runs out. Dealers will usually arrange “shaken” so that potential buyers have two years to go — a big selling point in the secondhand market. The upshot of all this is that used cars will usually be available when they are 3, 5, 7, 9, or 11 years old. So the first thing you want to check is the length of “shaken” left.
http://www.japantoday.com/category/lifestyle/view/buying-a-u...
Anyone have experience of importing Japanese cars to Europe?
£400 / year just to keep a car on the road seems steep! But if it includes insurance cover, then it's not really very different to the UK market which has similar requirements (annual tax, annual inspection, minimum insurance level). In the UK, you generally pay these yourself regardless of the age of the car (except for the annual inspection which kicks in after three years, but only costs £40). Interesting how the psychology of suddenly being faced with the 'new' annual cost (which of course you've effectively prepaid for the first few years as part of the purchase price of the car) nudges people into getting rid of their cars instead of keeping them running.
Imagine how much better the Chevy Volt would sell if it were 25% cheaper...
From my own experience I know that even products that normally have fixed prices in the first world (cell phones, bikes, anything really) are sold more like cars in a lot of developing countries where bartering is the norm. You might find them available for drastically different prices even in the same locale and it is frequently necessary to waste time and energy keeping track of the going price for a particular product that you are considering buying.
basically, the economies of scale cause the production of large batches of cars that then all needed to be sold (even that last white one on the lot).
Of course the buyers are uneven in their knowledge, so in the phone market you have a range. Similarly in cars there is now an opportunity with a small number of highly informed and opinionated consumers who find Tesla attractive. (disclosure: I'm a happy shareholder)
With the current auto market, there is a lull between what consumers want and the production facility. Remember when Ford was cranking out SUV's and then the economy tanked, gas prices went through the roof and nobody wanted SUV's anymore? Ford's plants were still producing SUV's and shipping them to dealers who didn't want them and couldn't sell them. They were taking a huge loss on every one of those Explorer's they produced.
Tesla's model allows them to change much faster to the needs of the consumer, without wasting a lot of production costs and overhead. I think the time is right for a huge disruption in this industry.
The idea is to do away with the dealership for anything not related to the actual transaction (they handle financing efficiently, etc.)
Instead, the system relies on individual agents who have parking lots of different cars within a category and across brands. If I were a mid-size specialist, I'd be very family-minded and feature the Accord, Altima, Impreza, etc.
This would allow a customer to make one stop to cross-shop, and they get highly specialized counsel without any (obvious) incentive to sell hard on a certain brand.
The agent then hands off the buyer to the dealer with a fair price negotiated (using various online tools) and the buyer just closes the deal. The agent gets a cut of the sale Cars.com style.
Granted, it's not a highly scalable business, but it could be a worthy self-employment idea (with the upfront capital to do it, or loaner cars from dealerships), and the customer experience is vastly superior.
They are, however, still a car dealer as customers are not able to buy the car online, but they are able to pay to ship the car to the nearest Enterprise dealer. Like every other dealer however, there is a surprising amount of paperwork.
It wasn't entirely painless, but it was the closest to a pleasant experience as I was comfortable with. I was not comfortable negotiating how much I lose with a normal dealer.
I wish I could buy a Tesla vehicle now, but I don't have the money to do so, and I don't want to be in debt for a long time.
I love this sales tactic -- tell the customer that your sticker prices are set in stone as if it's some sort of benefit.
More transparent pricing is always better for the consumer. It forces the market to price their items more competitively.
Now imagine if everyone got their Apple at a different price based on the mood that the Genius Bar guy was in that morning.
It's not unheard of for people to have to purchase a car sight unseen, never driven. Dealers may give you an 'out' - as in final delivery is subject to a satisfactory test drive - but few people are going to knock back a car they've been waiting months for.
They released way too early on that model - new model, new factory, first consumer SUV for the brand.
You might have been lucky but they did have a lot of problems.
Ironically now they make an excellent used buy - like evolution, all of the buggy ones have been crushed, and the ones that remain are the solid examples. But their terrible reputation means they don't cost much at all.
Incidentally, my boss at the time bought one as well, and weirdly enough he let me drive it on the first day he owned it. There is no freaking way I'd let an employee drive my brand new car, but he seemed to think it was cool. Still weirded out by that to this day.
http://green.autoblog.com/2012/07/30/bmw-will-sell-first-car...
I'm in Toronto, they're opening up a dealership in a mall ("Yorkdale" for the locals) and they have one service centre in each major city they operate in (Vancouver, Montreal, Toronto). The sales person told me they plan on opening more.
You pay $600 once a year for maintenance & service. Additionally, your car is constantly phoning home to alert Tesla HQ if something looks awry.
Around here the stealerships all claim to service anything you can push pull or drag in regardless of brand. GM service dept loves to service your Ford or Toyota, etc. There's no lifetime employment / company man effect, the greasemonkey at Ford probably worked at the GM or Toyota dealership last year anyway.
Finally, its an electric car, what are they going to do, change the oil and spark plugs?
Allowing the manufacturer to sell their own cars works really well here.