Tesla Clashes With Car Dealers
online.wsj.com
online.wsj.com
> Dealers say laws passed over the decades to prevent car makers from selling directly to consumers are justified because without them auto makers could use their economic clout to sell vehicles for less than their independent franchisees.
To rephrase: Auto dealers increase the price of cars without producing value, therefore they must be protected by law or they would cease to exist.
(That was sarcasm, btw. A tiny car maker like Tesla will never get anything like a fair deal from dealers, especially if state law gives dealers a monopoly. It's a disfunctional marketplace.)
Instead I used an online broker firm. As a result I got about £5,000 off the list price of a £20,000 car. The joke is two years later someone offered me £14,000 for it last month, this is due to the lack of cars which qualify for exemption from Londons Congestion Charging Zone.
Now whilst I would hands down recommend the sales service I recieved from the broker, I still value the fact I was able to try so many differen't cars.
I think that we could potentially see a new system for doing test drives, either as Tesla has, the manufacturer pays for booths, which will often lack local knowledge (dealers know what sells in their patch better than some top down management).
Or, and this could be the interesting one, some form of part time demonstraiters. People who get a heavily discounted lease or similar (who would want a stranger to ruin their own gearbox, lease would be the only option) with the agreement to be available for 10 hours a week of test drives or similar. Given a £30k car leases normally for about £400 pcm, 40 hours a month of demotime would be a fair trade, for what is ultimately a fairly un-skilled job.
Whether that warrants the dealer protection laws, or whether they are effective at combating this problem by essentially creating another monopoly, is very debatable.
So? They are not a monopoly in cars in general - if Ford was not competitive people would switch.
And people don't go to dealers all that much for service, except when the car is new and you have no choice. They don't call them stealerships for nothing.
What evidence do you have to support this contention? Every car dealer I've ever been to has had a very busy service center, often to the point of requiring a week's notice to obtain an appointment. And in CA, at least, state law forbids manufacturers from requiring cars be serviced at a dealership as a condition of honoring the warranty.
People assume it's better there, and since it's free (i.e. warranty), they go.
My evidence is reading car forums. It's not evidence to you since I can't share it, but it is for me. On top of that, to the best of my memory, I do not personally know of a single person (in my entire life) who has ever gone to a dealer for service except when they had no choice (i.e. warranty or dealer only part purchase). (And yes, I know that's not evidence either - especially since you know nothing about me.)
Someone I know once mentioned that someone they know went to a dealer for service and we thought that was the most bizarre thing ever. (i.e. We wondered why are they wasting their money.)
You clearly have been to car dealer service centers - is that for warranty work, or by choice?
With respect to dealerships' monopoly on repair knowledge, at least one state (Massachusetts) has passed a "Right to Repair" act, and car makers have largely made it easier for independent mechanics to obtain service and diagnostic information, so this issue is basically moot now. See, e.g., http://en.wikipedia.org/wiki/Motor_Vehicle_Owners'_Right_to_...
How is that different from price fixing?
Plus, in this specific case the manufacturer (Apple) is also a retailer.
They aren't fixing the price to the consumer. They are agreeing not to advertise a price below a certain value.
That aside, your notion of competition implies all dealers have like models, which is incorrect. Sure, they all have sedans, but I've yet to find a Honda I feel comfortable driving in. There's plenty of other factors, too. Locations, maintenance schedules, manufacturing origin. It's not all that dissimilar from there being different laptop manufacturers.
So, if I really want a Ford (which was the example here), it's nice to have competition between Ford dealers. Otherwise, Ford could just become complacent. Likewise, I'd hate to see fiefdoms form where you really only can realistically buy one or two manufacturers because the third one determines moving in wouldn't be profitable enough.
Why?
Right now dealers aren't that great, they're the Mom & Pop bookstores. Having Ford sell directly would give us a Barnes & Noble experience. I personally think that might be worse.
I dislike dealers for sure and prefer to work on my car myself. I have the feeling I would dislike them even more if they were all run by Ford.
Why?
Do you understand why dealers exist historically? It's completely different than what you're letting on.
So? Who cares
See my blog post on Tesla http://seriouslackofdirection.blogspot.com/2013/06/why-i-hav...
The manufacturers take revenue on shipments to the dealer, not the sell-thru to the end consumer. This allows them to stuff the channel to hit their numbers. Of course, this becomes unsustainable once the effectiveness of discounts & incentives hits the wall and they can't clear the inventory in time for the next stuff job. See 2008 Big-3 explosion, the dealer channel had YEARS worth of inventory of some makes/models.
It's very fair to assume this is a fundamental reason the manufacturers will defend the dealer network to the death. Without it, sales numbers would, by necessity, become a reflection of true demand... Short-term thinking for sure, but very hard to unwind.
Society could simply allocate its resources more efficiently if the law is dropped for all manufacturers. Protecting the status quo at the cost of inefficient allocation can not be justified.
These other companies signed away their point of sale long, long ago. Then everyone gets laws passed which demand that anyone in the future add middle men so they will be equally inefficient.
Of course the argument always comes up, "it's the law, they should abide by it." This argument is always paired with the implied notion that they shouldn't even challenge the law. They should just go along with the law that their competitors wrote to prevent competition. It's a bad law, it needs changing. If it gets changed then everyone can enjoy the same "privilege".
Tesla wants to make something and sell it. This shouldn't require government "privilege" to accomplish. The notion of government planning of industry needs to be squashed.
Manufacturers make their profits on selling new cars. Dealers can't sell new cars at a profit without assistance from the manufacturer. But a dealer makes more on servicing and used car sales than on selling new cars. Manufacturers have no advantage there.
The fear is that if the manufacturer was the dealer, they would have strong incentives to push everyone to buy replacement cars rather than be in the lower margin service and used car businesses. I personally don't think that this fact should be allowed to drive the local laws. But that's the reasoning behind it.
saas style car-as-a-service.. or aaas for the yanks
so.. not leasing.
Remember, this is the industry which inspired the term "built-in obsolescence". It is also the industry which found it profitable to buy regional transit companies, and run them to the ground to encourage people to buy new cars instead. There is a certain level of distrust backed by history here.
i believe it is a matter of restructuring both risks and incentives to make the downstream match the upstream, as you say.. for example, with the saas approach, for say 5k a year, your 5k profit over 5 years per user (add 5k for R&D and 5k for a facelift) turns into 20k profit over 10 years.. and the user gets a guaranteed service - the user and manuf. interests align..
The bigger issue I think, in terms of turning around the current approach, is actually a cultural one in which a car is a personal 'fetish' object rather than the cumulative efforts of a supply chain bundled into a personal transport service.
What you're suggesting here is a mandatory car disposal/recycling fee that must be paid for by the car manufacturer along with an additional parts tax/fee to incentivize improving longevity of the original parts.
1.major cost of delivering a big product with little or no involvement / feedback from customer. 2.customer gets to pay for only the useful life of the service
That is.. saas is a method for sharing risk and aligning usage goals. i am quite definitely not talking about any mandatory structure.
Any incentives due to this 'new' pricing model are incidental.
> I was trying to suggest if the car manufacturing business had a vested (client based) interest in the full lifetime of the car they may design for longevity and upgradeability rather than simply sales and parts.
Structure it how you will, manufacturer's need a financial incentive before optimizing for longer rather than shorter lifetimes. They sell more if cars have shorter lifetimes - 'planned obsolescence' as noted by btilly.
Charging companies directly and creating the financial incentives is one way of causing businesses to have a vested interest in the long-term viability of a product. It may not be what you intended when you wrote it, but a mandatory fee structure is absolutely one way to aligning usage goals.
If there's a pragmatic way to incentivize increasing car and parts duration that doesn't involve some mandatory fee structure and somehow mimics SAAS, for cars, I haven't come up with it.
Culturally, the fetishization of cars is simply a larger symptom of excessive consumerism which isn't something likely to change any time soon (nor will it be easy to change).
Thanks for the response - it's clear we have a difference of opinion on the implications of SAAS, among other things, though I think we can both agree that Tesla shaking up the industry is a good thing. :)
i just happen to think this is the reason for its success
also for a while i used, and loved, zipcar in london and i guess i saw the possibilities..
Basically, everyone in this thread is right.
- Local dealerships were originally founded because in the 1920s, cars were big/expensive and hard to move around the country. Cars needed a lot of repairs, so local dealers to service them made sense.
- During the Great Depression, car manufacturers continued to make cars despite no one buying them. So they forced dealerships to purchase cars, or else get banned from selling their brand ever again (effectively terminating the business, obviously bad if you have loans and other capital investments). This was before overseas competition from Japanese/Korean manufacturers existed, so losing your contract to Ford meant you were pretty sunk.
- Dealerships fought back by getting legislation passed to protect them legally, slowly granting more power to the dealerships over time. Now the balance of power is far, far on the side of dealers - manufacturers cannot shut down dealerships, cannot control who runs them, must provide cars to dealers even if they are in poorly profitable areas, cannot tell the dealers what to sell, no real way to incentive dealers to not be "car salesmen" assholes, etc etc.
" ... about the often-vilified middleman--someone who buys cheap, sells dear and does nothing to improve the product. Munger explains the economic function of arbitrage using a classic article about how prices emerged in a POW camp during World War II. "
http://www.econtalk.org/archives/2008/10/munger_on_middl.htm...