# Tesla's Sales Model Is Sending Car Dealers 'Over the Edge'



## EVDL Archive (Jul 26, 2007)

Michael Hinshaw considers the implications of Tesla's sales and service model that flies in the fast of decades of industry convention.

More...


----------



## poprock (Apr 29, 2010)

It's the end of the world as we know it! Can you imagine a world without car dealerships? The last place on the list of honorable occupations will be vacant.


----------



## Karter2 (Nov 17, 2011)

I dont really see much difference between a normal car "Dealer" outlet, and a Tesla's "shop" model. ...other than tesla will have full control over pricing with no competition from other outlets.
Infact this is very similar to the "Apple Store" model which prevents competitive pricing by normal market forces.
One thing for sure, you can bet Tesla is using this in order to benefit themselves.... rather than the customers !


----------



## JRoque (Mar 9, 2010)

Hi.


Karter2 said:


> I dont really see much difference between a normal car "Dealer" outlet, and a Tesla's "shop" model. ...other than tesla will have full control over pricing with no competition from other outlets.
> Infact this is very similar to the "Apple Store" model which prevents competitive pricing by normal market forces.
> One thing for sure, you can bet Tesla is using this in order to benefit themselves.... rather than the customers !


I tend to agree with that statement. OEMs selling directly will not immediately mean lower prices. They will NOT lower today's dealer prices by a dime, why would they? What will happen is that OEMs will no longer be able to hide behind the dealers. Screwing a customer over will be their fault and directly tie it to their product and reputation.

As for Tesla's intention, you're right again. They're obviously looking out for themselves. But customers will benefit, too, if incidentally. I for one am done buying new cars from dealers. I've gone 3 days straight negotiating with a dealer so I can play that game but, why should I have to? That won't happen with OEMs selling directly. 

Dealer competition pricing concept is as false as they come. They all start at the same "manufacturer's invoice" price - the one you would pay if you could buy directly - and then ADD on top of that their own fees. Tesla has plenty of competition incentive to lower their prices or improve their products. In fact, there seems to be a hurdle at every turn they take. They've had to over-achieve at every angle just to level the playing field. 

Direct OEM sales will promote better products. See what's happening with Apple. IMHO, their products are inferior to similarly priced Android devices. What's keeping Apple going is the cult following they've enjoyed since being the underdog (to Microsoft) since the 90s. They're also so much a status and fashion statement that people buy their wares in droves. That is, people want their products regardless of pricing but competition from Google keeps them trying their best. Same thing happened to US car manufacturers when Japanese cars started showing up in the late 70's.

JR


----------



## Arlo (Dec 27, 2009)

I don't think having "car dealers" will help pricing get any lower. In fact that's more people who need paychecks that will be taking money from the car sale... So most likely higher prices.
Most car dealers sell cars with little profit to get a customer for service and repair. But when you have a electric which requires 0 oil changed and has regenerative brakes so the friction brakes last longer and very few moving parts there really isn't a lot of money to be made on service.
So from a car dealer stand point its not a sale they really want to make.

As for dealers competing for your sale... How often is a GM dealer competing with another GM dealer? First off most dealers are not allowed to be to close to each other when selling the same brand. So this competition is not really possible.

Tesla is selling a Hi end car most people on DIY car forums will not be in the market for a Roadster or model S simply because its out of our price range. But What Elon is doing is great and when they bring a lower priced car to market I will be look very hard at it. 

I personaly would like to see all sales skip the Dealers.


----------



## dauphine (Jun 3, 2013)

Karter2 said:


> I dont really see much difference between a normal car "Dealer" outlet, and a Tesla's "shop" model. ...other than tesla will have full control over pricing with no competition from other outlets.
> Infact this is very similar to the "Apple Store" model which prevents competitive pricing by normal market forces.
> One thing for sure, you can bet Tesla is using this in order to benefit themselves.... rather than the customers !


You post is so correct. I always get a kick out of people kicking businesses around. The car dealer "model" was and is continually created by the dealer and the CONSUMER. When I go into a dealership I have a "buying" plan. When I owned a vehicle dealership for ten years I had a "selling" plan. Most of the consumers won't let you price things "fairly" (there is no such thing as FAIR anyway! "Fair" is a non-word used by people who don't have a legitimate argument and two year old's as soon as they learn to talk). Once again humans are predator animals (you have eyes in the front of your head. It's the reason horses are cautious of you. Their eyes are on the side of their heads. Prey animals). The only moral way for predators to interact is either through trade or violence. Intelligent trading requires "work". Consumers have more information than ever available to them to do their "work" research to come up with the best "deal". Many wish to waltz in and just have the trade handed to them on a silver platter. Ain't gonna happen except at those dealerships that are about to go under. Successful dealerships embrace the "trading" idea. Their only job is to be more successful than the other dealerships they are competing with. They may have to do this through price "slight of hand" (insider advice: never buy the extended warranty but be grateful there are other "prey" humans that do so you get a lower price on your vehicle), superior service, aggressive or even non aggressive sales technique, advertising, inventory quantity and/or type and so on. While juggling all of that they are facing lawsuits, insurance problems, OEM problems, zoning problems, employee problems, wife problems, girlfriend problems and sometimes wife and girlfriend problems together! And so on. 

Because there is so much downward pressure on a dealerships bottom line they absolutely must get every sale they possibly can. The bottom line profit consists of an aggregate of slim profit sales and fat profit sales and everything in between. That is why one person gets a car for one price and the next pays a different price. It's NOT personal. Don't want to do the work? Get a Costco card and use that for a 5 minute mediocre deal. Don't bring a trade in.

Trade ins: No dealership wants trade ins. To get the MSO from the OEM they have to add the trade money (read cash from their own pocket) of the trade to the cash they have to get to actually title the car. Ever wonder why you don't get the plates for a week or so? Look up MSO's and titles. 

Do the "work" (there is that word again, today's young people don't want to hear. They all want to scream "unfair! there by avoiding "work") and sell your car yourself. Don't expect the dealership to treat you "fairly" over your trade in. Most dealerships, behind the big buildings and the glamorous signs and the pimpled kids in suits descending on you in the parking lot, are running on credit. Coming up with money for your trade to be sent to the OEM to title your car hurts and may not even be available depending on the times. If you can't give your old car to your kids or sell it yourself take it to the dealer and bend over a keep your mount shut while they "shove it in".

OK I got a little heavy handed but I was trying to give a bit of a view of the other side. There is plenty of advice on line about how to develop good "buyer plans". Do them and "screw" the dealership and expect to be screwed. Have fun and a sense of humor (I just told the financing gal how "scared" she had made me about the extended warranty that I wasn't sure I would buy the car or even sleep at night! After jacking with her for a bit we both had a good laugh, she said "your not going to buy any of these are you?" "Nope!" I initialed every where needed to "get rid of the dealerships liability" Hah!! and we moved on. Sense of humor!

Now whatever "deal" you get, you created it. If you get buyers remorse that's your fault. You didn't do enough work. If after sales support isn't good enough then you didn't do your work. If the vehicle didn't meet your needs then you didn't do your work. If you chose price over "after sales reputation" don't expect stupid "laws" to fix it. When it comes to after sales support you can't make a silk purse out of a sows ear no matter how many "laws" you have on your side!

Tesla will have dealer networks when they get big enough. You will "demand" it. The current dealer stuff pushing back against Tesla is just dealerships doing what they have to do to protect their turf. Tesla is doing what it has to do to steal turf. YOU ARE THE TURF! Tesla and the other dealers are not concerned with you at all.


----------



## palmer_md (Jul 22, 2011)

Thanks for clearly spelling out why the dealer sales model is inferior and the direct to consumer model will win out.


----------



## JRoque (Mar 9, 2010)

Hello all,


palmer_md said:


> Thanks for clearly spelling out why the dealer sales model is inferior and the direct to consumer model will win out.


Hi. You took the words out of my mouth. Literally, I was ready to type that. Yep, dealerships don't work for consumers, as anyone will tell you, and by the looks of it, it doesn't work for the dealer side either!

JR


----------



## dauphine (Jun 3, 2013)

JRoque said:


> Hello all,
> 
> 
> Hi. You took the words out of my mouth. Literally, I was ready to type that. Yep, dealerships don't work for consumers, as anyone will tell you, and by the looks of it, it doesn't work for the dealer side either!
> ...


None of you get it. You created the dealer network! You, not the dealers. It probably started in the 1850's with the big steam tractors. 

So I am guessing Tesla takes trade in's? Right?

Just one small example of why "you" created the dealer network.


----------



## trukr (Mar 17, 2013)

dauphine said:


> Now whatever "deal" you get, you created it. If you get buyers remorse that's your fault. You didn't do enough work. If after sales support isn't good enough then you didn't do your work. If the vehicle didn't meet your needs then you didn't do your work. If you chose price over "after sales reputation" don't expect stupid "laws" to fix it. When it comes to after sales support you can't make a silk purse out of a sows ear no matter how many "laws" you have on your side!


If I'm expected to do all the work to figure out an appropriate price and the right vehicle for my needs, I see no reason for the salesman to get any commission at all. In that case, why should he/she earn anymore than the kid who took my Big Mac order?

Oh I get it. The sales commision is the buyers penalty for having the audacity of asking a salesman, relevant questions about their products.


----------



## JRoque (Mar 9, 2010)

dauphine said:


> None of you get it. You created the dealer network! You, not the dealers. It probably started in the 1850's with the big steam tractors.
> So I am guessing Tesla takes trade in's? Right?
> Just one small example of why "you" created the dealer network.


Hi. But what were out choices, if not to have a dealership? Perhaps in principle is was well intentioned but it's not working for the consumer. Right now it is the law, how crazy is that for a country based on freedoms? And they tried to prevent someone from registering a car that was not sold by a dealer. No one in NY would have been able to build their own, say, EV.

You might be surprised to know that not everyone wants to have a game plan, study angles to trick the other or have a sense of humor before buying something. Also, 85% of the people polled don't *want* dealerships. If we created dealerships, it's time to abort.

JR


----------



## njloof (Nov 21, 2011)

I thought the theory behind independent dealerships was to have someone to repair your car if the manufacturer went ashcan. May not be relevant in today's world of independent repair shops, but there it is.

And I don't know an independent repair shop that would do much more than replace the tires on a Tesla.


----------



## dauphine (Jun 3, 2013)

trukr said:


> If I'm expected to do all the work to figure out an appropriate price and the right vehicle for my needs, I see no reason for the salesman to get any commission at all. In that case, why should he/she earn anymore than the kid who took my Big Mac order?
> 
> Oh I get it. The sales commision is the buyers penalty for having the audacity of asking a salesman, relevant questions about their products.


The salesman is there to facilitate the trade. To do that he has to know something about what he is selling but that is NOT necessarily for your sake. His primary job is the front line in the "sellers plan". He is there to earn the greatest profit for the seller. He may like you (I liked most of my customers), he may like his product (I did) but that is incidental. He gets his commission from earning the highest price for the new vehicle and the lowest price for your trade in OR other stuff like F&I, extended warrenty's etc. Safeway doesn't need salesmen because for smaller items YOU are willing to just pay the price listed. Few people do that with a vehicle (which is why I say that Genarically "you" created the dealerships. 

I'm not in the game anymore and I'm just trying to tell you how it is played so maybe you can have a little empathy for the dealer BUT go after the "deal" instead of just emotional responses of anger. There are many different kinds of dealerships. Do your research and reward the best one based on your idea of what they should be. The worst (IMHO) dealerships "trap" the consumer that wants to be led. Fine I have no problem with that. That consumer rewards that kind of behavior. Other dealerships have good service departments, more or less soft sell and moderate prices. Those are the ones I try to reward but thats just me and I pay a little more. 

Back to the Tesla thing. I got no problem with capitalism being a free for all. If a company wants to sell direct so be it. That is the most efficient trade system. Today we have the internet which will generate feedback so the really bad apples can be weeded out. Get rid of all the consumer protection laws, law suits, bonding, OSHA, all of it and let the buyer beware. I think it would make for a smarter population. If driving or towing your Tesla to California for warranty repair is your thing I think you should be free to chose that. 

Tesla will probably have to set up "warranty repair stations locally" to meet the consumer demand and those repair stations will eventually become, .....wait for it, dealers.


----------



## trukr (Mar 17, 2013)

dauphine said:


> The salesman is there to facilitate the trade. To do that he has to know something about what he is selling but that is NOT necessarily for your sake. His primary job is the front line in the "sellers plan". He is there to earn the greatest profit for the seller. He may like you (I liked most of my customers), he may like his product (I did) but that is incidental. He gets his commission from earning the highest price for the new vehicle and the lowest price for your trade in OR other stuff like F&I, extended warrenty's etc. Safeway doesn't need salesmen because for smaller items YOU are willing to just pay the price listed. Few people do that with a vehicle (which is why I say that Genarically "you" created the dealerships.


I get why the salesman is hired, and what kind of expectations his boss has of him. What I question is your statement that he is their to facilitate a trade. This seems false based on your own statements. If we do our homework we will be rewarded with whatever our priorities are. Whether that be price, service, convenience or some combination there of. In this case, we've already decided and the salesman is not needed.

If we don't, then a salesman is needed to make us pay fully for our mistake. So really what the salesman is there for is to take full advantage of uninformed customers. Not to simply facilitate a trade.

I get why dealers exist, and I'm glad we have them. I don't think they have any right to tell a manufacturer that can't directly sell their own product though. And personally, I never buy from any dealer that advertises a price in bold with fine print saying price is assuming blah blah trade in or down payment. That's the only thing a dealer can do to solicite an emotional response of anger from me.


----------



## dauphine (Jun 3, 2013)

JRoque said:


> Hi. But what were out choices, if not to have a dealership? Perhaps in principle is was well intentioned but it's not working for the consumer. Right now it is the law, how crazy is that for a country based on freedoms? And they tried to prevent someone from registering a car that was not sold by a dealer. No one in NY would have been able to build their own, say, EV.
> 
> 
> You might be surprised to know that not everyone wants to have a game plan, study angles to trick the other or have a sense of humor before buying something. Also, 85% of the people polled don't *want* dealerships. If we created dealerships, it's time to abort.
> ...


"Well intentioned" In what naive world would that come from? Dealerships filled a void created by consumer demand (for more than just catalog ordering) and factory inability to meet the demands of a spread out consumer base. 

Dealerships didn't used to be governed by "the law". They existed to fill the voids the consumer placed on the factory (1850's steam tractor dealers). Dealer "licensing and bonding" became law when consumers wanted structure to protect them from the worst dealership elements. For instance taking your money and putting a temporary plate on the new vehicle but then pocketing your money and going to the casino with it neglecting to get the MSO to title the car in your name. States then AT CONSUMER DEMAND started licensing dealers and insisting they held a bond (insurance to perform). 

I guess I can take it that those of you that want Tesla to sell wherever they please without jumping through the hoops are willing to give up all the rights and protections your states have put into place with the licensing and bonding and control placed on vehicle dealers? I am actually with you on that. The dealerships wont go away but real freedom will prevail, prices will go down and consumer protection will cease to exist. 

Sales is not all "trickery". Many studies have shown as has life that getting people to "move" sometimes requires a push. Many times (probably your 85% that don't want dealerships) people know that, I guess internally. A lot of that kind are the ones that get taken in by hard sell. Whatever the reason or type of salesman or consumer "nothing happens until someone sells something". Think of sales like a "hill". Many people come into a dealership and actually want a "push" so they will do something. Ask yourself this: Why would anyone go into a dealership? What, they don't know they are going to be pressured to buy something?

I remember when I was young I used to think sales was an awful profession. There are many aspects that seem to run counter to social behavior but over time I came to realize that it was a major part of human existence and indeed *wherever it didn't exist tyranny filled the void*. No exceptions. Is it not better to ask someone and convince them to marry you or force them? (Maybe it's the same result either way!)

"Get rid of dealerships" I don't think so. Consumers demand a local source for sales and service and the factories could have supplied that but it was to expensive for them to do that. Local factory managers never "pinch pennies", bother to know the local market or push sales like an owner with a stake in the game.

Dealerships fill a void created by consumer demand ( I know you don't understand the demand is an implied one. It all depends how you ask your 85% the question: "So you don't care about after sales warranty repair?"). Laws governing dealerships were created by consumer demand. ("So you don't think dealerships should have to conform to any legal control?") Tesla wishes to avoid both the natural reason dealers exist and also the legal one.


----------



## dauphine (Jun 3, 2013)

trukr said:


> I get why the salesman is hired, and what kind of expectations his boss has of him. What I question is your statement that he is their to facilitate a trade. This seems false based on your own statements. If we do our homework we will be rewarded with whatever our priorities are. Whether that be price, service, convenience or some combination there of. In this case, we've already decided and the salesman is not needed.
> 
> If we don't, then a salesman is needed to make us pay fully for our mistake. So really what the salesman is there for is to take full advantage of uninformed customers. Not to simply facilitate a trade.
> 
> I get why dealers exist, and I'm glad we have them. I don't think they have any right to tell a manufacturer that can't directly sell their own product though. And personally, I never buy from any dealer that advertises a price in bold with fine print saying price is assuming blah blah trade in or down payment. That's the only thing a dealer can do to solicite an emotional response of anger from me.


When I said trade I was not implying that in a some moral sense of an "imaginary fairness". Trading is "moral" because you are not forced to do it. The only other kind of transactions are "forced" and are immoral. If you can't say "I don't want to buy that" then the trade is immoral. If you agree that the dealership exists because the consumer wants a dependable outlet (warranty, inventory, competition, protection, etc) then it has to make some profit to do that. The salesman is there to first get you to buy something and second to run the price up within the trade. Knowing the game I don't have any expectations of a salesman. He is neither good or bad. Neither helpful or evil. He is there to sell a car or TV or whatever?. I am there to buy one. It is an adversarial relationship period. If you have done your work: researched the product, shopped around, checked the dealer reputation, all easy to do today then yes the salesman can answer a few questions and maybe "help" you to a decision but let's not make the mistake of thinking he is anything but there to sell you something (even if he thinks otherwise). If you are going to a dealer to find out what you want or what something will cost then you are unprepared for the "trade" and if the dealer is prepared (that is their job) you will probably not do as well as you could. My dad used to be like that. He bought a new Buick every couple of years and just went in and asked "How much is that" then "How much is my trade worth" and then "OK let's do it". He was a government employee (and I should say an "idealist" in these matters. If he felt screwed it was always the other guys fault. Not his. He is one of those folks that believed in "fairness"). Drove me up a wall. He was the fat profit part of the aggregate sales the dealer depended on. For what it's worth he always got good treatment with warranty and such. I want the dealer to think "Here comes that cheap son of a ----" each time I walk through the door.


----------



## Karter2 (Nov 17, 2011)

trukr said:


> If I'm expected to do all the work to figure out an appropriate price and the right vehicle for my needs, I see no reason for the salesman to get any commission at all. In that case, why should he/she earn anymore than the kid who took my Big Mac order?
> 
> Oh I get it. The sales commision is the buyers penalty for having the audacity of asking a salesman, relevant questions about their products.


 So do you think these Tesla "Shops" will have no staff ??
( have you seen how many staff are in an Apple store, compared to an electronics retailer ?)
Maybe the staff in the shop will be called "consultants" instead of "salesmen"
Maybe you believe they wont be operating a commission sales system ??

I suspect Many dealership salesmen dont earn much more than a Mcdonalds employee anyway !
( but the dealership does!)
Much of the "on cost" of a dealership is the "fixed overheads" .. the property, buildings , rates, labour etc, ..so if its a "dealership" or a " Tesla shop" .. most of those costs will still need to be covered by the selling price.

Personally, i would rather Tesla simply had an "On line" store that you could order from.
That might just allow them to save some costs.


----------

