There might be a bit of the “lets deliver this car today” reasoning in holding so many cars in your inventory. Rather than having a customer wait for 2-3 weeks to get their car
So $30k car at a 4% rate cost $100 a month to floor. Inventory level utilization is definitely key, but most dealers turn there inventory in less than 3 month. So 1% cost ($300) for “delivery today” benefit. Plus many people want to touch and drive the car before they buy it.
Dealers floorplan their inventory. Good dealers own their used cars. Great dealers own their used cars and work on buying their new cars.
The reason that a “kiosk” couldn’t be created where you go and test drive a car and order it, because it would be fixed flat rate pricing. Who would appraise your trade? Where would your trade go? To an auction? In order to stay competitive and put more money into someone’s trade, the dealer will usually have to retail out of it themselves. Ford isn’t going to give you the moon and the stars for a car that they are going to lose their ass on in an auction (fees, etc). As much as people say they “hate” buying cars, it’s because they are uncomfortable with negotiating and they are afraid of spending too much/making a mistake.
People need to be “sold”. People need to feel comfortable with a dealer/service/salesperson. Sales is a transfer of emotion. An order taker at a kiosk isn’t going to move units like a dealer who has so much more to offer, incentives, reasons to buy here etc. etc.
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Good dealers don’t end up with too many of the last model year, if they know how to turn inventory.
Yeah, there are a couple examples when the rebates are gone and the manufacturer stops “final pay” money (TDA, Holdback, etc) that the dealer loses a lot of money to move a unit, but it’s better to lose $2,500 than have $30,000 tied up in your bank account.
there is a massive wholesale channel that functions somewhat like that ‘kiosk’ model Jay is talking about.
i was out with some guys from Enterprise a few weeks back who said that Enterprise accounted for like 8% of all vehicles purchased in a given year from GM… i’m paraphrasing but the number was ridiculous, may actually be even higher than that… and that is just one buyer buying thousands of cars at a time. Maybe the retail channel represents a much smaller piece of the pie that we tend to think as retail clients ourselves?
Tesla will be mostly retail, with little going into fleet, so their are different dynamics there that make retail much more important.
BOSTON — The Los Angeles Times reports that a Massachusetts judge sided with Tesla Motors in its initial ruling on a lawsuit initiated by dealers across that state. Dealers in Massachusetts and New York are suing Tesla Motors for operating showrooms under its franchise.
According to the Times, Massachusetts dealers were denied a temporary restraining order and injunction in the lawsuit in the Norfolk County Superior Court.
In an Oct. 22 blog post, Tesla Chairman and CEO Elon Musk defended his stores and gallery locations, explaining that they take advantage of educating the customer and then direct the shopper to go online. He also referred to the lawsuits as “starkly contrary to the spirit and the letter of the law.”
NADA Public Relations Director Charles Cyrill said that the National Automobile Dealers Association is still reviewing the decision.
In a statement e-mailed on Nov. 12, NADA Chairman Bill Underriner said, “NADA has serious concerns about Tesla’s intentions. We are seeking a meeting with Tesla executives, including its CEO Elon Musk, to discuss these concerns … NADA supports the franchised new-car dealer system, which has done a remarkable job for more than 100 years serving the needs of both manufacturers and consumers. Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sale increase, NADA is confident it will re-examine its business model.”
“We are delighted by the outright dismissal of this case and the validation that we are operating our business in compliance with the laws and expectations of the Commonwealth of Massachusetts,” said Elon Musk, Tesla co-founder and CEO. “We are confident that other states will also come to this same conclusion and look forward to following through on our commitment to introduce consumers to electric vehicle technology in an open, friendly, no-pressure environment.”
Ron who do you work for? I use afc and mafs
I would disagree with tesla’s statement of consumers knowing exactly what they want prior: that tangible experience changes many outcomes. They may be speaking from their rather narrow offerings, in which case it’s likely applicable.
I would LOVE to be a tesla dealer down the line. Would work perfect with my niche. We deal with alternative energy only, and spend a large amount of time simply informing the customer.
I think I’ll add it to my business plan ha
I used to sell service contracts as an independent agent (still have family ties in the business). Then I got hired at GMAC to work as a GMPP product design and sales manager in Detroit. Now I work for Ally (new GMAC) and manage their Dealer Rewards program so I work with consumer pricing, floor plan pricing, insurance products (ex. GMPP), and SmartAuction.
It will be interesting to see what happens in the auto industry in the near future. I think the NADA is scared that consumer rights are going to come strong in the near future. I see a fixed price on aftermarket products similar to Florida laws (customer A pays the same as customer B regards of store for the identical product). Also a cap on rate markup does not seem to far away either. Most dealers don’t abuse their customers but the few that do might ruin it for the rest. It only takes a single mother crying in front of congress who got rate bumped 10% and got charged $4k for 3 years of oil changes and can’t make her payments plus feed her 5 babies.
Meh, NY has had 2.5-3% rate caps for a decade. What I really see happening is flats based on percentages. I.E. - Mark it up .75% and get a 2% flat on amount financed. A lot of banks are doing this already. The reason Florida has those rules is because it’s considered an insurance product, where you need a license to sell it.
I don’t know of any state that allows a 10% rate bump anymore. There’s too much risk and not enough reward.
Agreed. I just think national guidelines are coming on insurance products. States other than FL also have limits, ex PA only allows 2x dealer cost.
Regarding consumer, I heard last week some of our competitors are now setting rates and only letting you keep X% of the markup. I found that to be interesting way to set prices.
i feel like for the next few years people will fly to Tesla to buy their cars anyways. maybe it’s cheaper for them not to have dealers everywhere.
they could just have a hybrid ownership model with managing partners in each area as a work around.
:tup:
Can’t wait til they start franchising Tesla dealerships.
Oh, stop it.
It’ll happen. Musk himself has eluded to it.
And it’s certainly not a bad thing, especially for consumers.
I know we’ve talked about this before, but I think the dealership mentality is a bit dated. I’m wondering if he eluded to that because of the state law issues they’ve been running into and just wants to make it work.
The dealership model is dated because you don't understand how the infrastructure works. Cars just don't get dropped off and sell themselves. How come I can't just buy a TV from Sony and cut out Best Buy? How come I have to go to JcPenny to buy a Timex and not from Timex themselves? Manufactures, don't want to sell. I wrote the following recently in response to dealerships being "useless".
Tesla can handle 2,000 cars a month. There are dealerships in the United States that do themselves with Honda/Toyota/GM. However, you can't handle 2,000,000 UIO and 125,000 customers a month and expect results. It's the same reason why McDonald's franchises.
Manufacturers, such as Honda, Toyota, GM, Ford, VW etc. don't want to sell directly to consumers. It's too costly. There's too much liability and it would be bad for business. Manufacturers are EXACTLY that. A manufacturer. Every car the Honda manufactures is already sold. To a dealer. It doesn't matter if it's a bright green Accord with a pink interior. It is not the manufacturer's responsibility to sell the car. Sure Honda is going to have a national advertisement for the car, but it's ultimately Smithtown Honda that is going to bear the bulk of maintaining the car, advertising the car locally and paying interest on the car...and here's the most important part...losing $5,000 to sell said car, when all is said and done.
When Honda can manufacture 1,000,000 Accords and know that they are already sold before they are done being built, what is the point of taking over the responsibility of selling to the consumer?
People love to negotiate on new cars. You think I’m wrong? Fine…pay sticker price then. Oh, you’re not going to? Sounds like people who refuse to pay sticker are the ones who negotiate. People say they don’t like negotiating for multiple reasons (because they are bad at it, they are afraid they are going to make a mistake or the dealership they are dealing with, is a pain in the ass to deal with.) Which brings me to my next point; competition.
Competition is good. Let’s say you take away all your competition and if you want to buy a Honda, you go straight to Honda. Honda says your trade in is worth $5,000? You want more? Sorry, don’t buy a Honda then. There is no “going to the other dealership” and trying to get $6,000. Honda isn’t going to “stretch” for you. Here is the price for a new Accord. There is no more negotiating. The price is the price and if you don’t like it, go buy a Ford.
Let’s say you do buy a Honda but the experience is a horrible one. You’re never going to buy from Smithtown Honda again! Only problem is, it’s not Smithtown Honda anymore…It’s Honda of America. There is no “other dealership”. If you have a bad experience with Honda selling to you directly, there is no more middle man to go above and beyond to keep your business. You’re S.O.L. and Honda is going to lose you as a customer forever.
Don’t believe me? Google “Ford Auto Collection”. It was an experiment by Ford in the 90’s. They bought all the dealerships in a few towns and tried to sell directly to consumers. It failed miserably. Your trade in was worth $5,000 and it if you leave to go to another Ford dealer, it’s worth $5,000 there as well. Competition was dead and consumers were paying more for cars.
Not all dealerships are bad. Not all dealerships are "out to get you". It's okay for Guess to make $300 on a pair of $350 jeans, but if a dealership makes $500 on a $30,000 car, they are a bunch of thieves.
If Tesla wants to expand, they are going to have to franchise. Industry insiders say it and Musk himself has eluded to it. The infrastructure is too big and too volatile at the consumer level to be ran otherwise. It’s very easy to sell directly to 2,000 people a month. What happens when that number becomes 125,000? What happens when your UIO (units in operation) starts running into the millions? It’s far easier for 100 dealers to keep track of 10,000 customers, rather than one company to keep track of 1,000,000 individuals.
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Don’t get me wrong, I’m all for Tesla selling directly. I’m not afraid of them. Toyota/Honda/GM isn’t. However, if they want to sell 100,000 cars a month, they are going to need internal (dealership) competition and infrastructure.
I think the main issue is Tesla didn’t want to use dealerships (to start out?), they just wanted to get the cars in consumers hands as easily/cheaply as possbile and it was state laws that prohibited it causing the uproar.
I agree, but everyone who thinks that Tesla can continue a “direct” model, is crazy.
Are the laws prohibiting it a bit old fashioned? Yes.
Would I buy a Tesla? Absolutely. If I didn’t work for a dealer, I’d probably buy one. Unfortunately, I’m a big proponent of driving what you sell.
I think Tesla is a great company, I think Elon Musk is a genius, I wish them the best of luck and I can’t wait for them to grow but they can’t do it without franchising.
As much as Elon is a genius and Tesla is a great company…the model and dealer network that sells 15,000,000 new vehicles a year, works.
Early on I was one of the people who thought cars could be a direct sell item but everything you said makes sense. Add to that the fact that dealerships have really evolved from their days of making money on the sale of the car and short of a warranty repair didn’t see you again until you bought your next car. Now dealerships are all about the service side and you can correct me if I’m wrong but I’m pretty sure that’s the big money generator for them. Just looking at the massive service lounges with coffee bars, wifi, LCD TV’s and dedicated service teams it’s pretty easy to see dealerships make a huge push to keep you coming back for even basic services. Do you think Honda wants to get into that business? Hell no. That’s too localized and hands on to try and manage on a national scale.