Consumer Reports Calls Tesla’s Direct Sales Model An Inspiration

DEC 30 2018 BY EVANNEX 125

CONSUMER REPORTS: TESLA’S DIRECT SALES MODEL IS AN ‘INSPIRATION’ FOR AUTO BIZ

Buying a car can be a grueling process. Keith Barry writes in Consumer Reports, “In an era of online shopping and instant gratification, the traditional way of buying a car can seem like a painful throwback. Some dealers are still doing business the old-school way: insisting buyers haggle over the price, hiding fees and charges until the last minute, and making customers wait hours to sign form after form.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Above: A look inside one of Tesla’s company-owned stores (Image: Tesla)

Barry cites, “a Deloitte study [which] found that 60 percent of car buyers want to cut out the dealership entirely and purchase a vehicle online, directly from a manufacturer. That’s the model used by the electric carmaker Tesla, which relies on online ordering and company-owned showrooms.”

However, “Traditional manufacturers are bound by franchise agreements with existing dealers, and some states don’t allow direct sales and require the dealership model.” And Tesla continues to face significant opposition (depending on the state) for its approach to direct sales.

Consumer Reports’ Barry also sat down with Guillaume Saint, global automotive lead at consulting firm Kantar to get his thoughts. While Saint acknowledges that owning and controlling a dealer network can get expensive, he admits that Tesla’s system is “a source of inspiration” for traditional manufacturers.

Above: Inside the thorny franchise dealership laws that are challenging Tesla and other carmakers when they try to sell direct (Youtube: Sean Chandler)

Barry notes “the Deloitte study found that 57 percent of car buyers disliked how much paperwork they had to fill out, 42 percent said the whole process took too long, and 40 percent hated haggling over price.” In turn, Tesla has worked to simplify the car-buying experience and doesn’t negotiate price.

And when it comes to car buying, it’s clear Millenials want change. Kathy Gilbert at consulting firm CDK Global, says her company’s in-house research shows “younger buyers are less tolerant of being handed off from salesperson to salesperson, long negotiations, and fuzzy pricing.”

“Consumers today don’t want to deal with salespeople,” contends Patrick McMullen, MAXDigital’s senior vice president of strategy and innovation. “They just want to know they’re getting a fair deal, and if they have any questions about the car, that the salesperson is knowledgeable enough to answer those questions.”

Above: Store staff demo the Model 3’s center touchscreen at Tesla’s Aventura Mall location in Miami (Photo: Jorge Sierra)

Perhaps that’s why Elon Musk envisions a different experience altogether for car buyers when purchasing a Tesla. He says that Tesla’s store employees are Product Specialists “not on commission and they will never pressure you to buy a car. Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again.”

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Source: Consumer Reports; Video: Sean Chandler

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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125 Comments on "Consumer Reports Calls Tesla’s Direct Sales Model An Inspiration"

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Direct sales are the future. Eventually the sleezy dealers will be brushed aside.

As someone who went through dealer experience recently, I wholeheartedly agree. Even without the sleaze factor (there definitely is), kids who grew up buying everything online will be very unhappy with a day of waiting just to sign some papers.

As someone, who went through the buying process with Tesla recently – it cannot be more horrible. And the only option I had is to switch brand. At least, when dealing with normal dealership you can take your business to another one.

Did you demand discount on the car or the options ?

I ordered LR Silver, so far the process is OK. Then Tesla tried to deliver demo/service car made in February as new. The list of gimmicks they pulled on the way could make used car salesmen proud. Then they promised the truly new car and disappeared. Then Silver LR got disconnected, but Tesla still cannot come back and admit that. And so on

In the USA, demo/ service loaners are sold as “new” cars for legal purposes. If you tried to haggle with the Tesla rep, then it’s hardly a surprise you got offered a demo or service loaner; that’s the only way they are allowed to sell you a car at a reduced price. But of course, it should have been made clear to you up front that you would be buying a car with some miles on it… which justifies the discount.

Of course I wasn’t there to witness it, but it reads like you are giving a distorted and extremely one-sided account of what actually happened. It reads like the Tesla rep tried to give you what you wanted, but you still wanted more.

If you still want a Tesla car, just be aware that you have three options:

1. Buy a new car at list price

2. Buy a demo/ service loaner unit at a discount off the new price

3. Buy a used Tesla car.

And those are your only options. Well, the only legal options, anyway. 😉

I ordered a new car and didn’t discuss price at all. The majority of the chat with DA was around the reason why the VIN number was low. I was assured it’s a new car until I saw MVPA. No discount was offered.

When you ordered, was the option already discontinued? Did you order recently and maybe Tesla tried to get you a car in time for the tax break?

I ordered in July

Or go to another dealer where they have a used model S and buy the extended warranty from Tesla

Or I’ve completed Model 3 transaction since my wife want it. But for myself I’m planning to buy i-Pace if they fix leases or e-Tron.

I dont believe u at all.

Cfttester, why can’t I believe you? I’ve already heard from your type on the Tesla forum. you are probably a Tesla stock shorter looking at big losses all year.

Your post stinks of inconsistency, so it is highly doubtful that it is real.

The minute you turned down delivery, you no longer had any claim on that car. It didn’t get “disconnected”, you disconnected from it.

But the final clincher that you are full of BS, is that Tesla DID NOT HAVE ANY Model 3 demo cars or service loaners in February, so it is literally impossible for them to offer you a former demo or loaner car built in February. This is public knowledge, and can be found right in the archives of insideev’s.

Do tell. Was it worse than wasting a whole day just to sign some papers only to be told to come back the next day so they can prep the car?

When a person can’t name a single thing wrong with the process, that’s telling enough. If the person made up details, it would be too easy to get caught.

The biggest problem – you cannot change “dealership” in case you have issues with them unless you want to switch the brand.

Most people consider Tesla’s no-haggle policy to be a plus. It’s unfortunate that you are in the minority, but your dislike of Tesla’s no-haggle policy doesn’t mean it’s a “problem”.

It’s just the reality.

You can go to a different Tesla store if you don’t like the service at current one or email HQ and complain (they take them pretty serious).

Overall those, franchised dealerships only add 2k to the price of the car, they offer no actual benefit but an extra middle man.

Suuureee… You will get a boilerplate response from Tesla “executive” who’s name is not linked on LinkedIn with Tesla… 😉
Why do you think, that Tesla sales organization is working for free?

Why does anybody thinks you signing less paperwork at Tesla on delivery date?

They send documents for an electronic signature ahead of time, you can do it at your own pace in the comfort of your home. I didn’t have to sign anything at all on the d-day, the car was delivered to my driveway and all I had to do was to accept it.

They did it for the home delivery. If you are picking up from Fremont you are signing paperwork there.

I did mine from a store 3000 miles from Fremont and I did paperwork mostly at home. I did sign something the day of delivery but it was 5 min.

I bought a used Volvo for my wife in the spring and spent hours signing paperwork and telling the dealer that yes, I was SURE I didn’t want to buy any extended warranties. When I picked up my Tesla in October the paperwork process took less than 10 minutes.

It’s unfair to compare used car dealerships (was it a brand one) to Tesla or equivalent luxury car dealerships. I bought i3 2 years ago. It took 10 minutes to sign papers.

How’s the Stealership bznz nowadays? Scam anybody lately?

Can you imagine what it would be like if an ICE manufacturer has the backing of Model 3s to sell?? The price gouging wold be mind boggling , along with the utter confusion from sales people not knowing anything about the product, but only focused on getting as much commission as possible, as long as it takes. I don’t get my 3 for two more years, but my last time in a dealership was 5 years ago buying my BMW and never want to go through that again.

I was bought Nissan Leaf from dealership in 2011. Salesperson was polite and helpful.

There are a few exceptions, but most people found their nissan leaf not properly charged when they came for a test drive and the dealer pushing them towards a gas vehicle and finally admitting they knew absolutely nothing about it other than “it’s bad”.

Tell me about it. They did that on out test drive. I ask of propilot don’t know . I asked about epedal it’s an emergency parking brake. Then left with no buy

You can tell what state governments are corrupt by where Tesla is restricted . . . Texas, NY, Connecticut, Wisconsin, Michigan, Utah . . .

Troy , I agree . Free Enterprise in the USA is only A mythical propaganda … * 🙁 * …

Ouch. But accurate.

It’s sort of like with kids you tell them they can’t have something and it makes them want it all the more.

Nap is old

I want to do a test drive with a demonstration car of that model before spending so much money. And I want a garage not far away where the manufacturer can’t say in any case: Garages fault, therefore not our problem and warranty void. So just ordering it like a simple computer keyboard for 15EUR won’t work in most cases. Ok, there might be some people paying very much money for a product _and_ doing jobs for the manufacturer/dealer for free like test drives. But that’s not normal. Of course I’m very well informed about the car why I think I’ll buy when speaking with a salesman for the first time. Maybe even better than the salesman. The problems with Tesla here (Germany) are: – Next Tesla garage >100km away. – There’re test drives close to my city from time to time but never in my language (it’s the official language here!). Test drives in my language are offered at least 70km away. Other (smaller!) franchise dealers are able to offer test drives in both official languages which exist in this region resp. without a salesman sitting with you in the car! – Concerning several pieces of information, the Tesla… Read more »

“I want to do a test drive with a demonstration car of that model before spending so much money. And I want a garage not far away”

Ok, you wait 2 years, we get our cars sooner.
Thanks,

I’m sorry , how does tesla deliver sooner? Anyone have their $35k Model 3 yet?

Sooner – because they did not wait for a Test Drive – or a Tesla Service Center to be opened Spitting Distance from their Home!

Amazing as it may be to those of you in the hardcore anti-Tesla crowd, hundreds of thousands of people are now happily driving Tesla cars without waiting for a $35k Model 3.

Nobody in the sub-thread you’re responding to said anything about a base “stripper” Model 3 unit.

Yes, they are relatively small and have growing pains. There is room for improvement – hopefully they will improve as they grow, which is not always easy to do.

You can move closer to a Tesla store and problem solved 🙂

Test drive not in your language? I really tried but can’t make sense..

I don’t care for traditional dealerships , However., “There are two sides to all coins . I’ve never walked into a dealership and paid “FULL POP” for a new car . That will be a sour pill for me to swallow.. * 🙁 *

But then the mrsp is padded so you can get a “deal” and still pay for sales commissions etc. So unless you are a particularly skilled negotiator you are deluding yourself.

Yup. See “dealer holdback”, which is one of the ways that legacy auto makers inflate the prices on their cars. Tesla doesn’t play games like that with its prices. Yeah, it’s a no-haggle price… and it’s an honest price.

They claw it back from you when you go in for service.

how can you say that? Only the car dealer knows what the full price of the car is. And you do not know all the kickbacks and incentives the car companies give the dealers for selling the cars. Everyone gets screwed by the dealer. If you were not paying “full” price, the dealer would be losing money. You sound like people who go to vegas and think they are going to win. All those casinos take in _way_ more than they pay out.

You don’t win money in Vegas. You win free food, drinks, shows, etc.

All of which are kind of like cars/dealerships in that you don’t generally know what a fair price for those items are.

Welcome to the desired cars market.

Dealer’s Goal: Advertise a fake price that creates an over-inflated sense of value. Then convince you that when you purchase it for the actual price that you are getting something more valuable than it actually is.

They want you to walk out the door feeling good about paying **full price**, just because you didn’t pay the fake inflated “FULL POP” MSRP.

It isn’t just car dealerships. This is a cornerstone of modern consumerism. Famously JCPenney tried actually pricing everything they were selling at the actual price (**Full Price**), and they eliminated sales and coupons. It was a complete failure. They finally gave up, raised their prices to inflated fake prices and returned to coupons and putting everything on fake “sales”. They actually increased their profits per-unit.

If you walked out the door with the feeling that you got something expensive for a discount price, they won. You paid **full price** after the full price was inflated and then you “negotiated” back to full price.

Yeah, I don’t understand that horror/dealer/experience thing. Consumers get what they deserve. Want to be screwed over by VW/Audi? Could have told you that 15 years ago. In Europe, that garbage is still selling hot cakes. Peeps love to pay extra due to marketingcrap. Still.
Just make up your mind about what you want to pay up front and walk out the door if exceeding. 8 times out of 10 you’ll receive a phonecall before the end of day.

I wonder if there’s some middle-ground to be had with JCPenny… some aspect of the game might be enjoyable, but all of it?

I do find it irritating when my wife tells me about how she got stuff for so cheap (which by itself is irritating) and then she never wears it. At least our finances are separate…

at least at the traditional car dealerships I walked out the door with a vehicle that worked as advertised and ‘was’ as advertised. Telsa delivered the wrong vehicle to me, had incorrect paperwork, sent me an email days later telling me that they forgot some paperwork and that if i didn’t sign it they’d cancel my order and repo my vehicle. And, to boot the alignment is off on the vehicle! I can get an appointment in March to fix it. No ‘traditional’ car dealership would send you off the lot with a car ‘out of alignment’. And if they did you’d turn it right back around.

Thinking you aren’t paying “FULL POP” because you pay less than MSRP is like going into a clothing or furniture store and thinking you are getting ‘a deal’ because you bought ‘on sale’.

What I say to a manager at furniture stores that say ‘no payments until February 2020’ or somesuch: If I pay in full today, will you give me the item I want at 10% under ‘sale’ price. It usually works like a charm.

So you think the salesman works for nothing? Do you think thatey don’t make anything on “FABRICGUARD”, RUSTPROOFING,GLASS ETCHING for Anti theft? Extended warranty?

I’m with you, and I quite enjoy the challenge of haggling for the best deal. I was concerned about this when buying my Model 3, however the experience was really very good. Knowing that EVERYONE pays the MSRP and there are never any discounts is the ultimate transparency. At that point it comes down to one question: is the car worth the asking price? If it is, buy it. If it isn’t, don’t. Simple. For me the Model 3 was and is definitely worth the price. I’m 2 months and 9k miles into the ownership experience and extremely satisfied.

Let’s face it the dealership model is broken, on both ends, and it’s about time that this antiquated model of getting cars to people is put out of its misery. Rot lot, adding costs, and hornswoggling buyers is not a sustainable model, except through archaic legislation.
Of course the model won’t go without kicking and screaming. Dealerships are deeply dug in politically. Just look at Texas, all the branch water & whiskey, cigar smoking, good ole’ boys, that call the shots, but even they will eventually succumb to a superior model, which is direct sales, as in Tesla, who were virtually forced into, what will turn out to be, the new paradigm for selling cars.

Agreed. I’ve been using either Costco or AAA buying service to cut down the headache of buying an ICE in the past 10 yrs. Hopefully, I won’t have to do that ever again.

It is amazing how much political influence that local dealerships have on local level politics, and how much influence state Auto Dealership Associations have on State level politics.

Looking at the map Scottf200 posted above, Tesla has a much harder uphill road to climb than I realized. 🙁

Yes, They tend to be one of the most powerful and well connected lobby groups in many state capitals. They represent a huge amount of sales, franchise and gas tax revenue, plus have high local community visibility through charity activity.

Looking at Texas in particular, I am almost convinced that direct sales will never be possible without an external force like federal legislation or a precedent setting court decision related to commerce, since transportation related regulation is normally a state responsibility.

Lets not forget: Consumer Reports 2019 Tesla Model 3: RECOMMENDED.
( Along with the BMW i3. )

The dealership model is broken because the DEALERS pick the cars.
They themselves have killed themselves, especially with the Poor Sales of the Volt.

Why do you expect one large dealership will be better then a number of small?

We don’t “expect” the Tesla buying experience to be better; we know that it is.

From your multiple posts to the contrary in just this one thread, it seems likely you have a hidden anti-Tesla agenda. Possibly you work for a legacy auto dealership?

I don’t.
Autonation is in the top 3 in the nation and they are one of the worst. Great way to launder money which is why mafia fronted money for it. As to Tesla or car makers, they all want to make sure that their cars are sold, so direct sales is a good way to make that happen.

People mostly talk about the fully electric nature of Tesla’s vehicles, but Tesla is disruptive across many dimensions; direct sales, vertical integration, OTA updates, lack of model years, service centers are not profit centers, etc…

Yes. Plus supercharger network, open patents, fun (Easter eggs), mobile service, user interface innovations, performance, safety, etc.

And a number of bugs in released hardware and software. But it has Easter eggs… (by now there are more of them then actual features)

Engineers say if a product is not buggy it means you’re not innovating.

The old dumb flip phone doesn’t have as many bugs as a smartphone, but I don’t see allot of people carrying that in place of a “buggy” cellphone.

But you can if you like, those features are not useful if you don’t use them, they’re meant for the most techie consumer.

As far as I know, in both Android and iOS, the number of bugs went down over the time without substantial increase in number of Easter eggs.
Or, maybe, your definition of innovation is presence of old attari games?

I’d rather haggle for a better deal.

ROFL! You think you are getting a “better deal”

The fact that the dealerships have successfully convinced you that you got a great “deal” just because you didn’t pay their incredibly inflated fake MSRP means they got you.

That is their goal. Create an inflated sense of value by putting inflated MSRP’s on the car. Then actually con you into feeling like you are a superhero for just managing to pay full price instead of the inflated MSRP.

It is like Stockholm Syndrome.

Totally agree on inflated MSRP, but that’s set by the car maker, not the dealer.

So? What is your point?

The dealerships and the manufactures are complicit. They act together under what is called a “Franchise Agreement”.

Talking about them as if they are completely separate is like getting bitten by a dog and blaming just the front half, and pretending like the back half smells like roses. Dealerships and the major car makers are just different ends of the same beast.

Point being, it’s the carmakers that set the MSRP, not the dealers. Dealers can discount all they want, even take a true loss in selling really old stock (again, I agree with you on using teasers like this to sucker people in). Carmakers, Tesla included, will not discount MSRP to sell at true loss.

Yes, it’s the auto maker who sets the MSRP — including built-in price inflations such as “dealer holdback” — but it’s the dealerships which tack on fees for “dealer prep” and useless “upsells” like “undercoat protection” and “fabric protection”. Or my favorite fake added fees: ADP (“Additional Dealer Profit”) and ADM (“Additional Dealer Markup”). In other words, “We added something to the price just because we want more of your money!”

…and you are a serial Tesla basher.

What a coincidence. 🙄

I have owned a Tesla Model S for nearly six years. Overall, I am very satisfied with both the vehicle and the service. Like all newbies (Tesla only has six years of production line manufacturing experience) Tesla has been expanding their infrastructure (service, showrooms, superchargers). In my case they have recently opened a new service center 3 miles away (the older facility was 30 miles). More interesting, on my most recent service Tesla called and asked if I would prefer them to send a mobile “ranger.” They arrive at your door, fix and inspect your car and off they go, yes they not only checked the tire pressure on my Tesla but also checked/filled the tires on my vintage Alfa Romeo. Thank you. Tesla. Not to brag but Tesla’s continued dedication to improving their software and features is significant. My “antique” Model S is better today than the day it was delivered – even though I lack the sensors and newer hardware to enjoy ‘all’ of the upgrades. I have worked at several auto dealerships over the years. Manufacturers and dealers can learn a great deal from Tesla. I am convinced both could adopt aspects of Tesla’s business model and… Read more »

I’m guessing the dealership model will die along with a lot of the legacy carmakers when electrification sweeps through.

Having said that, there’s going to be a lot of pain involved. Not only the dealerships themselves, but also lots of the ICE service industry (including all those muffler shops, transmission shops, oil change places, auto parts stores, etc; tire shops get to stay). And don’t forget that auto dealerships are some of the main local advertisers. This will hit broadcasters too.

broken window fallacy. Money is not going to magically disappear; it will get spent elsewhere.

Actually, he is talking about the velocity of money. Specifically local velocity.

Most of these events he is talking about are unplanned major spending events. Had those events not FORCED consumers into a major local purchase (rebuilt transmission, new muffler, etc) the consumer wouldn’t be dumping that money into some other local purchase at that exact same moment. Instead they would more likely try to save money, or wait to spend their money later on a purchase that they would much rather have made with that money on their own time schedule, and not necessarily locally.

Forced unplanned events that force you into spending money locally INCREASE the velocity of money in the local economy by forcing you to spend money NOW, and forcing you to spend it LOCALLY, and often forcing you to go into debt to spend money you don’t have.

Agreed. And legacy manufacturers spend amazing amounts on advertising. Money is still around but it wll get shifted – especially away from local TV and radio. Tesla may advertise some day but it won’t be on local radio or TV.

I strongly suggest that you read the classic book “Economics in One Lesson” by Henry Hazlitt if you haven’t.
Less money spent on fixing broken things will be good for society overall. Yes, there will be some economic losers (people who fix broken things), but there will also be economic winners. And it’s true that the winners may not be local people, so that is a genuine concern. But even with auto repair, a large part of the cost is parts, and those are not normally made locally.

Don’t get me wrong, I’m not taking a position for or against what is “good for society overall” in my post. That was not my intent at all. I was simply posting a factual economic explanation of the macroeconomics of the local market impacts.

If we want to actually start discussing what is “good for society overall” you have to go much deeper than Mr. Hazlitt’s book, as he doesn’t discuss the ethics of economics at that level. He is purely a politically motivated writer in the style of Ayn Rand, with his goal being to influence political issues such as attacking minimum wages, etc. And you’ll have to do better than just regurgitate Mises Institute right-wing Libertarian writers from the 1940’s that don’t even have a degree in economics themselves if you want to talk about what is “good for society overall”.

I have no desire to be your foil in your desire to spread Libertarian political propaganda.

Sure, some may get spent locally. But not at these businesses. And plenty of people depend on these businesses for their livelihood. It’s easy to be blasé when it’s not your job and/or your life’s work (represented by these businesses) and/or demand for your skill set, all going away.

Also, I don’t think you understand what the broken window fallacy is.

fasterthanonecanimagine

If the legacy car makers want to succeed with EVs, they will need to found separate companies for these and build new sales and distribution infrastructures around their existing dealerships. They cannot copy Tesla within their existing structures.

I think it remains to be seen if legacy carmakers will be able to transition to EVs. Some may, but currently we have no model of one actually doing it. At present we have some of them switching a small fraction of their production, and producing far from top-standard designs. Will they be willing to throw out all that ICE expertise, and that giant ICE supply chain? And can they ditch their dealerships, which aren’t set up to handle the radically different economics of EV retail? They’ve dragged their feet, or wasted time on dead-end tech like FCEVs, or just ignored the issue altogether. So they’re not ready. I’ll be amazed if we don’t lose at least half the incumbents when the crunch comes.

We’re past that point. Every manufacturer is on a path to electrification, they differ only in speed and degree.

The writing is on the wall, don’t be fooled by the short term sales talk, which is unrelated to long term product development.

Having bought 2 cars from Tesla provided me a new perspective on the car purchase process. Then getting shunned by Porsche for taking my deposit for the Taycan was the last straw for me in dealing with the dealership.

Not sure how many more cars I will purchase in my remaining lifetime, but none will be from the old dealership model regardless of brand.

This!

That is terrible. They didn’t want to take your money for the car they cannot sell you yet.

Here’s a story that needs to be told.
I wonder if Porsche will consider FIRING Dealerships?

I don’t know how true it is, but my local Porsche dealer told me the 50-unit allocation was filled, then asked me to submit a wait list request. I did and nothing happened after that except the occasional emails from the sales department pitching other ICE/hybrid vehicles.

If Porsche really wanted to sell the Taycan, they should open the deposit line like Tesla did and try to fulfill those orders. I would rather wait for the car I want than play the game run by the car dealership.

FWIW, this comes from a current and long time Porsche owner. I even helped Porsche sell a Cayman S to my brother not long ago. But no more Porsche.

Porsche can’t “fire” dealerships at their will. The Franchise Agreement between Porsche and their dealerships is a contractually agreement like any other, with there being a number of legal protections for the Franchisee (dealerships) that Porsche cannot violate.

The Franchise itself is actually OWNED by the Franchisee, and like a Stock Share it is sold by the dealership’s owner and is property of that owner. It cannot be taken away by Porsche without cause based on the contract itself. At best, Porsche could only buy out the dealership, but this isn’t even an option in many states where car makers aren’t allowed to own dealerships that compete against their other Franchisee dealerships.

Besides, in the US we don’t even deal directly with Porsche AG. We deal with Porsche Cars North America, Inc. (PCNA), which is technically a separate subsidiary that just has exclusive license to import cars from Porsche AG to the United States. They are the ones with the franchise contracts. It is all such a mess that I don’t think it can be unwound now.

To best serve the highest percentage of customers, there need to be sales/service centers in every city of any size. Preferably with inventory that can be purchased immediately (if your current car dies, is totaled in a crash, etc). It really doesn’t make much difference if that storefront is owned by the manufacturer or is franchised out – the overhead (building, salaries, equipment, etc) is about the same. How fast can Tesla get 300+ new stores/service centers up and running? At what cost? While the 1 per most States model works for a startup, if they truly want to become mainstream with their direct sales business model, they have some serious issues to address. In the Portland area, they are bringing in current owners as volunteers to help with group deliveries (end of Q3 and now for the year end push). They have car carriers parked in various locations around town and current owners are helping shuttle those to the store to be delivered. Owners are also running the orientation groups for deliveries. They do not have the staff or infrastructure to deliver all the cars they are currently selling, and they need to figure out how they are going… Read more »

I agree with the argument that expenses are about the same. I have had good experiences at some dealerships and terrible at others. This is the main point, because Tesla owns all its outlets, policies are identical everywhere and purchase experience should be the same. There are no commissioned sales people who are encouraged to push you into more expensive options/model to gain a higher paycheck. Actual money saved is a function of efficiency, that is number of employees / car sold. This has more to do with service than sales. If Tesla makes more reliable and defect free cars then warrantee costs go down and Tesla can pass the benefit on in the form of lower prices in the future.

“Actual money saved is a function of efficiency, that is number of employees / car sold.”

I’d argue that by cutting out the middleman, Tesla has cut out the need for there to be two stages of profitability in selling a car. The legacy dealership needs to make a profit to stay in business, just like the auto dealer.

Tesla can afford to run its stores and its service centers as revenue neutral operations, without the need for each independent one to make a profit. Just one overall stage of profitability won’t necessarily reduce price gouging or customers paying more than a fair market value, but reducing the two-step profitability to just one step at least allows for the possibility.

It’s hard for me to believe that the independent auto dealership can survive the EV revolution. I think it’s an outmoded business model, and one which will most likely be obsolete in most places before many more years pass.

Except that capital is required to build and run a store. That capital needs a return. I would argue the greatest efficiency right now is no stock and no advertising. The brick/mortar/employees is a cost.

David,

The problem is that it isn’t just the capital required to build and run the store. The highest sales dealerships are now corporate owned and there is a huge overhead. For example, Penske (PAG) pays out dividends and has their own entire company with C-level execs they have to support.

So the dealership level cost isn’t just the “wholesale” price of building (or leasing) and running stores like Tesla currently pays. The cost to Tesla would be the full “retail” price of paying to build and run the store, plus the profits that companies like PAG pull out on top of the “wholesale” price of build/run. PAG doesn’t magically give away what it costs them to build/run dealerships, it comes out of the margin between what customers pay and what the car maker is paid.

But the biggest part for Tesla is to keep dealerships like PAG from buying up franchisee licenses and killing them through neglect, or simply using Tesla’s to draw in buyers so they then sell them on ICE cars (HALO’ing).

“While Saint acknowledges that owning and controlling a dealer network can get expensive, he admits that Tesla’s system is “a source of inspiration” for traditional manufacturers.”
So was it the Kantar guy or the CR guy?

Dealers are very good at one thing , lightening ones wallet,oh, make that two, padding theirs.

My last experience with stealership was few years ago, they recommended Nitrogen for tire at cost of $300.00 , Costco does it for $12.00 ,had to hear extended warranty pitch for 15 minuets, most sales guy have close to zero knowledge for car they selling.

Does Costco say their air is 100% nitro?
Because the atmosphere we breath in America contains 78% nitro.

I don’t like wasting time but I do get better deals than what others pay. At Tesla, I won’t be able to. I will just have to pay what others pay. So no haggling makes me spend more.
However, I like the no pressure, tire kicking environment.

“I do get better deals than what others pay…no haggling makes me spend more.”

The dealerships have successfully beat you in absolutely every way. They have played into your vanity that you believe you are special or that you think you have some great negotiating ability. You don’t.

Making you falsely believe that you have won, is them winning.

I bet you think you got your car for ‘under invoice’ or something like that. If I tell you this rug I’m selling you is a $10,000 dollar rug (but it is a $1,000 dollar rug) and you negotiate it down to $2,000, you THINK you got it for 80% off. In reality you paid double. You walk away thinking you are the best negotiator ever. The salesman is happy to let you keep thinking that. The fact that some other “whale” (actual industry term) got suckered into paying $10K doesn’t mean you actually got a good deal just because you paid less than the “whale” they harpooned.

I can confirm that – we went for a (Model S) test drive three years ago and actually expected the salesman who went with us to *want* to sell the car. Especially since we came Friday evening, had a baby (including seat) with us that had to be fixed in the rear, and were over one hour late due to traffic.
But not at all. We signed the test drive agreement (on an iPad), then went to the car and got the full hour test drive treatment – and never even once were we asked if we considered a purchase.
OTOH, with cars I bought at a dealership, *everytime* I was ripped off. The last car was so full of small issues (most of which you don’t really notice at first) that we had to pay over $2000 in repairs after the purchase.
I will never go to a dealership again. Not ever.

“Consumer Reports contacted multiple dealerships and dealer groups to ask about changing buyer preferences and greater online purchase options, and they either didn’t respond or declined to comment.”

That is the single most telling line in the CR article. We asked a bunch of dealerships about this, and none of them wanted to talk about it.

Can you imagine Tesla being able to sell cars in the other 25 states?
There is like a 100 things going against Tesla and they are still going so strong it’s mind-boggling!

And then, there’s used or as the dealers put it, pre-owned. I wish Tesla sold their pre-owned cars the way they sell the new models. Then maybe the second owners would feel like they are paying a fair price. I have no idea how they would do this, Maybe Elan Musk could come up with an idea. But to buy a pre-owned Tesla right now puts you right back with the dealers having a huge upper hand again.

You mean CPO cars? Tesla sells CPOs.

No. They got rid of that program

Tesla now offers two different options. They sell cars with the longer old-style CPO warranty, and they also sell cars with a shorter extended warranty at a lower price point that they introduced by calling them just “used” cars to differentiate them from their “CPO” cars.

Tesla continues to sell both types of cars, and you can go to their website, or any of the third-party CPO websites (https://ev-cpo.com/hunter/ is a good example) and search by extended warranty type.

They are NOT doing full restorations on every car anymore due to the sheer growth rate of their CPO/Used sales. Just too many of those cars at the same time they are rocketing in new Model 3 sales that get prepped for sale in the same shops that would be prepping CPO’s before. So the consensus is that if you are buying the ones that have not gone through the restoration process, either do it in person locally, or really know how to read the condition sheets they provide if you are buying sight-unseen.

Dealerships for a manufacture are used to create a middle man to point a finger. This is exactly me experience with my GM vehicle. GM couldn’t help me because me household income was to high and the dealer could not help because of GM.

Nice article, but that YouTube video makes a factually inaccurate statement: California keeps the sales tax. No…. Texas charges 6.25% and keeps it. That is what I paid when buying my Model 3 in the same month as that video. Just sayin!

I detest the Stealership model with add ons and secret pricing. I feel I’m likely to be ripped off just stepping in the door. The law protected franchise model is clearly corrupt and out of date. But then again Tesla is not immune to the pricing game, witness the white interior changing from $2500 to $1000 in a week, or $2500 to change the paint color (same paint process). Right now there is a greater trust in Tesla directly, than in dealerships, mostly because the latter have perfected the art of the uneccssary “add-on” rip offs. I prefer the direct model today, mainly because a large entity cannot get away with blatant ripoffs like smaller players can. But over time I suspect the pricing game won’t be much different since the objective of any company is to maximize profit by adjusting prices and content to meet changing market conditions and production capacity. The real evil in the current model is the auto specific franchise law, not the distribution channels. There should be no reason down the road why I could not buy a Tesla through Amazon on a year-end lightning deal. Once Tesla is established as a consumer brand like,… Read more »

Didn’t the polls say that Hillary was going to win? I know I wouldn’t buy from a store owned. There’s better dealers if you shop around the dealers. I even ask my partner and he said hell no that he was not going to buy off the internet for a car

My Nissan dealer tried to charge me $155 to change the cabin air filter. I was only there to get the service light reset. It’s an $8 part but probably.cost about a dollar to make.

He was also going to also swap out your old brake fluid (annual service bulletin), and preform a battery diagnostic EValuation, that keeps the 24 or 30 kWh battery under Nissan factory warranty for the 8 years (manufacturers defects), 5 years and/or 50 k miles (degradation over 30 % / 7 capacity bars showing).

Remember this Nissan replacement battery is now over $8k (2018), and it needs an annual Factory Authorizated Service technician to keep it eligible for replacement should conditions warrant. Nissan Authorized Service is cheap insurance on Leaf Year 5-8 ownership of a $8k + battery.

My recent Tesla delivery experience was short and smooth. I handed the associate a cashier’s check, turned over my trade in docs, signed two papers, got a 5 minute in car introduction (short duration my choice, was already conversant via online tutorials) and was driving away about 25 minutes after arriving. Far better than any car dealer experience I’ve had.

Dealers are completely unnecessary and frankly exist to rip people off.

I had a terrible experience buying my Tesla (both pre and post sale) and would gladly pay more to a ‘commissioned’ sales rep next time just to have a single point of contact eager to make me happy.