The Future of US Automotive Sales – Is Tesla Blazing a New Path?

Tesla Supercharger Station Fremont Factory

APR 3 2014 BY MARK HOVIS 31

I'm Gonna Tell You How It's Gonna Be

I’m Gonna Tell You How It’s Gonna Be

So much has happened over the last three weeks with legislation allowing the sale of American auto manufacturer Tesla Motors that we first need a recap.

Three weeks ago, New Jersey DMV pulled a short notice vote on banning the sale of Tesla without allowing public opinion before the vote, despite the fact that over 100 people showed up. The public disapproval went viral.

Two weeks ago, Arizona over turns their anti-Tesla legislation which is also believed to be partly in the pursuit of landing Tesla’s Gigafactory battery facility.

Next, New Jersey softens its stance on allowing Tesla to sale in their state.

Texas Gov. Rick Perry Clearly Supports Tesla In Recent Fox Business News Interview

Texas Gov. Rick Perry Clearly Supports Tesla In Recent Fox Business News Interview

There now appears to be a panic in the battle ground state of Ohio where anti-Tesla legislation looms. So much so that the pressure is placed on GM to write to the Ohio governor, requesting that Tesla Motors not be allowed to sell differently than franchised dealers (even though Tesla is not franchised).

Then, the shoe drops in Texas with Governor Rick Perry quoting in favor of allowing the sale of Tesla. I think that the pros of allowing this to happen (Tesla direct sales) are going to outweigh the cons.” 

I have to admit, even with the hopes of landing Tesla’s Gigafactory, I did not see that coming. What is getting clearer is an alignment on the issue of dealing with Tesla.

InsideEVs now reports New York has drafted a plan that will continue to allow Tesla to sell in that state.

It is looking more and more as if state legislators are finding a common path of compromise to follow that at least kicks the can down the road a bit and gives Tesla an opportunity to thrive in the short run.

If Arizona, New Jersey, and New York finds a path for Tesla, it would make it easier for Ohio and others to follow. This should also have a positive impact on states like North Carolina whose legislatures will be revisiting their decision allowing Tesla into their state. Now, all of a sudden, the playing field has changed.

It is pretty clear that existing auto manufacturers and dealerships need a plan and need one soon.  Several contributors here at InsideEVs have offered possible solutions. The idea that dealerships fold their tents and go away is simply not going to happen. So, given that fact, what are some possible alternatives?

It has recently been suggested that EVs become a business model to themselves. Here are some reasons why that makes sense. Many dealerships not only fail to push their plug-in products,  but some even discourage the purchase of EVs and try to introduce the consumer to a different ICE model. Why not free dealerships from a product that does not meet their business moat?

In the case of GM and its Cadillac ELR, 40% of dealers when faced with the requirement to purchase special equipment for servicing the product opted out of selling the product already leaving a void for consumers.

My love a-bigger than a cadillac

My love a-bigger than a Cadillac

Now, some dealerships have embraced EVs and wish to continue the sale. So what can be done?

First, consider the machine tool industry for a working solution. The machine tool industry has successfully used dealerships in some areas and direct sales in others. They have also used dealership for their main product line and chose to sell specific products direct where the product had not yet been accepted by the dealerships.  I would like to believe that in the future the market will sort this out. You have a sales quota. You make it, you keep the product. You don’t, you lose the product. Is this not capitalism at its finest? Unfortunately, the monopolistic auto dealerships are not going to allow this without legislation this time.

Could this be time to allow direct internet sales for EVs only? Currently franchised dealerships are protected by laws based on their past risks. Dealerships are part of our landscape, but does something disruptive this way come?

With every passing week it is becoming more likely that this American company will succeed and not fade away.  It has always been assumed that Tesla Motors would have to bend to the behemoth US auto industry’s methods in order to compete. First, because of the crony idea that it has always been done that way. If that was not enough, then it has always been assumed that there would not be enough time or capitol to fight them.

With the current trends in legislation, it appears that it may be the US automotive dealerships that will be looking for the compromise. Give us your solution of compromise.

Categories: General, Sales, Tesla

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31 Comments on "The Future of US Automotive Sales – Is Tesla Blazing a New Path?"

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One thing is clear: EVs need a fundamentally different retail approach. They don’t generate the sort of maintenance revenues that will keep costly independent dealers funded and they are expensive to build, yet need to compete with relatively cheap ICE offerings so there is not much scope to compensate franchise dealers with huge sales margins either. A leaner retail approach is needed that also redirects sales efforts to informing the public about this relatively unknown product; enter mall locations rather than workshop focussed industrial estate locations.

Any new legislation needs to take the specific needs and economics of EVs into account because forcing fundamentally different products in the same retail model is not levelling the playing field but more like a death sentence for the product that just doesn’t fit in that particular system.

Well said, +1

Chris, despite you calling me a shill and GM employee on numerous occasions, I think you really hit the nail on the head here.

The big differentiator in vehicles with a plug is that their maintenance is so much lower. That seems to suggest that those vehicles should be allowed for sale through an approach that Tesla is taking.

I’d love to see GM have “Voltec” stores for the Volt, ELR, and hopefully future plug-ins with the same tech. Same goes for Ford, Nissan, BMW, etc.

They still need some maintenance, but the dealership model is not profitable with these advancements.

Either the dealership model must change to not be so reliant on maintenance for revenue, or the rules must change to allow plug-ins to be sold directly from manufacturers in stores and service centers like Tesla has.

Anyway, as Rick already noted, Well said, +1.

@Clarksoncote: Sorry for the shill remark. I mis-googled you so I mistakenly based it on my impression that you appeared out of nowhere defending GM’s support for the lawfare against Tesla.

I agree with Mark, in fact I’ve mentioned it here before. Don’t get Tesla special treatment, instead give ALL auto makers the ability to sell their electric-only vehicles direct to the customer. They require a special kind of salesperson and approach that you will rarely find in a traditional dealership.

I don’t disagree with this idea, but it’s not Tesla’s fault that GM, Ford, Toyota, et al bought into the Retail Dealer Song and Dance Emporium.
Tesla should be able to sell their cars any damned way they want to. They have no franchises, and thus no franchise obligations. If the other manufacturers want to change their agreements with their dealers, that’s their business to work out.
One way or another, Tesla will drag them all, kicking and screaming if need be, into the 21st century.

I still don’t understand why the “rules” must exist though. Many other franchised companies have corporate run and franchise run stores. Why must the auto-maker sales structure be legislated?

I’m all for leveling the playing field for all EV’s. Allow the manufacturers now to sell the EV products and not through the NADA Cartel.

Since auto retailers don’t want to sell EV’s, just have the law applicable to sales of ALL ELECTRIC VEHICLES, regardless of brand. Then, the Ford, Chevy and Nissan {or whichever other brand} contractually agreed on distribution areas would work something like this: Manufacturer to Dealer: “We have this great new EV and want to know if you’d like to participate in selling it. These are the requirements to meet the customer expectation.” Dealer says, “Absolutely, I can make money off an EV as well as anything else.” All stays the same for them. OR, Dealer says, “Nope, hard to sell those newfangled EVs and there’s no money in them for us {the dealer} and I opt out.” Manufacturer says okay and in the distribution area of the declining dealership, they sell direct. Any warranty issues go straight to the manufacturer so the declining dealership doesn’t have to install a charging station or buy the tools. Then, in ten years, +/-, when the dealer goes bankrupt, the manufacturer can buy the assets and sell direct or they can allow a new owner to buy out the failing dealer and negotiate whether or not to allow them to sell EVs and allow… Read more »

You simply can not have two sets of rules–one for full-portfolio brands (like Toyota and Ford) and another for EV companies.

Tesla doesn’t want dealerships because they want to maximize their profits by keeping sales costs low and service centers regional, not local. Tesla’s sales model is not necessarily better for the consumer.

Whatever compromise eventually appears, it has to be fair.

Why should Tesla have to shoehorn themselves into an outdated mode of business that the other manufacturers bought into a century ago?
Changing the dealer system is a fight for THEM, not Tesla.

“Tesla doesn’t want dealerships because they want to maximize their profits by keeping sales costs low”

No $h1t Sherlock!
Everyone wants the best profit.

And I’m pretty sure if there was no NADA third party to go through, the current auto manufacturers would maximize their profits to.

Having service centers regional seems to make the most sense to them right now. They can’t build a service center in every single little town. That would be too expensive. This is why Tesla comes to you when your car needs work, if they need to take it back with them to the service center, you get a replacement until your car is done. Dealerships don’t do that.

Dr. Kenneth Noisewater

That’s some BS. Capitalism = pricing vehicles at what the market will bear. Dealers don’t save people one penny: if they were disintermediated, at worst the manufacturers would be more profitable at the same end price.

Middlemen don’t like being squeezed out of transactions, and when they have government officials in their pocket, they can keep on grifting.

That said, even if you go back into history and use automakers’ shenanigans related to franchise agreements as a justification for government protections, Tesla has no franchises, and has never sold any. Therefore, it should not be subject to laws protecting dealer franchises!

Tell us how you really feel Dr.
🙂

That is what I have been saying for ages!

You just said it better 😉

Allow automakers to sell directly to consumers on plug in cars, that will give them “incentives” to make those cars.

My proposal:
“A manufacturer may not operate a dealership within 50 miles of a franchised dealer contracted with said manufacturer”.

It seems to me that what is fundamentally different about EVs vs ICE’s and the dealership thing, is that EVs don’t have near the hazardous chemicals problem when it comes to maintenance.

Dealerships and Shops have to have facilities to handle used oil, etc. And in fact even a ventilation system to remove exhaust while they’re working in the garage.

With EVs this goes away and they’re not much different than working on a laptop.

Maybe this is causing some of the confusion about how EVs can be treated like any other commodity gadget?

Largely true but they still have to deal with the A/C system, the battery coolant system, power-steering fluid, the brake fluid, etc. So they certainly have less fluids and fluids that are less likely to leak. But it will still happen some.

Tesla innovates in so many ways. Even this whole fight . . . it is amazing social/political engineering:
-They know most everyone hates car dealerships.
-They can squeeze more money by cutting out dealerships.
-As a very low-maintenance vehicle, they really don’t need dealerships.
-They know that liberal people will generally support them no matter what.
-They know these car dealership laws basically just create a car dealership cartel which offend conservatives on principle.
-And they know this long drawn out fight provides them with endless free publicity.

It is pure genius. It is a bit of a hassle but they get free publicity and ultimately they will win the fight because most people are on their side.

Time Machine not required… 😉

And Batteries Are Included 🙂

In a system of crony capitalism the fact that most people are on your side doesn’t necessarily mean you win.

+1

Dr. Kenneth Noisewater

It doesn’t hurt that they have right on their side!

Telsa will embrace the franchise model eventually, Elon has already said as much. He didn’t have an issue with franchising, he had an issue with being forced to franchise through the same dealers who were pushing gas engines.

A manufacturer that does not enter into franchise agreements with any dealers in a certain state, should not be subject to any rules of the dealer association within that state. If Tesla franchised out a single store in a state, then they should have to follow those rules/laws. Personally, I think Tesla should challenge whether they even need a dealer license at all, since they are not operating as a dealer.

I wonder if Ford and GM dealerships are a drain on the company? If Ford/GM went direct sales; how would they handle distribution?

Nice write-up Mark. There you go again keeping on schedule, unlike this guy *points to self*

I’m glad you got this out there. I’d probably have more time to write if I wasn’t reading this site so much. 🙂

Maybe I need to do a write-up on the Spark’s EV’s recent 3-digit sale month (a new Spark EV record). Now if we could only convince GM to sell it everywhere… 😉