Tesla Model X

Tesla Model X

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Bill Fox, chairman of the National Automobile Dealers Association, explained the reasons why he thinks dealers are superior to Tesla Motors's direct sales concept following a speech he gave at the Automotive Press Association, in a piece presented by AutoGuide.

NADA Chairman listed several advantages:

“The first and foremost one is, we’re the face of the manufacturer in every small town in America. We’re the guy that hires the local people, we pay for the cars, we support the local economy.”

We are surprised that the above argument was considered as the most important, because in the direct sales model, the manufacturer also needs to hire local people for their stores and service centers, as well as electricians to keep the charging infrastructure running.

If there is a noted reduction of sales personnel, related to this increase of profits/reduction of costs to the consumers, it's good news. Installing ATMs instead of bank employees is a similar scenario.

Fox aptly noted that in the franchise system, consumers have "a local person they can interact with instead of dialing a 1-800 number."  And this is a valid reason, but comes at a premium to have such network (we're not so sure all dealers will solve all the problems despite being close by, and we do know that not all dealers are liked). Moreover, a manufacturer the small size of Tesla can't afford to have dealers/stores/services in every city anyways.

There is an important advantage to independent service centers, although NADA Chairman seems to draw the wrong conclusions.

“If you had a Tesla and it broke down, where would you get it fixed? What they have is a service facility somewhere. And they’ll come and pick up your car, leave you a loner car … In my judgment, that’s an inconvenience.” He also noted, “I don’t know that the American public is ever going to accept that version of car ownership,” especially with electric vehicles that have limited range."

We believe that inconvenience is false, or in some cases isn't a big problem. The problem could be that consumer has only one option to repair the car, without competition.

NADA Chairman doesn't believe that consumer will be satisfied in the end with the direct sales model.

War between dealers and manufacturers with direct sales model (read Tesla) will continue as there is a lot of money to win or lose. According to Fox, the average profit for dealers is 2.2% and they collect 15% of all sales taxes in the U.S. (in 2014).  But as we know, the money is all in the service/repair and in the used section of the lot.

Source: AutoGuide.com

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