New Jersey Say No To Tesla Direct Sales

[Just the facts]

So when is Tesla going to take these cases to the Supreme Court under Interstate Commerce. According to the Constitution Congress regulates commerce between in-state and out-of-state parties. I know this because gun manufacturers use the exact opposite argument to avoid federal laws by claiming interstate commerce isn't taking place when a gun is manufactured and sold in the same state.

Are the states trying to argue that since the transaction (the signing of the loan papers) takes place in the same state that it is NOT interstate commerce? If so, would they apply that same logic to gun sales?

Tesla Stores May Be Closed After N.J. Blocks Direct Sales - Bloomberg

[onthestrip]

Was pretty sure I just heard Gov. Christie talking about less regulations and freeing up businesses from burdensome laws... Doesnt seem to be the case here.

[SoonerDave]

This is one area where the Republicans absolutely kill themselves. They run on a pro-business platform, then engage in this obvoius, naked scheme to protect the big-box vehicle retailers. That just perpetuates the perception that they have nothing but specific interests at heart. There's absolutely no reason for this. None.

[Just the facts]

I was listening to some representative from auto dealer association the other day and they are scared to death of the direct sales model - not because Tesla is cutting into business, but because they are afraid the legacy auto companies will start doing it. What drives me crazy is the notion that auto dealers are responsible for lower prices when every car I have ever bought the dealer tried to charge me as much as possible and the only way I can get a lower price is to haggle for 6 or 7 hours - and still not know if I got ripped off. The bottom line is that the more middlemen there are the higher the price goes because everyone along chain needs to earn a profit. The manufacturer has to earn profit, the railroad operator has to earn a profit, the trucking company has to earn a profit, the auto dealer has to earn a profit, the salesman has to earn a profit - and I, the end consumer, have to pay all of them.

[SoonerDave]

I was listening to some representative from auto dealer association the other day and they are scared to death of the direct sales model - not because Tesla is cutting into business, but because they are afraid the legacy auto companies will start doing it. What drives me crazy is the notion that auto dealers are responsible for lower prices when every car I have ever bought the dealer tried to charge me as much as possible and the only way I can get a lower price is to haggle for 6 or 7 hours - and still not know if I got ripped off. The bottom line is that the more middlemen there are the higher the price goes because everyone along chain needs to earn a profit. The manufacturer has to earn profit, the railroad operator has to earn a profit, the trucking company has to earn a profit, the auto dealer has to earn a profit, the salesman has to earn a profit - and I, the end consumer, have to pay all of them.

If there is anything the Internet-based model economy has taught us is that, eventually, like it or not, the market finds a way to get rid of middlemen that either don't add real value to the value chain, or provide alternative value that drastically mitigates the value of what it replaces.

Conventional auto dealers have already had to reinvent themselves to a degree because so many people are aware of things like pricing services, or have greater access to pricing data, such that a great many people simply go directly to a dealer's "Internet sales" email address and either request a quote on a vehicle or make an offer they know the dealers should reasonably be able to accept. It wasn't always that way...

[tomokc]

Auto dealerships have successfully fought auto manufacturers for decades on the subject of direct sales to customers. This is just the latest battle.

I'm trying to understand the dealership business model. They sell & service new & used cars. The sales COGS is high because of the direct vehicle cost, floorplan costs while in inventory, and massive advertising expense. The service COGS is high because of labor & training, and capital costs for building, equipment & tools.

If you could do only one, would you sell or service cars?

[SoonerDave]

Auto dealerships have successfully fought auto manufacturers for decades on the subject of direct sales to customers. This is just the latest battle.

I'm trying to understand the dealership business model. They sell & service new & used cars. The sales COGS is high because of the direct vehicle cost, floorplan costs while in inventory, and massive advertising expense. The service COGS is high because of labor & training, and capital costs for building, equipment & tools.

If you could do only one, would you sell or service cars?

Service would be my pick. A dealership of respectable size is handling millions of dollars in inventory, likely dwarfing the overhead of tools/garage facilities/etc. With the exception of some expensive/specialty tools, I think a lot of service departments let their mechanics bring their own tools to supplant the dealership's own "tool crib."

These days I believe no small chunk of profit for most bigger dealerships is the service center. It's an area where "service reps" are under tremendous pressure to push (very) high-margin/low value services to unsuspecting, uneducated consumers. The gracious sounding 20-point inspection most service garages do "for FREE!" are really doing nothing but laying the groundwork for aggressive upsells, such as $50-$100 for a five-second spritz of terminal spray on a battery post, or nitrogen tire inflation for passenger cars (to name only a few).

Also, big dealerships leverage service-loyal customers as the source for new car sales. When a car comes in for service, particularly one sold at the same dealership, info will be relayed back to the sales floor on the age/type of vehicle with a plan to solicit the consumer on a "new" car to replace that one that's "in for service" if the car has the right balance of age, miles, and service history.

[Just the facts]

I'm trying to understand the dealership business model.

Their model is easy to understand - use the government to pass laws that require consumers to buy only from them and protect their market share. If the role of a dealership was what the National Auto Dealers Association claims it is they wouldn't need the government to pass laws to make their business viable - consumers would demand it. But since we aren't demanding it.....

[mugofbeer]

Not that i agree with the NJ thing, isnt this sort of like OKs restrictions on coffins? Dont most states have rules against auto manufacturers owning dealerships?

[Prunepicker]

Christie is a worthless meddling moderate. He doesn't, nor will he ever,
realize the importance of a free market.

Tesla is a fantastic business. I only wish they'd come up with an "engine
roar" that sounded really cool.

wmm's are so worthless.

[SoonerDave]

Not that i agree with the NJ thing, isnt this sort of like OKs restrictions on coffins? Dont most states have rules against auto manufacturers owning dealerships?

Exactly the same thing. Perfect analogy - was thinking the same thing when I read it.

[Bunty]

Not that i agree with the NJ thing, isnt this sort of like OKs restrictions on coffins? Dont most states have rules against auto manufacturers owning dealerships?

Yes, and makes as much sense as the ban on Sunday car sales in Oklahoma. I will never, never, understand the need for that.

[Plutonic Panda]

Yes, and makes as much sense as the ban on Sunday car sales in Oklahoma. I will never, never, understand the need for that.

Because, Bunty, we can't waste time looking at motor vehicles when we could be in church worshipping our Lord and Savior Jessssusss Christ!!! [amen] Com' on man, get with the program dude. We need the government to tell us to do that.

[catch22]

While I don't like a law that tells a business when they can or cannot conduct business; one excellent side effect of it is, you can look around on lots on Sundays and not have someone stalking you or pressuring you. I hate when they don't understand what "Oh I'm just looking around" means. They take that to mean, "Please come walk around with me and show me every car". I really just want to walk and look. Thanks. Alone.

[Just the facts]

Can you imagine how the car buying experience would change if dealers were taken out of the loop. Instead of a lot full of inventory they would just have test-drive vehicles where you could get a basic feel for the car and then be able to totally customize the exact car you want. You would then pick your car up in a few days. No more would you be at the mercy of the dealer's buyer to preselect your choices for you. For example, in Oklahoma every new car in the state could be stored in Stroud and it wouldn't matter if you shopped for the car in Enid or Durant or OKC - you could select any car you want and if it was at the central facility you would have it the next day. If its not at the central state facility it would come from an adjacent state or be built specifically for you. Just think of the space it would save as well. Instead of a 20 acre lot with 500 cars on it all you would need is a showroom with 10 or 12 cars. That just seems way more efficient.

[catch22]

That would be great.

[MustangGT]

The manufacturers have done everything they can to get away from the huge selection of options and the ability for customers to spec out vehicles to the last detail. That ability disappeared 20+ years ago, now consumers are left with option packages. Rest assured they will NOT go back to endless options and choice for consumers. It will never happen. The auto industry is rapidly getting back to what Henry Ford once said, "They can have any color they want as long as it is black." It all comes down to the manufacturers getting back to as much standardization as possible and the fewest possible choices of options. Efficiency in the manufacturing side is to minimize choices and make all cars as similar as possible with the fewest possible consumer choices. And since we as consumers collectively have no unity the manufacturers will always win out.

[Just the facts]

The manufacturers have done everything they can to get away from the huge selection of options and the ability for customers to spec out vehicles to the last detail. That ability disappeared 20+ years ago, now consumers are left with option packages. Rest assured they will NOT go back to endless options and choice for consumers. It will never happen. The auto industry is rapidly getting back to what Henry Ford once said, "They can have any color they want as long as it is black." It all comes down to the manufacturers getting back to as much standardization as possible and the fewest possible choices of options. Efficiency in the manufacturing side is to minimize choices and make all cars as similar as possible with the fewest possible consumer choices. And since we as consumers collectively have no unity the manufacturers will always win out.

Sure - because the NADA didn't like that many varieties available, lest they be struck with a car they can't sell, but with them out of the way there is a potential national market for every single car and that concern evaporates.

[mkjeeves]

The manufacturers have done everything they can to get away from the huge selection of options and the ability for customers to spec out vehicles to the last detail. That ability disappeared 20+ years ago, now consumers are left with option packages. Rest assured they will NOT go back to endless options and choice for consumers. It will never happen. The auto industry is rapidly getting back to what Henry Ford once said, "They can have any color they want as long as it is black." It all comes down to the manufacturers getting back to as much standardization as possible and the fewest possible choices of options. Efficiency in the manufacturing side is to minimize choices and make all cars as similar as possible with the fewest possible consumer choices. And since we as consumers collectively have no unity the manufacturers will always win out.

Tesla has a bunch to choose from. I like the Max Out My Model S button. Model S Design Studio | Tesla Motors

[Just the facts]

Tesla has a bunch to choose from. I like the Max Out My Model S button. Model S Design Studio | Tesla Motors

Yep - if Tesla had the traditional dealer network they would have to go with packages as well which in turn limit consumer choices.

[Garin]

Didn't anyone ever watch the movie Tucker?

[mkjeeves]

Yep - if Tesla had the traditional dealer network they would have to go with packages as well which in turn limit consumer choices.

It's probably also an indicator of the mindset Elon Musk has talked about with Tesla versus Detroit automakers, Silicon Valley/Tech/Fast responding to change vs Detroit/set in their ways.

[Urbanized]

What's funny is that for a time Ford Motor Company was majority owner of multiple dealerships in the OKC metro. The Fred Jones Auto Collection was a one price (a la Saturn - ostensibly no haggle/no hassle) experiment that was owned by FMC, the Fred Jones Companies and some other dealers as share holders. It became obvious that it wasn't working, mostly because they didn't buy every dealer in the metro - Reynolds was a holdout for instance - and people were therefore able to get their sales experience and one price without hassle and then take it to a non-one-price dealer and beat it by a couple hundred bucks. When the whole thing started going to hell in a handbasket FMC pulled the trigger on a buyout clause and owned the whole mess. Of course they quickly turned around and broke up the auto group by selling it back to individual dealers, but for a time they owned the dealerships lock, stock and barrel. Plus they had spent time as a significant if not majority partner in the group before that.

[mkjeeves]

That began, what, about 15 years ago? Now we have this in the mix of changing consumer experience. Even with showrooms, buying a Tesla is still an online purchase. You can do it at their computer in their showroom or you can do it from your computer at home.

[ljbab728]

Can you imagine how the car buying experience would change if dealers were taken out of the loop. Instead of a lot full of inventory they would just have test-drive vehicles where you could get a basic feel for the car and then be able to totally customize the exact car you want.

Kerry, that's exactly how I remember our family buying cars when I was much younger. We went to the dealer to decide for sure what kind of car and then told them what accessories we wanted and what color we wanted. It did take a while to get the car though.