Category Archives: Car dealerships

GM’s Mary is quite contrary about dealers

Mary Barra TeslaMondoEvery time GM’s lobbying efforts against Tesla make new headlines, like today’s headlines about the battle for Connecticut, TeslaMondo will remind readers of GM’s two-faced position on dealerships.

1999: GM tries to bypass dealers, to no avail. The dealer lobby becomes stronger as a result.

2014: GM writes a letter to Ohio that calls Tesla’s business model a “distinct competitive advantage” over the franchise system, and decries the “unique, favorable protection” that Tesla receives in being allowed to go factory-direct.

It’s obvious that GM considers its dealer network an albatross, right? Yet listen to this bullshit from Contrary Mary during the Bolt launch:

2016: “We believe strongly in the dealer model, and the tremendous value our customers derive from neighborhood dealerships.” Skip to 7:52 to hear it for yourself.

If we believe Mary, then GM’s dealer network forms a competitive advantage over Tesla. So, Mary, why not shut up and enjoy your unfair advantage over this no-dealer newcomer? Why lobby to erase your competitive edge? That’s the question of the day, and maybe the year. 

Never mind how her garden grows. TeslaMondo wonders when her nose will grow.

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Lexus might try mall outlets

Toyota has disregarded Tesla’s powertrain solution, but it’s not disregarding Tesla’s retail solution. This frank interview with Ward’s Auto about opening mall outlets should be read as a trial balloon floated by Toyota, akin to a concept car. It’s meant to gauge public (and dealer) reaction. Surely there’s more to come. Tesla is eating Lexus’ lunch in the premium sedan segment and now occupies the runner-up spot behind Mercedes.

The phase-in plan probably goes something like this:

Phase I: Casual mention in the press, to break the ice
Phase II: Quiet discussion with dealerships to ease shock
Phase III: Public announcement
Phase IV: Execution

Will these Lexus outlets be factory-direct or independent? In a stroke of journalistic ineptitude, the Ward’s article fails to clarify that crucial aspect, but rest assured that every automaker would go factory-direct if it could. Remember, the Alliance of Automobile Manufacturers, of which Toyota is a member, has complained about being forced to use dealers while Tesla can skip the middleman.

Complaint 1
Complaint 2

Automakers badly want a direct pipeline to you, the customer. Ford and GM tried it in 1999, but the efforts flopped for various reasons.

Meanwhile, TeslaMondo long-ago predicted that Tesla would expand beyond mall outlets, and more recently, Tesla has indeed said it might expand to a hybrid system of factory-direct mall stores and independent dealerships. Perhaps that’s ultimately where auto retailing is headed, period.

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LOL Michigan

Michigan Governor Rick Snyder TeslaMondo

Michigan Gov. Rick Snyder

A cabal of politicians and car dealers writhes in a steamy love pretzel in Michigan, each partner enthralled with each other’s sliminess. And GM is holding the camera, sporting wood all the while. Meanwhile, Daimler has sold its remaining shares of TSLA while downplaying the significance. Will Toyota follow?* Hope so. If we witness a dip to $200/share this winter, it’s time to load up on more TSLA and ride the falcon wings in 2015. This is so easy, it seems almost illegal. Hey, wait — never mind almost. Tesla IS illegal! Seems that Musk and gang are like the Dukes of Hazzard, justGeneral Lee Dukes of Hazzard Model S TeslaMondo making their way the only way they know how. But that’s just a little bit more than the law will allow. Maybe it’s time for a General Lee version of the Model S.

Better minds have prevailed elsewhere. A summary of pro-Tesla statements:

Federal Trade Commission
Bunch of law professors and economists
Massachusetts Supreme Judicial Court ruling

*UPDATE, 10/23: Toyota does indeed sell some of its shares.

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Et tu Brute? Michigan stabs a friend

Elon Musk Captain America TeslaMondoDetroit is the ceremonial seat of American auto ingenuity, yes? Tesla is the latest example of that ingenuity, albeit based in another state, yes? Tesla wears the same red, white and blue team uniform, yes? Tesla even inspired GM to build the Volt, yes? All of this is lost on the Michigan auto dealer lobby, which obviously fears that Tesla’s factory-direct sales model could become a contagion and render the middleman obsolete. Dealers have found a friend in Senator Joe Hune, a wayward 34-year-old boy, who obligingly finagled some key wording into an unrelated bill that now sits on the governor’s desk. If the Gov passes it, Tesla is forbidden from selling or even showing its American auto ingenuity to Michigan residents.

TeslaMondo has already suggested an alternate approach for dealer groups: improve your game and ultimately make Tesla want to use dealers. Recent comments by Musk suggest it may eventually happen anyway.

UPDATE: Michigan governor signs the bill on 10/21, after GM voices support for the Tesla ban. And there was much rejoicing.

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Dealers save us from sticker price, eh?

Sticker Shock TeslaMondo“Independent dealers are aggressive in pricing against each other,” said Bruce Anderson, president of the Iowa Automobile Dealers Association, in USA Today a couple days ago. “If you wanted to buy directly from Chevy or Ford, the price on the sticker would be the price.”

So the demise of dealers would cost the consumer money? A scary thought. Luckily, it’s not true. Consumers actually pay a middleman premium. Using dealers would cause the price of a Tesla to “increase significantly,” according to Tesla’s Vice President of Global Sales, Jérome Guillen.

How much does the middleman cost us? About 24 percent of the MSRP, according to a Harvard Business School case study of Ford’s failed retailing attempt in 1999. So the demise of dealers would trigger some combination of more profit for automakers and lower prices for consumers. TeslaMondo thinks market forces would cause transaction prices to settle right about where they are today, with automakers quietly enjoying a fatter margin. And the consumer’s car-buying experience wouldn’t change much. Ford couldn’t suddenly mimic Tesla’s retail model, which lacks inventory, barely dabbles in financing and avoids trade-ins. The big-volume car business would look much the same, even without franchised dealers:

* Competition across brands would continue in force, driving prices down. Even competition among same-brand stores would continue in force. But how, if the new-car price is non-negotiable? Because six out of 10 new car transactions involve a trade-in, and trade-in value is subject to individual judgement. No two managers will reach the same conclusion, so competition would shift from, “Who will knock the most off MSRP” to “Who will give me the best overall price, after trade-in?”

* MSRP would still be just a suggestion. Sure, for Tesla it happens to match what the market will bear. But for most brands, it does not. And so factory rebates — remember those? — would not just continue, but get stronger to bring the transaction price back to the norm for the region. The resulting price to the customer would mimic where it’s always been. If an Accord LX has been selling for an average of $20k in a given area, rest assured a factory-owned Honda store would make sure the price remains at $20k, whether by lowering the MSRP or using rebates to adjust as necessary. There would be no price shocks allowed.

* Interested in leasing? Lease offers already circumvent the dealer and come directly from the manufacturer in many cases. Just look online or watch TV. Sure, some offers are dealer-specific, but many are REGIONAL, which means they’re factory promotions. So automakers already do pitch discounted pricing directly to the public, albeit with leasing instead of buying.

* What about lending? What rate would you get if the factory ran the store? The same factory-sponsored rates you get now. And your chances of approval would remain the same because the factory’s lending arm already determines who gets, say, zero percent and who doesn’t.

* What about buying a used car? Ah, the dirty end of the business. The likely scenario is that factory-run stores would outsource the used car business to an on-site independent operator, rather than dirty its hands. Imagine a Honda-owned store fixing an old Camry and selling it, then servicing it? Seems a conflict of interest, yes? But if the used car wing is an independent enterprise, there’s a crucial partition.

* The dealer doc fee would go away. That’s several hundred dollars in some cases. Would consumers end up paying it under different guise? Maybe.

* What about servicing? Once again, the factory is already very involved. Is your issue under warranty? Is it a defect or a natural idiosyncrasy of the product? Do you deserve a break on the bill? Will the factory pay half? If you get stuck paying a big bill, but a recall is issued later for the same thing, do you get reimbursed? These sticky situations already test the relationship between the factory and the consumer. They would continue.

So how much would really change? Well, you wouldn’t see a cluster of salesmen near the front door, smoking and texting. They’d be forced to do that stuff at the back door.

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NADA’s assignment: make Tesla want NADA

Gallup graphic TeslaMondoThe recent dustup in Iowa, with dealer groups blowing the whistle and forcing the shutdown of a Tesla test-drive event, begs a question: If Tesla is just a wildly-hyped niche player with no real mass-market potential, a mere chipmunk in the back yard of Big Auto, why are dealer groups frantically chasing Tesla around the yard with a baseball bat? Obviously Tesla is more than a chipmunk. It’s more akin to a fox, and in a couple more years, think coyote. Then wolf.

But dealer groups are taking the wrong tack. Using ordinances and statutes to whack a well-regarded competitor only draws attention to the competitor’s product, aligns you with politicians, and posits the competitor as underdog with you as bully. Even if you win in court, you’ll lose in the court of public opinion. And if you lose in both courts? Then you’re beyond lost. Banning the competition is like banning a song. History shows it doesn’t work. In fact, it guarantees a hit.

Tesla isn’t trying to destroy the franchise system. It just doesn’t want to participate. The nightmare scenario for dealers is that consumers and automakers will feel emboldened by this Tesla precedent, then get together and cut out the middleman. That wouldn’t be Tesla’s fault. It would be the fault of the franchised dealer system for failing to justify its existence to consumers and automakers.

So rather than throwing the book at Tesla, the dealer posse needs to step up its game and improve the customer experience. If everyone liked the automotive status quo — the way cars are distributed, sold and serviced — then Tesla’s factory-direct structure would pose no threat. It would constitute a mere curiosity, nothing more. Manufacturers would not be tempted to imitate it. Consumers wouldn’t be buzzingBanned in the USA Teslamondo about it. The middleman could get some sleep, knowing his role is secure. So, NADA, it’s time to kick customer service up a notch or two. But how? What would make your middleman role look less superfluous and more essential? In short, what would make Tesla want to use franchised dealers?

You’ve attempted to justify yourself to the consumer via this video.* But what about the other direction? Why do automakers need you? So far, they haven’t exactly come to your rescue. In fact, they’ve voiced displeasure with dealer protectionism. John O’Dell from Edmunds.com tried to go to bat for you, but whiffed because he forgot that Tesla has no inventory, sells a product that’s over the heads of many car salespeople, and needs none of the blood n’ guts servicing that makes dealers happy.

So your homework project is make yourself look vital to automakers, Tesla in particular. Ten-page minimum, single-spaced, and don’t even think about enlarging the font beyond 12-pt or fattening the margins beyond 1.25.” Due Oct. 10.

* The arguments presented in the video were dismantled by the Federal Trade Commission, and also by a crew of professors and economists. Seems dealers can’t find a friend anywhere — except in public office.

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Dealer chum concedes eventual defeat

Jim Ziegler TeslaMondoLongtime auto dealer consultant and speaker Jim Ziegler says Tesla will eventually sell legally in all 50 US states. But beyond that, Ziegler predicts other automakers will follow Tesla’s lead — just as dealers fear. Remember, Tesla never intended to dismantle the century-old franchise business model. It simply didn’t want to participate in it. So the Tesla battle is all about a precedent and nothing more. The nightmare scenario for dealers is that Tesla is cracking a dam and will soon allow a flood of similar factory-direct efforts. TeslaMondo readers already know the recent history on the subject and remember that Ford and GM made overtures in 1999 but had to retreat in defeat.

TeslaMondo has long predicted:

1. Another retail invasion by big OEMs.
2. Better profit margins as a result.
3. No improvement in typically lousy customer experience. A cattle house is a cattle house regardless of who pays the workers.

 

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Mass high court sides with Tesla

Tesla’s one Massachusetts store, in the Natick Mall, can continue to operate. A couple of dealerships and the state’s auto dealer association tried to bar Tesla from doing business in the Bay State long before it even opened the store. But today the Supreme Judicial Court rejected the very basis for the case, saying the Tesla foes are trying to use a law meant to protect franchisees from factory takeovers — and since Tesla has no franchises and isn’t trying to take over any, there’s nothing to talk about. Next . . .

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NADA shifts to self-preservation mode

Middle Man TeslaMondoAny TeslaMondo reader should have seen this coming long ago. Today the National Automobile Dealers Association has begun some public opinion massage therapy, posting a video about the wonderfulness of the car buying experience thanks to the wonderfulness of franchised dealers. This wonderfulness would be lost, you see, if Tesla’s factory-direct precedent were to become a contagion and lead to a repeat of 1999, when the likes of Ford and GM tried to cut out the middleman and run their own dealerships. Those efforts failed. And they resulted in stronger franchise laws to prevent a repeat.

However . . .

Some recent commentary by the Alliance of Automobile Manufacturers, representing 12 automakers, suggests factory-direct selling may leave the back burner and come forth again. The Alliance says dealer protectionism is going too far. “At the request of local dealer groups, states set up a labyrinth of protectionist laws that make the car-buying experience difficult and costly for our customers. It’s understandable why Tesla or future competitors would want a simpler sales process. When we look at the big picture, we may be at a tipping point. If dealer groups continue their push for more onerous franchise laws, we will be forced to keep an open mind about how best to serve new-car buyers in the future.” That’s a rather ominous warning from Alliance spokeswoman Gloria Bergquist. Sounds like automakers consider dealers a burden, not a benefit.

NADA campaign TeslaMondo

Click to view video

The Federal Trade Commission, a consumer watchdog agency that guards against anti-competitive practices, is no friend of car dealers either. Here’s an excerpt from a recent FTC blog post: “Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated. We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are—expressions of a lack of confidence in the competitive process that can only make consumers worse off.”

But perhaps the harshest rebuke of all is this open letter from a posse of 70 law professors and economists, which dissects and defuses every single argument dealer groups try to make about their indispensability. Seems car dealers can’t find a friend anywhere. How about the consumer? No dice. The annual Gallup poll measuring honesty and ethics in various professions shows near-zero trust in dealerships.

So this new NADA campaign was inevitable. But is it effective? Well, the timing could be a lot better. The current General Motors recall crisis belies the NADA claim that dealers advocate for consumers on safety issues. Such advocacy, if any, was totally ineffective for the last, oh, decade or so.

Hear that clock ticking? This may take a decade or more, but American auto retailing is bound to molt its century-old skin. Litigation can’t stop natural metamorphosis, nor can propaganda videos.

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Legal hurdles fall in New York, NJ

Banned in the USA TeslamondoTesla can continue to operate its five New York stores, now that Governor Andrew M. Cuomo has signed up for the 21st Century. But in a nod to the 20th Century, the New York legislation strengthens dealer protection from factory takeovers. This ensures that dealers will get a decent night’s sleep for a few more years, until progress once again comes rapping at the chamber door. It was only 15 years ago that Ford and GM tried to cut out the middleman, you know, so the Tesla precedent is spooky indeed for auto dealers. Paranoia strikes deep. Into your life it will creep.

New Jersey Assembly has voted 77-0 to restore Tesla’s right to sell in its two existing stores and open two more. The reverse-the-curse bill now heads to the Senate, where it’s bound to get a fight from the local dealer lobby, which doesn’t like “this Musk guy.” You may recall Gov. Chris Christie recently banned Tesla, just days after trumpeting the free market in a Maryland speech, then suffered a public stoning for being a hypocrite, then blamed the Legislature for tying his hands on the Tesla matter. Assembly Majority Leader Lou Greenwald then blamed Christie and vowed to “clean up the Governor’s mess.”

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