GM Volt Forum banner

1 - 13 of 13 Posts

·
Administrator
Joined
·
20,218 Posts
Discussion Starter #1
A cornerstone of the American automotive industry — franchised dealerships — is being challenged in Michigan as unconstitutional by electric-vehicle manufacturer Tesla Motors Inc.


Tesla on Thursday filed a lawsuit in U.S. District Court in Grand Rapids that if successful could upend the state’s vehicle sales laws and have a ripple effect nationally on the country’s franchised-dealer network.

http://www.detroitnews.com/story/business/autos/2016/09/22/tesla-lawsuit/90831598/

Dealers via the state of Michigan are basically arguing that allowing Tesla to sell direct would harm the safety of the public and is, well, illegal because the dealers pushed legislators to make it illegal to protect the, uh, car buyer. Or that Tesla should not be allowed to sell direct because it would hurt non-existent Tesla dealers due to Tesla's predatory practices against its non-existent dealers. Or that the big three made dealership their chosen distribution method, should Tesla should be forced to use the same model.

All very convoluted, unconvincing, and misapplied reasoning to me. It simply boils down to the dealers want a cartel to control car sales. This is rarely (never?) in the interest of consumers.
 

·
Registered
Joined
·
6,672 Posts
IMHO I wish GM would take the high ground and not get involved in this debate. Let the citizens and consumers decide this.
 

·
Banned
Joined
·
7,289 Posts
IMHO I wish GM would take the high ground and not get involved in this debate. Let the citizens and consumers decide this.
But then the dealers, GM's direct customers, go "WTF?? Why aren't you supporting us?!"

Rock and hard place.
 

·
Registered
Joined
·
3,440 Posts
No matter how obvious the issue seems to us, winning the point in Michigan, in the Auto Industry's backyard, will not be easy. The politics will carry a lot of weight.
 

·
Administrator
Joined
·
20,218 Posts
Discussion Starter #5
No matter how obvious the issue seems to us, winning the point in Michigan, in the Auto Industry's backyard, will not be easy. The politics will carry a lot of weight.
Yes, however it's being litigated in a Federal court based on Federal interstate commerce law. They have a shot I think. But as DonC pointed out in another thread, GM may be more concerned with the impact a Tesla victory would have on Chinese automakers looking for a way to avoid the dealer millstone. GM, et al are pretty well stuck with dealers due to contacts and laws to protect those contracts. Allowing new entrants with no dealers to do an end run could put the existing manufacturers who do have dealers at a possible disadvantage. If so, they would then need to compete with the new direct sale entrants by stepping up their MFR/Dealer game or risk losing ground. Of course dealers could lobby for new federal laws to "keep out the Chinese who are laughing at us".
 

·
Registered
Joined
·
132 Posts
Rather than be afraid of the competition the big manufacturers need to step up and take them on. But that's more expensive than paying off some politicians. I think it's ridiculous for a government to tell a company that sells a non-essential luxury product how to do business. Tesla isn't making the cars with child labor. This isn't a utility company where there is a monopoly or a health care company where somebody could die. This is an automotive manufacturer.

I would guess this is going to get appealed to the supreme court no matter what. Who knows how that will go.
 

·
Registered
Joined
·
2,130 Posts
Rather than be afraid of the competition the big manufacturers need to step up and take them on. But that's more expensive than paying off some politicians. I think it's ridiculous for a government to tell a company that sells a non-essential luxury product how to do business. Tesla isn't making the cars with child labor. This isn't a utility company where there is a monopoly or a health care company where somebody could die. This is an automotive manufacturer.

I would guess this is going to get appealed to the supreme court no matter what. Who knows how that will go.
The difference between how America allows a new business and how China allows a new business is STAGGERING. Chinese companies (and government) laugh at us all day long as they rip us off and take our property.
 

·
Registered
Joined
·
11,416 Posts
Jason Lancaster - editor of AccurateAutoAdvice.com said:
There are pros and cons to selling product thru distributors, which is essentially what we have in the existing auto manufacturer / dealer franchise system.

Dealership Disadvantages (from an automaker's perspective):

1. Little to no control over day to day operations. Dealers can set their own customer service policies (and execute them to varying levels), decide to engage in advertising and marketing practices that devalue the brand, pursue sales tactics that annoy the general public, etc., and there's almost nothing the manufacturer can do about it. Manufacturers can create complicated customer satisfaction metrics that dealers must satisfy as a condition of being a retailer, but these programs aren't always effective.

2. "Stacking" franchises devalues the brand. If you have a metro area with 10 same-brand dealers competing for customers, they often resort to advertising and marketing practices that devalue the product.

3. Maintaining a business relationship with each dealer costs money. If you have 4,000 dealers instead of 1,000 dealers, you'll spend considerably more on distribution, retail support staff, etc. Franchise fees help offset these costs, but not totally.

4. End customers don't get a consistent impression of the brand. Some dealers are awesome, and some are terrible. If a dealer is bad, they can turn customers away from the brand. If a dealer's facility is run-down, consumers get the wrong impression. Etc. When you look at successful national corporate retailers like Starbucks or Apple, you've got incredible consistency. Every Starbucks looks like every other Starbucks, every Apple store has the same basic setup and staffing, etc. Corporate training ensures that a drink has the same name in every store, that every customer service concern is addressed the same way, etc. This protects the brand.

Basically, the biggest disadvantage is that dealers are independent businesses. When an automaker works with dealers, they must trust dealers are going to do a good job.

Dealership Advantages (from an automaker's perspective):

1. Simplicity of purpose. The business of building cars is not at all like the business of selling cars to the public. They require different skills and mindsets. By "outsourcing" retail sales, automakers are able to narrow their focus. While some companies (like Apple) are able to successfully manage both a large manufacturing business and a large retail business, I'd argue this is the exception to the rule. Most manufacturers don't retail, and most retailers don't manufacture products.

2. Reduced capital needs. In North America, a larger auto dealership can cost $20-30 million to build. That cost doesn't include the cost of the land the dealership sits upon, nor does it address the operating costs. Creating and maintaining a national retail network would require a lot of capital, and that capital requirement can be too much for a smaller automaker to bear (especially when they first get started). By selling franchise rights to dealers, automakers increase their capital on hand rather than invest it into facilities.

3. Guaranteed (or nearly guaranteed) cash flow. It's a little known fact outside the auto industry, but automakers consider a vehicle to be "sold" when it hits a dealer's lot...NOT when it ends up in someone's driveway. This is because automakers sell their inventory to their dealers, who then retail the inventory to the public. Most automakers mandate that their dealers take inventory on a regular basis as a condition of their franchise, which means automakers can always sell cars to their dealers (even if the public isn't buying). Granted, automakers can't go too far, but in the dark days of 2008, GM and Chrysler-Jeep-Dodge dealers were taking extra inventory from their automakers to help keep the companies alive.

4. Local marketing partners. Every automotive market is a little different, and local expertise is useful. A dealer in the foothills of Denver is going to want a different mix of vehicles than a dealer in East Texas, as the people in these areas have different wants and needs. Dealers can order the cars they believe their customers will want to buy, and automakers can build what's ordered rather than trying to guess about which package/feature will work best in any particular market. What's more, dealers can build community relationships that a corporate automaker might struggle to create.

5. Local customer service provider. Cars are complicated, and once you have a few hundred thousand of them driving around, you need a network of service centers to make warranty repairs, conduct recalls, and provide maintenance services.

While there are some serious concerns with dealers, they offer new automakers the best path to growth, and that's primarily why we have them. They don't cost any money to setup (at least in the short term), as automakers can usually demand a franchise fee when things get rolling. As time goes by and an automaker becomes more stable, the cash flow and capital benefits of dealers diminish.* Many auto executives would love nothing more than to buy out all their franchises and take over everything, as that would probably increase their profits in the long run.

But, with franchise protection laws, that's not really feasible.

*NOTE: At different points in the last decade Ford, GM, and Chrysler all leaned upon their dealers to load up on inventory even when the public wasn't buying. This relationship with dealers helped to create cash flow and keep things going. Automakers never know when a pool of business partners with independent financing will come in handy.
Emphasis:

"In North America, a larger auto dealership can cost $20-30 million to build. That cost doesn't include the cost of the land the dealership sits upon, nor does it address the operating costs. Creating and maintaining a national retail network would require a lot of capital....."

Think about what it would cost for GM or Ford to buy and operate all of their dealerships. They can't operate in competition with dealerships (have only a portion of direct sales).

Tesla competition is chump change. I agree this is protecting against Chinese competition at this point. Previously it might have been to keep the Europeans in line. The Europeans are doing just fine here with the dealership model.

I also agree that dealerships will lobby for new laws, and get them. Suck it up Musk. Selling cars is no Starbucks operation. Obviously you don't intend to serve the whole country, just the areas where you can make profit. I don't see Stillwater, OK or Casper, WY being on your radar.
 

·
Registered
Joined
·
132 Posts
The difference between how America allows a new business and how China allows a new business is STAGGERING. Chinese companies (and government) laugh at us all day long as they rip us off and take our property.
Intellectual property is very different from what is happening here. If Tesla was infringing on GM's intellectual property it would be a huge deal and there would be a separate court case trying to sue them into oblivion. This is different. This is GM not wanting to compete in what is supposed to be a mostly capitalist economy.


As far as China ripping us off, I honestly don't care. The average household in China earns about 1/5 what the average household in the US earns. So if they can find a way to level the playing field I'm cool with it.
 

·
Registered
Joined
·
2,130 Posts
As far as China ripping us off, I honestly don't care. The average household in China earns about 1/5 what the average household in the US earns. So if they can find a way to level the playing field I'm cool with it.
Hmmm, not sure where to begin, but since you don't care there wouldn't be much point in explaining it to you. Next...
 

·
Registered
Joined
·
1,785 Posts
There are plenty of Americans, including myself, who really hate the negotiating process. That's one reason that I'll drive my 2011 until it falls apart.

Auto makers know this, but they're locked in by contracts as well as state laws. If Tesla starts winning in court and actually starts shipping their 40K car, they won't be a niche company for long. Of course, those are two big ifs.
 

·
Registered
Joined
·
242 Posts
Totally agree. Anybody that argues the current dealership system protects consumers or is in any way "free market" needs to get therapy for their cognitive dissonance. This corporate protectionism makes we want to get rid of my Volt right now.

There are plenty of Americans, including myself, who really hate the negotiating process. That's one reason that I'll drive my 2011 until it falls apart.

Auto makers know this, but they're locked in by contracts as well as state laws. If Tesla starts winning in court and actually starts shipping their 40K car, they won't be a niche company for long. Of course, those are two big ifs.
 

·
Registered
Joined
·
132 Posts
Totally agree. Anybody that argues the current dealership system protects consumers or is in any way "free market" needs to get therapy for their cognitive dissonance. This corporate protectionism makes we want to get rid of my Volt right now.
Nobody really believes stuff like that. It's just something that sounds like it maybe could be true and there probably isn't any solid data on it. So people say it because it pushes an agenda they want. It's the same crap as "windmills will ruin our coastline's view" or "my god does/doesn't like X so we need to make a law about it."
 
1 - 13 of 13 Posts
Top