Electric Car Maker Tesla Plans to Short Circuit New-car Dealers

Electric Car Maker Tesla Plans to Short Circuit New-car Dealers

Electric Car Maker Tesla Plans to Short Circuit New-car Dealers

If you want to buy a new car or truck in the United States, you have the choice of going to a dealership in person or not buying at all. For the first time, one automaker – electric vehicle maker Tesla – will attempt to short-circuit dealers by selling its cars directly to consumers over the Internet. It's controversial, risky and already under fire from traditional dealers, but Tesla's model could spark bigger changes.

The store above in Denver is one of 14 Tesla has opened in the United States and 25 worldwide, with another eight to 10 set to open in North America before the end of the year. While the company has focused on meeting production targets of its electric Model S sedan, it's also been adding stores like these – owned by the factory, usually located in malls or central shopping districts closer to Urban Outfitters than other car dealerships.

It's a key part of Tesla's overall business: Instead of building cars and selling them to dealers who hawk them to shoppers, Tesla wants to build only cars customers order – eliminating part of the auto industry's massive overhead costs in inventory. By selling its cars directly, Tesla's executives believe they can make their customers happy, and eventually sell more cars for less money.

"Our way of thinking about the whole ownership experience is fundamentally different than the way other car companies think about it," said George Blankenship, Tesla's vice president for sales. "The best way to do this is to control the process throughout."

There's a reason America's 17,500 dealer franchises have an impenetrable hold on where you buy a new vehicle. Over seven decades, new-car dealers have built a protective web of state and federal laws that give them a legal shield against automakers and their own competitive urges unique in American business.

Starting in the late 1930s, auto dealers successfully lobbied state capitols to even the field with manufacturers, who were prone to canceling franchises without warning, making it costly for an automaker to pare back franchises once granted. In modern times, those rules are what prevent automakers from going the route of Apple or Amazon; it's illegal in several states to sell new vehicles over the Internet or for an automaker to own a dealership.

Much as those rules protect dealers, they also make dealers immune to some of the consumer pressures other businesses face. More customers file complaints about auto dealers with consumer protection agencies than any other business, according to the Consumer Federation of America. While new-car dealers do face tougher standards than used-car lots, buying a new car can often be a painful process even when no rules are broken.

Posted by on Thursday September 06 2012, 2:29 AM EST. Ref: Google. All trademarks acknowledged. Filed under Featured News, Shopping. Comments and Trackbacks closed. Follow responses: RSS 2.0

5 Comments for “Electric Car Maker Tesla Plans to Short Circuit New-car Dealers”

  1. I was National Network Performance manager for Daewoo cars in the UK and we sold directly through our own outlets. We outsold every smaller importer at the time and made money [Kia Hyundai Proton etc]. The traditional route is time consuming and safe, but slow. Direct we achieved 3% UK market share in 3 years 34000 units PA. Chevrolet bought Daewoo, went traditional, and shrank the business to 6000 units and today have never achieved much more than 0.7% market share. My concern would be the marketing and support structure; that to one side go for it. Happy to share experience from this side of the pond and give some tips on hurdles and easy wins.

  2. Mark Gemmell

    That’s very interesting Bob. Thanks for sharing your experience.

    I am a Tesla user, customer and supporter, but my view from outside the sector is that maybe they are trying to do too many revolutionary by they changing the entire supply chain as well as all the other things they are doing.

    However the impression I get is that it wasn’t “too much “effort for you to reach 3% share going direct so maybe they are doing the right thing. You should apply for a job with them at their office in Maidenhead… I’m sure your experience would serve them well.

  3. Michael Hayes

    Very one sided article, no understanding of the business. Consumer pressures? Apple margin is 10 times what dealer margins are. Comparing a distribution system for exotic cars to normal everyday transportation is off the mark. What about trades? Pricing on new vehicles is pretty transparent today, do you know what invoice is for your IPAD?

  4. Frank Trovato

    I am with you Michael. Along with the question of trades, how would Tesla handle the owner experience in regards to parts and service? Are they going to certify after market service centers,where customers can wait for Fed Ex to show up with parts? George Blankenship thinking he can control the process is the same as saying everyone who buys a Tesla is going to follow his model. Sounds a little Saturn -ish Ownership experience is different for every individual. It would seem the lesson to be learned from what happened to Daewoo in the UK is that it was a flash in the pan that could not be sustained without a direct dealer network. People need to get off the old cliche it’s painful to deal with dealers. Good luck George. Without the proper dealer network in place I believe you are heading down the road to becoming the next Dae-who ?

  5. blake g

    By March of next year there will be a service center within fifty miles of eighty percent of current reservation holders……

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