Last month, Tesla’s general council gave an explanation to the FTC about why Tesla sells its cars directly to customers instead of using the traditional car dealership model. Of course, the remarks were carefully researched, vetted, and tested so as to not create any unpleasant blow back. That also made them slightly less truthful than they could have been. Here are the real reasons Tesla sells their cars direct without dealers.
1. Dealers Suck
Seriously. What is the most common car dealer commercial you hear on the radio? I’ll bet you money it goes something like this, “We aren’t like other car dealerships.”
Why would anyone advertise that way? Because the entire car dealership industry is widely regarded as over-priced, under-serviced, and just plain unfair. I dare you to find anyone (who does not work for, or is not related to someone who works for, a dealer) who actually LIKES car dealerships and wishes more things were like them. Everyone knows dealerships are a good place to get ripped off, whether on a phony markup like, sealant, or a destination charge, or on car repairs and service that would be cheaper just about anywhere else. Going to the dealer means holding on to your wallet as tight as you can and hoping for the best.
Tesla prides itself on being a customer focused company. Car dealerships exist to put a middle man in between the customer and the car dealer. Problem with your car? The dealer will blame the manufacturer who will blame the dealer. “We’d LOVE to help you, but the manufacturer rules won’t let us sorry. That’ll be $2300.”
Even manufacturers don’t really like dealers anymore. That’s why you get that phone call after you buy the car directly from the manufacturer just to be sure that the whole experience wasn’t too terrible. Manufacturers know that customers who get fleeced by a dealer are likely to blame them. How many customers will never by a Chevy again, not because of the manufacturer, but because they are angry at the dealer?
2. Dealer Pricing System is Terrible
Quick, name the best products you can buy in America by haggling? Don’t worry…. take your time…
Car dealership pricing is awful because they are trying to get you to pay the most possible for the car. And, while you buy a car every once and a while, they sell them everyday and develop (and train) the skills to get the maximum price out of you for the car. The dealer, by the way, keeps all the “extra” money. Anything over what the dealer pays to the manufacturer is profit to the dealer, so they have an incentive to sell for the most possible. This helps the dealer, but does it help the manufacturer? The manufacturer gets no additional profit, but has to worry about customers who worry they were ripped off. Why would Tesla do this?
There is a whole sub-industry of “fixed price” car dealerships just to avoid this sort of thing, however, everyone knows that SOME people get a better deal at the other dealerships, so now you have to guess whether to take your chances with a traditional dealer, or pay a little more to guarantee that you won’t pay a lot more.
Tesla cars are already pretty expensive. You don’t need a middle man marking them up, and then adding $600 for clear coat protectant to make them cost even more. By selling direct, Tesla avoids this whole mess. What you pay for your options is THE price. There is no way to get taken advantage of. You pay the same, whether you are a tough, fast talking negotiator, or a regular Joe who has trouble standing up for themselves.
3. You Can’t Always Get What You Want
When I bought my Honda CRV several years ago, I wanted a console between the seats, but I didn’t want leather seats. Too bad. That isn’t one of the “packages” that ensure you pay even more money by bundling together options you do want, with those you don’t want, but will end up paying for. The only way for me to get a console was as part of the leather package that added thousands of dollars to the price.
Oh, and you want a choice of colors?
Sure, whatever we have sitting on the lot.
With Tesla’s direct to customer sales process you can get almost any combination of features and colors you want. When you are buying a premium price car, one of the few ways to help make that feel better is to be able to get exactly what you want.
4. Legal Hassles
When American car manufacturers were on the verge of bankruptcy, they tried to close some dealerships to save money and stop wasting manufacturing capacity. What happened? The dealers SUED. With tens of thousands of jobs on the line, and the U.S. government doing its best to keep manufacturers afloat, hundreds of dealers ran to the courts to force the manufacturers to keep doing business with them. In fact, thanks to state laws, once you let someone open a dealership, you’ve basically given them a dealership for life.
Tesla is a new car company and it needs to move fast and allocate its dollars as efficiently as possible. You can’t do that with dealers looking out for themselves.
Car Dealerships Know This
Car dealerships know all of this, that’s why they spending big bucks lobbying states to pass laws making it harder for Tesla to sell direct to customers. They know that if enough people figure out that they don’t need (and really, really, don’t want) car dealers, that they’ll quickly go extinct. Their only hope is to try and keep it as small as possible for as long as possible.