Kudos to Tesla for taking on this cartel.
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[1] Edmunds lists the following types of fees charged by traditional car dealers at the time of sale: "registration fees," "doc fees," "trade-in fees," "dealer fees," "holdback," "financial reserve," and "advertising fees." Good luck trying to figure out what these fees ought to be for the vehicle you want to buy. Source: http://www.edmunds.com/car-buying/what-fees-should-you-pay.h...
Plus the sad fact is that the salesperson is the middleman of the manager, who is the middleman of the financier, who is the middleman of the dealership. There are probably more steps I'm forgetting.
Why can't cars be sold just like any other product? What makes them so special that government has to be involved, other than protecting monopolistic practices? I may never purchase a Tesla but I would argue against anyone that would want to stop this type of car sales.
Because then they run the risk of getting Amazon'd or Wal-Mart'd.
If you want to walk in, look at a sticker, and walk out with your new car, you should visit a Saturn dealership.
Unless they changed it recently, they never haggle.
When my wife and I bought our current car, we researched the average price for that year/model and resolved not to pay more than that, even though the price we were quoted was much higher. So we went to the dealer and noticed that the price on the sticker was LOWER than the price we'd planned to demand.
We quickly conferred, "Well, it says that $200 of that price is for the mudflaps, we should at least demand that we not have to pay for those since we don't care about them." So the salesman ends up quoting us a price even LOWER than we'd planned to ask for. We looked at each other, shrugged uncertainly, and said "sure, that's fine."
Objectively we ended up paying less than we'd planned when we walked into the dealership, but we felt significantly less happy about it! Later on we kicked ourselves for being caught too off guard to do any haggling; we probably could have knocked at least a few hundred dollars off, and even if not there would have been no harm in asking. There's something to be said for not having to hassle with haggling if you find it unpleasant (as we do), but it's a perverse system that gives you a better deal than you were expecting and makes you feel worse for it.
Most high volume dealers will sell you cars at or 1% above invoice. This way you can walk in to the dealer informed and know the approximate range.
Dealers don't like this. Some only negotiate as "$ or % off MSRP" and absolutely refuse to compare to invoice. It doesn't matter, since you know what the invoice is.
Finally, demanding not to pay for an accessory that's on the car that you don't care about is a losing proposition. Most of these accessories are factory- or port-installed and are factored in the sticker printout that's with the car. The dealer was charged by the manufacturer for that accessory and has to pay its cost. You are better off finding another car with less stuff on it, or ordering a car (which usually is a painful process, unless you're buying a Mini).
After looking around, I was ultimately interested in 2 different cars from different dealers. For car one, the salesman kept hedging of a price. The price that I knew I could get according to my research wasn't even close to the price he quoted. He was actually quite pleasant to deal with, but I just had a feeling that the dealership wanted to keep prices high.
At a different dealer for the same car, the salesman wouldn't even give me a price for the car until they saw my trade-in. I walked out of that place immediately.
For the car that I ultimately bought, I walked into the sales office with my wife and two kids. He immediately setup a test drive (including our car seats). When we got back, we quickly went through the options we'd need and the price of the car. It was all very transparent, and with the manufacturer incentives (end of the model year) it was a pretty reasonable price (well below invoice), and I was very happy with it. I actually liked the first car better, but was very happy with the one I ended up with.
Because of how that guy treated us, I'd go back to him to by multiple cars in the future. So really, it goes back to the balance between maximizing short-term profits over long term profits. The sleazier the dealerships will try to maximize short term sales at the expense of long term sales. The better ones try to build customer relationships so that they aren't just selling you one car. They are trying to also sell you your next car.
Before I even left home I had already determined what I considered a fair market exchange for the trade with my existing vehicle. I think in the end, they actually ended up doing a little bit better than I had expected.
This is my ongoing remark on this topic: walking into a particular dealership is a mistake. You're making it hard for yourself to use your only negotiation asset - the option to go elsewhere. Figure out the features you need and contact multiple dealerships for a quote. This sets up a much more better game for you. But yeah, dealerships still suck.
Sites like http://www.autobytel.com/ can help simplify this process.
See also: AutoNation’s AutoUSA, Microsoft Corporation’s MSN Autos, CarsDirect.com, Cars.com, eBayMotors.com, Dealix.com, and AutoTrader.com.
I haven't tried it, but heard good things. For a lot of brands (especially non-luxury Japanese) new cars are cost-effective right now.
http://forum.dealerrefresh.com/f46/carwoo-anyone-2746.html
Search that forum for lots of lovely language from the dealers about those two. TrueCar is particularly despised.
There is some positive feedback from dealers about CarWoo though, more so than TrueCar, so perhaps they figured out a thing or two better.
They could do better in filtering our junk offers. I clearly stated that I wanted a silver car without a sunroof but still had dealers spamming me with offers for a red one with a sunroof or whatever.
Example, a purchase I made this year specified the sale price of the car (lower than invoice you normally see) plus I think $100 documentation fee. No other fees were permitted.
I have seen X, S, and other other plan, for Fords, I am quite sure GM is the same if not Chrysler as well. When I bought a Mazda in 08 I only paid sales tax on the price Mazda set, not the dealer.
I know, I know, you just can't expect too much from journalistic headlines. "Auto dealers claim that tesla stores are illegal" doesn't have the same punch. And based on what I've read here, I am on tesla's side (though it's pretty hard to find anyone on the side of the auto dealerships).
Plus, customers may like it better since the current method is usually despised...
Good. There's no reason it should receive protection by the government in the first place. It's bad for the consumer.
No. What they're afraid of is that Tesla sets a precedence for other manufacturers to follow suit which would then move revenue out of the dealer's reach. Or: It's not about jobs, it's about money.
Source: http://en.wikipedia.org/wiki/Index_of_Economic_Freedom
It's not a law, it's simply a contractual provision that the dealers negotiated to protect their investments.
Ahahaha, I hope you're joking. The US isn't even close to being libertarian. The American economic system isn't based on capitalism, it's based on corporatism and regulatory capture.
So the evidence seems to suggest that the whole libertarian and socialism debate is nothing but political banter, with little ideological foundation.
Job protection laws protect and promote mediocrity.
The problem with some of these laws are that often they were written with the idea of protecting a business concern to maintain their advantage over, and to the detriment of, the consumer.
You know all those awesome concept cars you see at car shows that never get built? One reason nothing revolutionary comes out is that the industry is regulated to the max. Much of it is "safety" features, which may be well and good, but much of those "safety" constraints are arbitrary. But there are laws about everything from the shape of the steering wheel, to how far apart headlights need to be, and the CAFE standards pushing for fuel economy limits how cars have to be designed and built, as the companies need to squeak out every last mpg on the car.
When I read this, I couldn't help think of another quote from a 2008 Wired article [1] - ironically on Elon Musk and SpaceX. In it, he shares nails down a guy names John Pike, who predicted doom for SpaceX.
The context is different but the quote works:
>>Wired.com: Your whole mantra is "cheaper and more reliable." But so far you're zero for three, which is anything but cheap and reliable, and guys like GlobalSecurity.org's John Pike say the reason it has taken billions of dollars and tens of thousands of people to successfully launch rockets is physics, not some new design or economic model.
>>Musk: Guys like John Pike have existed since the dawn of time, and if you listen to people like that then things will never get better, never change.
Guys like Bob O’Koniewski have existed since the dawn of time. You can either generate wealth by creating value or seizing and hoarding value. It's clear which side of that dichotomy Elon and Bob each stand, respectively.
Today, the average dealer makes about $750,000 in profit each year. Many of these dealers are family owned and very active with local politics. In many smaller cities, the car dealership provides a good portion of tax revenues.
With all this said, dealerships have incredible clout when it comes to legislation. They pretty much ruined TrueCar.com's business model.
I think Tesla will be forced to offer independent distribution at some point if they get larger. And I've read that they are planning to do so. The dealer lobby is just way too strong in this country.
"What is best in life? To crush the middlemen, see them driven before you, and hear the lamentation of their lawyers."
- Auto dealerships - Music labels - Government secrecy
Would be interesting discussion on what industries denizens of HN think will fall in this manner.
Radio Shack used to be great when you were working on a project and just needed one more part; a capacitor, a motor/servo, a PIC, etc. I don't need another phone reseller, I don't need useless RC cars, I don't need odd TV remotes. I need an electronics store that sells electronic parts.
Best Buy is great for researching your purchases. I can read reviews of a laptop online, but I can't feel it, feel the build quality or the keyboard, I can't test the viewing angle. I can read reviews of TVs, but I can't see the picture quality, I can't hear the speakers. I can't ask questions and get answer immediately. Best Buy is great for this.
I don't mind paying a higher price if it means I get what I need as soon as I need it. These stores should, IMO, focus on things that a customer would not trust an online purchase for, and focus on adding value to these immediate purchases. Radio Shack for parts, Best Buy for consumer purchases, each with value added by knowledgeable salesmen.
EDIT: To clarify my vague statement above, I meant "banning" the Tesla display store business model, not banning Tesla altogether. That's a much more unlikely outcome, although I'm sure they would if they could.
Not only that but it seems that every time I go into a car dealership I know more about the cars than the sales people. Most of the time they're just some random guy off the street that decided to sell cars and got their training from a generic book or reading the sales materials. It's like they spent more time learning how to negotiate, con their customers and make the most commission they possibly can than they do learning about the car and what they are actually selling.
I feel bad for consumers that are not "car people" and go to a dealership seeking info from sales people.
Sounds like their business model will be left for a judge to decide. I think people on HN are angry because the auto industry feels like a monopoly and the law that Tesla might be infringing on should be illegal any ways. But what the judge wil have to decide is whether Tesla's interpretation of the law is correct. In normal cases this could take a pretty long time and Tesla would be able to operate until a judge says otherwise.
Without reading the law I would like to think that Tesla is onto something here. Just like the rest of the angry HN users, I would feel satisfied to know that the big auto industry wrote a law for their own benefit and technology passed them by.
How is that helping anyone but the dealerships?
It's not.
That was my initial though as well, but I came up with at least one case where survival of the dealerships is critical to an open market place.
If all stores were owned by car manufacturers, that would be a significant barrier to entry of new automakers. Not only do new entrants have to build a car company, but now they have to create a new distribution network as well at the same time.
That said, Tesla is a new car company and creating a new distribution network for them does not seem that big an issue.
Yes I know they are also competing with other brands, but some people are brand loyal enough that they would not switch to Ford or Chrysler.
You're also ignoring that the brand (e.g. Chevy) is selling to all of the dealerships. If they raise the price, the dealerships all have to pay if they want the car/truck/etc. Do the dealerships really have that much bargaining power?
Yes I know they are also competing with other brands, but some people are brand loyal enough that they would not switch to Android or Windows Phone."
In this case, the laws that keep dealerships alive are hurting you as a customer; the many testaments of bad experiences with deceiptful salesmen are evidence of that.
(I think this was reversed since the story)
It would be bullshit if you were referring to interior decorators, but I don't think there's any certification or licensing to become an interior decorator unless you join an association or club that requires it.
Tesla can still maintain these storefronts, and still negotiate and reach an agreement in principle in these storefronts. It simply can't finalize (i.e., sign the contract) in these storefronts. The reasons for this vary from state to state, so I won't even bother try to explain the justifications.
I'm a licensed real estate agent (non-practicing) and I can understand the need for government regulation to protect consumers from ignorant and unscrupulous sales people but in no way is a home builder prevented from selling their homes directly to home buyers. Real estate law, at least in California, covers required disclosures which apply both to manufacturers and salespeople.
I can understand limiting sale of certain classes of products that can be dangerous if in the hands of the general public but not limiting sales to monopolize a class of salespeople. Especially to the detriment of manufacturers and consumers.
Am I missing something? I can't see who wins except for car dealerships.
The fact that this surprises you means you've probably missed the hundreds of other such laws that are on the books, and for which you are paying daily (and dearly) without even realizing.
(Or do they already?)..
I learned this years ago from a site that walked through car purchase negotiation techniques. Sorry, I don't remember which site.
I don't mind people making money, but for $10 - %15k cars it's an absolute steal.
This doesn't stop them from making top dollar on everything else that they can though.
Every one of these sales takes place over the internet, and across state lines. This is interstate commerce. How then are states able to regulate it?
Since the regulations aren't applied specifically to out-of-state businesses, and considering that many states have the same laws (hence there's no unreasonable burden on out-of-state businesses), they may be legal.
I'm not a lawyer either, though.
