gengar

Of course we're talking about distributors - someone eventually has to sell the product to the end consumer. What we're talking about is what the distribution channel looks like and how many middlemen are involved.

Toys4RJill

I still don't really understand what you are trying to argue. Having no dealers will not reduce prices. It will raise them.

gengar

To restate my post #29, I was responding to your statement that (to paraphrase) manufacturers won't pass on cost savings from eliminating distribution middlemen. That statement is flawed - or at least inaccurate - for two reasons:

1. Manufacturers typically don't save costs from eliminating distribution channels, because they sell wholesale to the distribution channel regardless; and
2. your statement does not reconcile with the reality of big box retailers (like Costco, or as you pointed out, Walmart) or centralized mass fulfillment retailers (like Amazon), where elimination of middlemen and/or streamlined distribution have often reduced prices and not resulted in manufacturers raising prices to the distribution channel.

The fact that Costco/Walmart/amazon are retailers/distributors does not affect my statement; someone, somewhere is always going to have to act as distributor in order to sell to the end consumer. The question is who and at what point in the typical distribution channel (i.e., how many middlemen).

Toys4RJill

Ok. So are you saying it that if there were no middle men (car dealers). Then the cost savings would be passed on to consumers?

My0gr81

He is saying that Manufacturers won't see any additional revenue, nor will it make a difference to them. That is all. There is a lot of layers within the distribution channel, even without the dealers.

LeX2K

The whole friggin point is Tesla or any other auto maker should be free to sell direct if they want to. If that somehow increases costs and makes them less competitive that's their problem they can change their business model if needed. But I find it really hard to believe dealers make cars cheaper, just look at these places many are quite extravagant someone has to pay for that. Sure they make money on servicing but look at the cost most dealerships are complete ripoffs when it comes to servicing and repairs. It's downright criminal honestly.

gengar

Essentially yes, thank you. The term "passed on to customers" is so odd. When eliminating middlemen in the distribution channel, there is no "passed on to customers". The costs (and other BS, like bargaining margins) simply aren't added on in the first place.

Sulu

Between the automaker and the end buyer, there are many middlemen, each of which will claim to add their "value" (in terms of a service they supply) to the final transaction. And by performing a service and adding value, they want to be compensated.

The middlemen can be the various (and many) distributors responsible for the trucks, the ships, the trains that transport the vehicles from the factory to some mass shipment port to another port and finally to the store where the buyer is able to see, touch and purchase the vehicle. This is logistics, and to manage the complexity of moving the vehicles around, there are logistics companies (such as Kuehne + Nagel). Each transport company and each logistics company (and there may be many) that is involved will add their fee on top.

The final middleman is the independent dealer that shows (displays) and sells the vehicle. Of course, as another independent business, the dealer also wants to be compensated for the "value" they add to the final transaction.

Obviously, one way to reduce the final price of the vehicle is to eliminate some of these middlemen: eliminate a middleman or an entire middle layer (if they do not add much value to the final transaction), and you eliminate the fees that are added to the final transaction.

Eliminate that final, independent dealer, especially if the automaker is able to consolidate and eliminate a number of independent dealers in a city, each of which is really an independent warehouse where they store new cars and parts, and you eliminate a middleman. Eliminate that middleman, and you eliminate the fee that middleman charges for the "value" they add to the final transaction.

patgilm

I still use a travel agent, makes my life much easier when booking my vacations. I don't see where they are costing me anything. I go to Disney every year and I get the same price as going directly to Disney's crappy website and I can get prices from my agent way faster than I can when I do it myself. Same for other vacations, I go to various other discount sites and the prices are very similar or sometimes more than what I get from my travel agent so I will stick with the old school way.

Sulu

Where a travel agent (or real estate agent) adds value is by presenting you with a number of different options. There may be many ways (routes, transportation options) to get to Disney but the shopper looking to go there may only know of a few such options and looks at only one option at a time (or become overwhelmed at all the different options).

The good travel agent, however, knows the many options available, and after discovering the shoppers wants and needs (price-point, preferred airline, etc.), can narrow down that list of options.

A new car dealer, however, represents only one brand and so really offers only one purchase option; the dealer (agent) that can give only one option is not adding much value to the final transaction. So why should an automaker have to sell to an independent dealer that only sells their brand? Why not have the automaker take over those dealers?

patgilm

I still don't get it, why wouldn't a manufacturer see additional revenue if there aren't dealers? Wouldn't they be selling them to consumers at basically MSRP? I don't think they would be selling it to us at true dealer cost?

Apple has has their own stores and I never see their products on sale but going to a third party dealer who gets it at wholesale (even though the difference is small) you can sometimes get discounts. That's why I never go to the Apple Store and buy their products. If there were no dealers we would only have other manufacurers for competition to get discounts on cars through supply and demand (like dealer cash now) vs other dealers of the same make. How would we pay less for cars without dealers?

Toys4RJill

So in your words. If they eliminated middle men in the distribution channel, the price of cars would go down?

MattyG

There are many complexities to economics and obviously the tone of this thread suggests arguments can be reduced to simple either/or choices. That's not what happening in reality. We all love simple easy choices, so it's always got to be between A or B.

The thing is that Tesla's direct marketing model doesn't suggest the elimination of local retail dealerships. Exactly who is saying your local dealer is going to be bulldozed into the ground because one new entrant is going to do direct marketing? So why say that's what is going to happen unless you think that will be the thing that is going to happen?

Any competitive market will sort itself out unless it is heavily influenced by any variety of actors such as crony capitalists, government lobbying or oligopolies. The real story here is why Tesla has so many people worked up into a froth. Tesla could fail and disappear into obscurity as a tech company rather than a car company. Remember, Musk's roots come from Silicon Valley - the ultimate disrupter of existing business models. Is that what people are scared off?

You could happily have existing parallel track retail channels so it 's not an either/or equation.

Toys4RJill

The manufacturer would absolutely see more revenue if there were no dealers, but long term they would sell less cars. The prices will gravitate higher with no competing car dealers. Manufacturers could do that now if they were to limited supply, the cost would start to rise towards MSRP.

Apple doesn't let anyone set their own prices. The prices are set with the terms and conditions. If there was increased competition in regards to Apple products, people would not pay the prices they are paying. They would somewhat lower.

mmarshall

There are many, both in and out of the auto industry, who think that is exactly what is going to happen.