Posts Tagged "manufacturer direct"

Direct Auto Sales Fight in North Carolina

Posted by on May 27, 2013 in Uncategorized | 0 comments

A fight in North Carolina between the North Carolina Automobile Dealers Association  and automaker Tesla may soon be settled by the state legislature.

 

tesla

 

Per the Chris Kardish Associated Press article,

It’s the latest such battle for California-based Tesla, which like other car manufacturers must navigate a patchwork of state laws dictating how its vehicles can be sold. Nearly all states – 48 – require manufacturers to sell their vehicles through dealerships to ensure the companies don’t undercut their own network of franchised dealers, according to the National Automobile Dealers Association.

Tesla says it is cutting out the middleman by allowing people to view different options in a showroom, but then ordering the car direct from the company online rather than buying from a salesman. That approach also allows it to bypass state laws regarding franchised dealers, which have been in place for decades. However, lobbying groups say franchise dealers invest more locally and provide customer service that Tesla cannot.

The bill in North Carolina was mostly routine, simply updating the law governing the relationship between automakers and dealers. But it also changes the law to subject electronic sales to the same scrutiny. It has been unanimously approved by the Senate; the company is set to sit down with the state lobbying group for dealers, the North Carolina Automobile Dealers Association, to discuss a compromise that both sides say is unlikely to be reached. .

Tesla doesn’t yet have a showroom in North Carolina, where it has sold about 80 cars to date. The company recently announced the first quarterly profit in its 10-year history, around the same time Consumer Reports gave its Model S electric sedan a near-perfect rating.

Tesla currently operates 29 stores and galleries across 14 states and Washington, D.C. Customers can order a car online at a sales location or at home but not at galleries, which exist purely to showcase cars in states where auto dealers have launched suits or state law restricts the company from discussing sales in person.

Colorado was the first state to take action against the manufacturer’s stores, passing legislation in 2010 that halts their expansion. Since then, Minnesota lawmakers unsuccessfully pushed for a similar measure. In New York and Massachusetts, dealers have unsuccessfully sued to shut down the dealer’s stores. In Virginia, a judge recently rejected Tesla’s request for an exception to laws that prevent manufacturers from operating dealerships in most cases.

But the automaker can sell in every state because transactions legally take place in California. The North Carolina law, however, prevents customers in the state from making electronic purchases directly through manufacturers, said Diarmuid O’Connell, Tesla’s vice president of business development.

“This would be the first place to my knowledge that Internet-based communications with our company would be circumscribed,” he said.

Tesla, as a upstart automaker, has worked to build a successful business by selling direct to their customer.  This benefits Tesla by removing the requirement of building a large distribution and sales network.  It has largely proved successful, and is a model for other upstart manufacturing companies to follow.

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Direct Sale of Automobiles

Posted by on Feb 23, 2013 in Uncategorized | 0 comments

A report written by the United States Department of Justice considers the advantages of shortening the distribution system for automobiles as a way for the manufacturers to improve profitability.

The report, “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers” by Gerald R. Bodisch* EAG 09-1 CA May 2009 can be found here.

The auto manufacturers are currently prohibited by law from selling their products direct to consumers.  If the laws were changed, there would be huge economic benefit to the profitability of the manufacturers.

From the report:

Perhaps the most obvious benefit from direct manufacturer sales would be greater customer satisfaction, as auto producers better match production with consumer preferences ranging from basic attributes on standard models to meeting individual specifications for customized cars. With better information about consumer demand, optimal inventory levels should fall, even short of full build-to-order capability by auto manufacturers. To the extent that there are cost savings from leaner inventories, a portion could be passed on to consumers as lower prices. The total value of new car inventory held by the 20,700 franchised new car dealerships in the United States near the end of 2008 was about $100 billion and the annual carrying cost of that inventory was estimated as $890 million.(9) These figures may provide an order-of-magnitude perspective of the savings potential from a reduction in inventories that might derive from direct manufacturer sales of autos.

The most comprehensive estimate of the savings in the vehicle order-to-delivery cycle from build-to-order, direct manufacturer sales is set out in a 2000 report by a Goldman Sachs analyst.(10) Based on an average vehicle price of $26,000, total cost savings in the order-to-delivery cycle were estimated as $2,225 or about 8.6%.(11) The components of those savings were as follows: $832 from improvement in matching supply with consumer demand; $575 from lower inventory; $387 from fewer dealerships; $381 from lower sales commissions and $50 from lower overall shipping costs, since fewer dealerships would reduce the number of distribution points. The Goldman Sachs report identified other possible build-to-order savings of about $1,000 per vehicle in product development, manufacturing flexibility and procurement and supply but the lion’s share of the benefits were attributed to improvements in the order-to-delivery cycle. In a nutshell, the current auto industry make-to-stock sales model takes a lot of money, much of it tied up in inventories and devoted to discounting to clear lots of less popular vehicles, to try to sell cars that can come up short of what customers would really prefer.

While the Goldman Sachs report provides estimates of potential cost savings, a real-world example of the benefits of a build-to-order, direct manufacturer sales model is GM do Brasil’s experience with production and sale of the Chevrolet Celta economy car at its modern Blue Macaw plant in Gravatai.(12) Since 2000, customers in Brazil can order the Celta over the internet from a site that links them with GM’s assembly plant and 470 dealers nationwide. By 2006, 700,000 Celtas had been produced and the car continues to be one of Brazil’s best sellers.(13) Consumers have 20 “build-combinations” from which to configure a model of their choice, including colors and accessories, and can view each change as it is being made. GM built five distribution centers throughout Brazil to reduce transportation time from its assembly plant and buyers can track location of their car online on its way to delivery at a dealer of their choice. The time from configuration at the factory to delivery is only about a week, in contrast to the several week wait that can be common in ordering a car in the United States.

Automobiles are expensive purchases that require maintenance and warranty work, so there is still a valuable service that would need to be filled by local dealers.  Human, face-to-face interaction would still be a valuable part of the customer experience for problem resolution after the sale.

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