[ajross]

The metaphor is cute, but maybe overstated. Tesla isn't doing this because it's what a self healing network would do.

Tesla is doing this because it's a rapidly-growing startup whose production facilities are heavily oversubscribed already. They have no net downsides to giving up the "Texas" market for now, because they don't have enough cars to sell even without Texas (and the handful of other such states).

Eventually that won't be true. Once ramped up, they'll want that Texas market. And at that point someone will have to bend. Musk's bet is that at that point Texas will cave because they don't want to deny their voters the chance to purchase this great new car. Texas's "bet" (really the dealership lobbyists' bet) is that Tesla ultimately won't be successful and that by holding their ground here they will discourage other manufacturers from trying the same thing.

IMHO, things make much more sense when you argue in fact instead of metaphor.

[jack-r-abbit]

>Once ramped up, they'll want that Texas market. And at that point someone will have to bend.

My money is on Tesla coming out on top here. Musk strikes me as the type of person that would rather give up sales while holding a huge "Fuck Texas" sign than to give in.

Edit: Added the parent comment I was responding to. Yes, Tesla is playing nice right now. That puts them in a better public opinion. But eventually they'll either step up their game or walk away from Texas. I don't see them giving in. But only time will tell here.

[skaevola]

Musk is getting along pretty well with the lobbyists here. See bill to close the beach for his launch site.

[pchristensen]

Before you sharpen that mental image too much, remember that Musk (SpaceX) owns a rocket testing facility there.

[bobwaycott]

> IMHO, things make much more sense when you argue in fact instead of metaphor.

This is true. However, are you actually arguing in fact? Your statements read as an outside agent judging the intentions and motivations of other agents. Perhaps you're part of one of the groups and actually possess insider knowledge here?

Another potential outsider's reading of the bets and motivations at play (this taken from nearly 4 years working with auto dealerships):

The dealers have built up reliance on a system that allows them to screw over consumers in myriad ways that make them very good money every time a consumer needs a vehicle. They've already seen sales erode due to the economy, as well as the rise of internet-powered sales channels like craigslist, ebay, etc. While they cannot do anything about the former, the latter has been generally approached with dealers getting involved in listing their vehicles on the internet in an effort to constantly re-inject themselves into once private p2p marketplaces.

The dealers no doubt want Tesla to be successful as a manufacturer, they just do not want to allow a new precedent to establish wherein they are not standing as the gatekeepers between consumers and they cars they want. This has been a lucrative business model for them for a very long time. Everybody knows consumers hate it, and yet there's no other way to get your hands on a brand new car. Tesla has a fair amount of consumer interest, and dealers recognize this. So they want to make money off it, which will lead to even higher prices for consumers.

If Tesla succeeds, it's going to establish a manufacturer-operated dealership that vies directly with the existing model, leading to a situation where consumers may value that relationship higher than the one they've had to deal with for so long. Tesla will have an interesting-to-watch dynamic develop between its customers because the relationship will be direct -- right now, every other manufacturer establishes indirect relationships through the dealer proxy. In the Tesla-operated model, there will be no way for dealers to compete with the Tesla dealerships being the only one's with the new cars--this isn't like competing with the Honda dealership across town.

If the Tesla dealerships succeed and consumers take note, dealers would rightly fear other manufacturers following in its footsteps and setting up some trial direct dealerships. If that succeeds ... well, we can all see where that will lead. However, despite that kind of hopeful scenario, I think it is an irrational fear. Most manufacturers rely on dealers to more evenly distribute the risk of producing and selling expensive assets that require a lot of space (floorplan isn't free, and it's a significant dealer cost (which is why you should always buy the oldest car on the lot (measured in # days it has been in dealer inventory))). I seriously doubt automakers are very interested in taking on the work and headache of setting up more distribution networks and doing all of the various things dealers do now that actually serve their local markets. It seems more likely that they're trying to put out the wrong fire here.

Lastly, I'm not sure if this is what you were getting at, so apologies if it's just a longer stating of what you meant. Your comment was ambiguous as to what kind of success you think the Texas dealers are concerned with--ramping up the production facilities successfully so Tesla has enough cars to sell into the Texas market, or winning the fight to sell directly to consumers.

[gknoy]

That was a very well written explanation of what the dealers are doing (and why). Thanks for laying it out so clearly.

  | [F]loorplan isn't free, and it's a significant dealer cost
  | (which is why you should always buy the oldest car on the
  | lot (measured in # days it has been in dealer inventory)).

I realize this is a little off topic, but can you go into more detail of why this matters? If a dealer has N cars taking up space, why do they care whether I take the one that came in yesterday versus the one that came in a month ago? Selling either seems like it would free up the same space, so how is it different? Are there financial incentives that are at play for them, or is it more that they tend to consider the sunk costs?

More importantly, is that information I can find out and use to my advantage when negotiating?

[aardvark]

If a car has been on the lot a long time, then there's not a lot of interest in it. The dealer is more likely to accept any offer just to get it off the lot. For a car that's newly arrived, there's a greater likelihood (or at least a greater expectation) that several customers may be interested, so the dealer is better off waiting to see if someone is willing to pay more.

[bobwaycott]

In it's simplest form, non-excessively peppered with financial terminology and equations:

Floorplan is a line of credit dealers use to purchase their retail inventory. Each vehicle on the lot subjects the dealer to finance charges that begin accruing from the moment the dealer takes possession of the vehicle. So, say that the floorplan fees and interest are $100/day per vehicle (for simplicity's sake). The longer a car sits on the lot, the more profit the dealer is losing on that vehicle per day. Make sense?

Why do dealers care?

If you're being charged by the number of days a car is sitting on the lot, and a customer comes in an looks at a brand new, green car that arrived yesterday, and there is an identical twin in every way that is 400 days old, the salesman is going to push you to check out the older one and say they can make a special deal on it for some reason or another (sometimes they'll just say it's because it's been on the lot for a long time if they're really desperate). If you're paying interest on every product by the day, you want to get that out of your inventory as quickly as possible, because that's where you maximize your profit potential.

Often, you can find vehicles on lots that are marked down lower than other similar/identical cars. This is almost always due to floorplan age (I'm assuming we are only talking about new cars here, because used cars bring in a lot of other variables).

Some dealers operate in a way that they seek to capitalize on volume sales vs individual car sales as a way to both be more competitive and mitigate floorplan costs. These are often the best dealers to purchase from (and these are almost never luxury brand dealers) because they will typically sell every single vehicle at invoice price (or several hundred above), and build their profits instead around manufacturer incentives that pay out to the dealer $N per type of car in a graduated fashion where the payout increases as #s of types of cars sold increases. If you have a dealer in your area that advertises (and shows you the proof) that they sell at or near invoice, especially if that is their standard practice, you can safely assume they are a volume dealer. The salespersons are going to be focused on selling as many cars as they can because they are also making their income based on the number of cars sold, not a percentage of per-sale profits.

Can you use this on the lot to your advantage? Sure. Just ask the dealer/salesperson how long the car has been on the lot.

[refurb]

A question about floorplans:

Is the floorplan cost flat? I ask because if you take into account both sunk costs and the fact that two identical models would have the same floorplan cost per day, why would they care to sell the older car first?

Let's say you have two cars on the floor: Car A - just arrived Car B - sitting for 100 days

The cost of the floorplan is $10/day (let's say)

If a customer comes in and buys car A and then car B sits for another 10 days, how is that different than a customer coming in and buying car B and letting car A sit for 10 days? In the end it should cost the dealership the same. It's all about moving inventory, not necessarily moving specific inventory.

I assume I'm missing something here, can you explain?

[bobwaycott]

Well, floorplan financing is a finance vehicle like any other, so terms are different among participating providers. Also, I'm a bit unsure of what you mean by "sunk costs".

Each vehicle ordered into inventory is an advance on the line of credit that has repayment fees and interest. Each vehicle sold then translates into paying the floorplan provider the advance amount + fees.

In your example, I'm unsure of how you fail to see that Car B is already costing the dealership more money. But let's work it out anyway.

Car A just arrived. Car B has been sitting for 100 days.

Car A cost $20,000 and is on the lot for 0 days @ $10/day. Total repayment? $20,000.

Car B cost $20,000 and is on the lot for 110 days @ $10/day. Total repayment? $21,100.

If you were the dealer, would you want to lose that additional $1,100? I'm willing to bet it would matter to you.

Complex case:

You're in a floorplan agreement that requires repayment of advances in full (including accrued interest and fees) in n days. You damn well better sell enough specific inventory to cover this without losing profit. The longer specific inventory stays on the lot when you're repaying each period, the more screwed up your numbers become.

It is about both moving inventory and moving specific inventory when that inventory is costing the dealer as much money as 10 other cars that sit on the lot for 20 days each.

Moreover, the typical expected time-on-lot tends to be between 30-90 days. Floorplan terms are usually negotiated for these typical cycles. If a dealer is in a floorplan setup that is built for a 90-day max turnaround, and then has vehicles that sit around for 200+ days, that can add up to significantly higher fees per old car that eats into the profit margin. This is especially important with dealers who are selling based on a profit-per-vehicle basis, as opposed to the profit-per-level basis in use by volume dealers. Last thing you want to do (as a dealer) is strike a deal on a 200-day-old car that you had to strip to invoice price or below to sell, and then repay a floorplan advance + fees that exceed the sales price. It happens, but you still don't want it to happen.

More important still, if a dealer is unable to keep moving inventory off their lot (whether through consumer sales, fleet sales, or dealer trades), then they have more inventory eating up their floorplan, diminishing the amount of inventory they can continue to purchase to replenish supply.

Now, to balance all this out and try to create new profit centers that both put more cash in the bank and provide another opportunity to make money off a potentially negative car sale, we have the Dealer Finance Officer. An absolutely disgusting professional. But that is a different kind of discussion. You may already be familiar with how finance officers help increase dealer profits-per-sale.

[wwweston]

> Car A just arrived. Car B has been sitting for 100 days. > Car A cost $20,000 and is on the lot for 0 days @ $10/day. > Total repayment? $20,000. > Car B cost $20,000 and is on the lot for 110 days @ > $10/day. Total repayment? $21,100.

I still don't know if I see the difference between the two. We're at Day N (where Car A has been there 0 days and Car B has been there for 110 days). If we sell Car A but not Car B, on Day N+1 we will pay an additional $10 in financing. If we sell Car B but not Car A, on Day N+1 we will pay an additional $10 in financing.

It doesn't matter which bucket we put the additional marginal cost of keeping a single car on the lot, it's the same overal expense to the dealership. Unless the marginal cost increases for a car over time, which, for all I know, it might.

[shardling]

>This is true. However, are you actually arguing in fact?

The whole point of arguing in fact is that you can prove someone wrong! The poster makes specific claims and you rebut them -- if I cared enough, I could do some investigation and see who is correct.

That's not true when an argument consists entirely of a metaphor.

[bobwaycott]

And the whole point of my question (re: arguing in fact) was that the parent was not arguing with facts, but was advancing suppositions with no provided factual basis. I was not rebutting any claims made.

To that end, and as I stated clearly, I did the same, offering guesses at what might be going on in the dealer opposition based on experience working with dealerships before. But, ultimately, even my surmising lacks evidence, and so neither of us are arguing with facts--we're simply not advancing a metaphor.

EDIT: Attempting to clarify that my comment was not intended to dispute anything the parent said, but to add another potential view. Apparently I misunderstood the parent's meaning of the phrase "argue in fact".

[ajross]

Good grief. I said "argue in fact", not "with facts". The point is to have a discussion about reality, using concepts from reality. Clearly you see the value in that becuase as shardling points out that's exactly what you did.

I don't see why you are willing to discuss the specifics of car dealership gamesmanship in Texas yet demand that I do so within the framework of an analogy to self-healing neural networks.

Basically: you're strawmaning like crazy. Stop it.

[bobwaycott]

Seriously? Strawmaning like crazy? How so and where? I've set up no straw man here.

Your phrasing "argue in fact" was ambiguous to my reading, which is why I asked what you meant. And yet I didn't dispute or oppose anything you said. All I did was point out that, just as I was about to do, you were making some guesses at bets/motivations as an outsider. Since I'm not refuting anything you say, how can I be proposing a straw man?

Relax, friend. I made no demands that you discuss anything within the framework of an analogy to a self-healing neural network. Moreover, I was replying to shardling's comments that there specific (implicitly factual) claims made that could be determined correct or not with some investigation if he cared--to which I simply pointed out there were no factual claims made, but that we were both positing potentialities and guesses, not factual claims.

Can we take a step back and see there was an apparent misunderstanding of intention? We were not having a disagreement.

[codex]

At a Tesla store last week, I was quoted 6-8 weeks for a Model S. How does that jive with being massively oversubscribed?

[jack-r-abbit]

Maybe I am not understanding the meaning of "massively oversubscribed" but I thought it meant that the demand significantly exceeds the supply. 2 months to deliver a car is a decent stretch of time considering you can go to just about any dealer and drive away with the car you want. And if they don't have it on the lot, they'll find it and trade with another dealer within a day or 2. They all have inventory. I take it that Tesla doesn't keep a lot of inventory on hand.

[codex]

Elon has said that demand will outstrip supply for the next several years--but six to eight weeks is pretty much normal for any custom built car from Ford, MINI, BMW, Mercedes, etc.

[maeon3]

If the Texas Auto dealers were smart, they would buy some lobbyists to give extra incentives to Tesla to bring them on board with the corrupt system. For example, the dealerships selling the Tesla vehicle at no cost, or maybe even provide an additional $3000-7000 tax credit only for Texans. Or perhaps giving Tesla a bushel of cash for every Tesla sold (temporally) through dealerships.

Then when Musk is on board and massive profits streaming, the credits will revert back to burdens on Texans. The cancerous dealer network remains with us for another few decades until the next chance at a disruptive technology to remove it.

Car Dealerships should go the way of newspapers. Imagine if newspapers used their financial might to squish the Internet when it was just a wire between two research facilities? If newspapers hired lobbyists to create laws making it illegal to route around newspapers, then could they how long could they have delayed the internet?

[eksith]

  >If the Texas Auto dealers were smart...

That's really the operative phrase isn't it? I think we've already established that some people aren't above burning down their own house to evict an unwanted guest. As it has already been pointed out though, Texans are good at one more thing: Voting people out.

You're getting to the real heart of the problem though. The dealers are taking the retro-futuristic approach the newspapers didn't take with the internet. But then the newspapers didn't know just how disruptive that wire will become either.