Monday, March 17, 2014

Tesla says auto dealers have big conflict of interest

Unsold Hyundais in a dealer's back lot off Route 4 in Paramus. Hyundai makes a hybrid sedan, but no all-electric model. A New Jersey coalition of automobile dealers and state officials are blocking the direct sale of the all-electric Model S, a premium sedan from Tesla, which is based in California. 


Tesla CEO Elon Musk says most automobile dealers exploit customers by overcharging for service, their biggest profit center.

Musk's open letter to New Jersey residents was reported on Saturday in The Record.

But a dealers group wasn't asked to address the Tesla CEO's specific comments on why sellers of gasoline cars are the wrong people to market his revolutionary, all-electric sedan.

After April 1, Tesla will no longer be able to sell cars at its showrooms in Paramus and Short Hills, though they will remain open as galleries, where people can see the Model S and ask questions.

Musk says Governor Christie made "a backroom deal" with auto retailers to block the manufacturer from directly selling Teslas in New Jersey.

Here is an excerpt from Musk's open letter on the Tesla Web site:

The reason that we did not choose to do this [sell through dealers] is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none. Moreover, it is much harder to sell a new technology car from a new company when people are so used to the old. Inevitably, they revert to selling what’s easy and it is game over for the new company.
The evidence is clear: when has an American startup auto company ever succeeded by selling through auto dealers? The last successful American car company was Chrysler, which was founded almost a century ago, and even they went bankrupt a few years ago, along with General Motors. Since the founding of Chrysler, there have been dozens of failures, Tucker and DeLorean being simply the most well-known. In recent years, electric car startups, such as Fisker, Coda, and many others, attempted to use auto dealers and all failed.
An even bigger conflict of interest with auto dealers is that they make most of their profit from service, but electric cars require much less service than gasoline cars. There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car. Also, all Tesla Model S vehicles are capable of over-the-air updates to upgrade the software, just like your phone or computer, so no visit to the service center is required for that either.
Going a step further, I have made it a principle within Tesla that we should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars. I resolved that we would endeavor never to do such a thing at Tesla, as described in the Tesla service blog post I wrote last year.

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