Tesla direct sales; the real problem is cracking the door open for others

tesla serivceWhen the rubber hits the road, what is the problem dealers have with Tesla’s direct sales?  Publicly they claim Tesla’s direct to consumer model won’t provide the dealer support we Americans have come to expect.  Looking at the competitive landscape, I don’t see it that way. Compared to other brands selling limited volumes, “dealering up” isn’t Tesla’s problem.  That is, assuming regulators let them.

Tesla CEO Elon Musk’s has a proclivity to invest in infrastructure and there is no reason the OEM can’t roll out full service dealers as they grow volume and geography.  Access to capital has not been a problem, to date.  It will be a new hit on profits that investors need to look into, but it’s a viable alternative.  In the end, this argument goes back to Ford’s experiment with “direct-dealing” in the 1990’s.  U.S. dealers don’t want Tesla to crack the door open for the likes of GM, Ford, FiatChrysler or the Asian volume makes.

Tesla currently has around 50 retail locations and service centers nationwide. Takechart a look at the comparison to a few other automakers.  To be fair, many of the Tesla showrooms are merely storefronts in malls or on luxury strips.  However, their hard service stores are where the sales are.  They don’t have a lot tied up in prospective service.

To match the likes of Audi, Lexus or Infiniti, each who sell in the neighborhood of 150 thousand a year, Tesla would need to open  150 additional full service dealers.  Based on traditional costs, that would be an investment of roughly $700 million to $1 billion. That’s a lot, and I think underestimated by many company watchers — add this to the questions on forward-looking R&D.  But given Elon Musk’s track record, not insurmountable.

Tesla Dealer and Service Centers May 2014

Tesla Dealer and Service Centers May 2014

Aston Martin US Dealer Map (May 2014)

Aston Martin US Dealer locations(May 2014)

Porsche US Dealer Locations (May 2014)

Porsche US Dealer Locations (May 2014)

Maserati dealer locations (May 2014)

Maserati dealer locations (May 2014)


Does a customer really car who invests to build the service center?  Arguably he current model of OEM-dealer relationship hasn’t built the most efficient or jdptrust-inspiring sales method.  High end dealer have a bigger reputational risk in providing poor service or shifting blame to OEMs, and not surprisingly they are the most trusted in customer service surveys.  So far Tesla has not met competition head on.  The first real competition is hitting the market with the BMW i3.  I think Tesla may underestimate how much it may take to run a competitive dealer network to BMW, but they can.

Bottom line:  Last month, I wrote tongue-in-cheek that Tesla religion”ists” should offer up capital for a stand-alone, zero-profit distribution company to help out the company,  More seriously, it’s important to understand that deep down, dealers realize that Tesla selling direct is not the demon,  The sin would be cracking the door open for one of the volume makes.  Some smaller dealer groups see this as an existential battle and I don’t see it being settled nationwide shortly.  Meanwhile I am confident that Tesla has a plan B and will have a more fleshed out sales and service network, either direct or a close third-party.

In the end, the real question on Tesla is sustained demand for Model S in the short-term.  It’s been pretty flat in the US, and erratic in Europe.  As we wait for Q2 real production on Model X, Asian interest needs to translate into hard volume orders in in Q2 2014.  Production at 7,500 per quarter, fulfills the order book in 3-6 months, and de-bottlenecked production to 10,000 per quarter would leave them with too much capacity i the short-run.   Would the company hold back production t to maintain a backlog?  Bring on the Model X.

Other issues to watch include the recently raised question of R&D forecasts and as I noted above, increase in SG&A needs.

From nuisance to safety to fiasco: GM recall dilema and some facts


If you’re reading this, you obviously know about the GM ignition recall.  What started as a controversy over cars GM “no longer makes” has quickly turned into a crisis of confidence for the automaker.  Just starting to shake the mantle of “Government Motors” GM faces accusations of long-term cover-up.  Including from none other than the US politicians who had just months ago heralded the company as the ultimate turnaround story.  GM is sticking to crises communications standard protocol with measured and factual statements – likely at advice of counsel.  Plaintiffs and politicians meanwhile are taking the headlines with inflated numbers and tort based emotional accusations.  So far, score one for the plaintiff lawyers.

What have you heard?


Carmakers get hundreds of defect reports every year, and while GM may have hadserv bullcomplaints in 2001, it wasn’t until 2004 that they had credible reports and were able to replicate the problem.  In the end, it’s moot.  2004 is also a long time ago, no need to push facts to extend how long they knew.  TO me the real question is what happened between the service bulletin issues on OCtober 2006 and the one issues Feb 7 2011.  This seems to be the black hole of accountability.  Not surprising since the CObalt was discontinued in 2010.  Could it be out of sight, out of mind?


So far 13 fatalities appear to be from ignition default.  The 303 number is the total fatalities in affected cars where the airbag didn’t deploy for any reason.  The number is pretty meaningless.  The fact any media are using it shows how much traction lawyers are getting.


Yes Mary is just getting the CEO seat warm, but she is no newcomer to thembsituation. She’s a GM “lifer” we were told when she ascended.  Her last job since Feb. 1, 2011, was senior vice president of global product development overseeing design, engineering, program management and quality.  Yep, quality.  The paper-trail leads well into 2011.  So I’d be much more cautious in absolving her as a newcomer, and wondering what the quality team was doing in 2011 -13. She once said simplicity was the key to quality.  True, but does that only apply to new vehicles.  WHen she told her team, “no more crappy cars,” which cars were crappy? I’ve read the conspiracy articles that Mary Barra was promoted to take the fall for this. Rubbish! This gives too much credit to GM for realizing this was going to blow up and frankly is a bit insulting to her accomplishments.


Toyota recalled about 7 million cars in the US. But most had a quick fix.  Back in 2009 and 2010, the market was moribund.  GM threw in 1.7 million SUV’s and trucks for unrelated issues to make their recall a total of more than 3 million.  This may be an issue on the loss of sales impact, but on service and other commercial remediation, and especially regarding litigation risk, this is not very relevent.  If anything, the DOJ $1.2 billion settlement with Toyota set a bar pretty high for GM’s potential criminal penalty.

tmc recall



NHTSA engineering studies and investigations are intensive.  They work closely with the OEM engineers, supplier engineers and their own stable of experts.  In this case, there are a series of documented meetings where the issue was discussed.  News reports themselves show that while GM was sharing what they had (or thought they had) with NHTSA.  I think it is more likely that GM hid data from itself.

You have to ask yourself whether the meeting of the monolithic bureaucracies at both GM and the US Federal Agency created a logjam of action.

At this time, here is still one player who has done a great job of flying under the radar, until today, Delphi.  During a recall typically the supply will have a claw back provision to help offset the cost of failed parts.  This recall is much more convoluted and explosive.  There are accusations that Delphi changed the specs on the part post start-of-production.  Combined with GM’s failure to change the part number, this creates chaos in figuring out what went wrong when and by whom.  Expect Delphi to fly under the bus in the coming days.

Now what to watch for:

Service capability: my bet is no one has a million ignition units sitting in their shop.  Sourcing and distributing at this volume will be a strain on P&A group, and will take away from the capacity for this highly lucrative business.  At the same time, let’s not forget the 1.7 additional trucks and SUV’s added to the recall for unrelated airbag issues.


Park your car?: Biggest issue now is short-term damage from lost sales.  If the US government orders GM to tell drivers to park their cars, which opens up a huge bucket of costs including:

Loaner carsGM is already scrambling to get units from rental car companies to allow dealers to provide service.  If NHTSA orders a park your car order, they will not be enough loaners to cover the gap in parts supply and service capacity.

Litigation from economic loss:  This will only throw fuel on the growing call for a class action suit for ALL GM owners to claim loss of value on their vehicles.  Toyota paid out $250 million alone for this item in their recent settlement.

Increasing government pressure:  Now that GM is no longer a “ward of the State” it will get less of a glove treatment, and in this key election year, expect more of a glove slap across the face.  Already D.C> is circling the wagons calling for “reform” at NHTSA while the call for blood from GM heats up.

Lost shoppers: March data will tell us if GM is getting hit early, but since the news is just heating up I expect April and May to be the telling months.  Not good since GM is sitting heavy with inventory.

ms recall

My sense is this is just heating up, not settling down.


Can Jim Cramer solve Tesla dilema; CramerTeslaAutos “a 0% margin dealer”

100780462-CRAMER-IN-TSLA.600x400The media narrative is predictable.  Elon Musk, the transformative latest incarnation of Thomas Edison, locking horns with the entrenched old economy model of the NJ Auto Dealers.  Musk is cool, he has a cool car, he’s a visionary.  NJ and other states surely must yield.  Right?  While I may agree with the Tesla model of new direct sales — I don’t see Tesla volume and positioning an existential threat to any dealer from AutoNation to the local mom-and-pop single point dealer.   I don’t agree with this in your face reply to the NJ dealer and politicians.  It may gin up support from those who already support Tesla, but it’s not going to work in the long run.  What if Musk turns to Jim Cramer and his hedge fund buddies for solution?

Auto dealers, while, not the most popular businessmen in perennial “trust surveys” hold significant clout in their local and state economies and political circles.  Dealer are the biggest donors in the sector, and they donate mostly on local issues.  Remember during the GM and Chrysler bailout we were reminded by the Car Tsar how the dealer networks were key employers of the million or so jobs at risk.

In addition to the “million” or so folks whose jobs are “at risk” there are the 99% of car buyers who view Tesla as an elitist brand.  Cool, but elitist.  Jim Cramer comes across as an any man, but at $100K a pop, Tesla is a rich man’s toy.  And I don’t need to remind anyone that while green is good, class warfare has been fomented to froth over the past few years.  How bad does a marginally employed tradesman feel for the hedge fund manager who can’t buy a six figure sports car?  Not!

Just a thought.  What if all these doctors, lawyers, marketing execs (one of my friends) set Back Cameraup a dealer group that sells Tesla at 0% for the company.  The meeting-of-minds with these financial titans should be able to configure a pass-through dealer model that can be funded through Tesla equity and or new Tesla product ownership derivatives.  Jim Cramer has been a major cheerleader for the group.  He can be the front.

OK, so slightly more seriously.  I am confident Tesla is working on creative relationships to transform the dealer experience at the same time as transforming the auto experience.  For those that detect a touch of sarcasm, I’m serious.  The last reform of the dealer structure was 20 years ago when Wayne Huizenga opened his first CarMax.

A hedge fund run dealer group is just one throught.  Apple?  Google?  Or maybe a viable future for JC Penny or Radio Shack. OK, sarcasm noted.

It’s Tesla, I’m just trying to think out of the box. 

Wall Street Tesla@elonmusk @jimcramer @madmoney


Fiat’s UK-style revival plan faces Italian hurdles

Fiat’s UK-style revival plan faces Italian hurdles.

With Fiat’s global volume around 4 million, and Alpha selling about 125 thousand average over past decade, am I missing something?  So you fix Apha an get it back above 200 thousand annual production, if everything goes well.  Not sure how this improves Fiat brand position with the balance of 3.5 – 4 million incremental cars.

Someone needs to communicate what this Alpha led revival is meant to be.  Sooner or later, we need to get beyond the “deal.”

GM names Barra CEO; “bold and timid,” good luck

Luxury race to where

When I heard that the GM board had picked Mary Barra this morning, my gut reaction was different than most. It didn’t even dawn on my that they had picked a woman.  I thought about how they went with a 30+ year GM veteran.  So we have the first female head of a car company, great, now what?

gmAll morning we’ve heard the accolades and hopes.  Now that she has the reigns and the company is no longer constrained by government holdings, she has to prove herself the reformer she and her advocates say she is.  GM has a long way to go in throwing off the mantle of “government motors.”  To many insiders the moniker was as much an indictment on the bureaucracy and inefficiency of GM than the government shareholders we all knew were a losing investment.  

I liked GM’s move to ditch Chevy and focus on Opel in Europe last week.  Other moves including the relocation of International Operations out China seem more shuffling.

And don’t get me wrong, I have no issue with her being chosen over Mark Reuss, Steve Girsky or Dan Amman.  She has a strong engineering background has been through the ranks like any other vet and there’s no doubt she knows GM and the business.

The top centenders: Girsky, Amman, Barra, Reuss

The top contenders: Girsky, Amman, Barra, Reuss

Bottom line is that GM still faces some tough questions.

  • More and more competition from the same old foes like Ford and Toyota. But now they’re getting hit on the flanks from new US assaults from the likes of VW/Audi and Hyundai/Kia.
  • They still are too bureaucratic.  I love the story of her tossing the dress code, but what about streamlining sales/production and planning?  Have they overcome the real challenges bluntly laid out by industry maven Jerry Flint in 2000?  I hear conflicting reports from GM insiders and refugees.The bailout gave GM a new lease on life, I am cautious in the assumption that it gave them new DNA.
  • Finally, the real test for the industry and GM comes in the next 12-24 months as the US industry ends its run of double digit annual growth.  Crossing our fingers and hoping Europe turns is not a strategy.  It’s going to be the ultimate test of production and sales coordination.  We’ve seen huge strides in pricing power in 2013 at GM and  with most virtuous players.

But, I’m keeping an eye on building inventories, decreasing resale values and relatively low discounts;  If nothing else, she has a great environment to show her stuff.

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Breaking News: Japanese car brands are alive and well in the U.S.

Newly assembled 2013 Ford Escapes sit on plant lots ready to be shipped out to dealers at the newly transformed Louisville Assembly Plant in LouisvilleSo Japanese brands are back in the U.S. auto market. I wasn’t aware they ever left.


Japanese brands gained during crisis, but overall have been stable.

Sure, the past two years have given us production upsets from a tsunami, the Tsunami and a hyper strengthening of the yen all while the US auto market has bounced back from historic lows during the financial crisis. Japanese brand market share peaked in 2 Continue reading

Happy Birthday Mr Ackerson, I wish you GM price discipline!

GM’s Dan Ackerson turned 55 today.  For his birthday I wish him the gift of pricing silverado628optdiscipline.  He’s had a tough couple of years learning the ropes of the GM business.  Let’s hope GM has unlearned its volume for profit strategy.

Ackerson says he wants to boost the company’s North American margins bringing consolidated margins solidly into upper single digits.  He also said GM wants to raise US market share, building on the back of the new truck lineup.  So far, so good.  What’s worrisome is recent noise from GM field sales and dealers that they need more incentives on the brand new vehicles to meet those market share goals.   He needs to resist that temptation.

Yes, GM trucks are now priced higher than their Ford and Ram competitors.  Yes incentives will move volume and help them win some market share.  But the minute he puts that heroine needle back in to the vein of GM distribution, he’s well down the slippery slope of Continue reading

Auto recall, how bad at the bottom line?

Today brings news of another multi-million unit recall covering 3.4 million units with Happy_Auto_Repair_Customerpotential airbag inflator issues. In 2011 (the last year I have numbers for) more than 15 million motor vehicle were recalled in the U.S. While massive global recalls top headlines, do they really matter.  Well, like all things, that depends.  First it depends on how they are handled.  And secondly on what they are for.

This airbag issue is a great example of a recall that looks more financially relevant than it 10FS2_figabcreally is.  Toyota has the biggest exposure with 1.7 million units mainly in Japan and North America.  The cost of the recall could be several hundred million US dollars, however, the key word is “could”. Continue reading

What’s the number? Wanted: employed car buyers

worWhen we talk about the impact of lower unemployment on consumer cyclical sales, I think many corporate planners and economists better be digging a little deeper to give their CEO’s a real picture.  I want to be clear, I am not taking a political position. I just want to open a question that should be debated as the auto industry set goals and plans investments.  Ford and GM economist seem extremely upbeat on the outlook for US employment.  Are they only looking at 2013?  Trying to paint a rosy picture?  Or do they really know something the US Bureau of Labor Statistics (BLS) doesn’t.

Don’t get me wrong, there is a lot of pent-up demand in the US auto market after the past three years and some game-changing new products and engine technology hitting the market.  But if millions of folks going back to work isn’t going to drive further growth, something else has to.

Unemployment has dropped from its highs post crises.  However, even with population and corresponding adjusted civilian workforce increase, we still have fewer people working in the US.  To me that means fewer people with growth income scenarios.  In short, are fewer workers going to be able to buy more cars?

Take a look at the charts below from BLS as of November 2012.  All are taken from seasonally adjusted data:


Bottom line: Current projections call for the labor force to grow at an annual pace of 0.7% in the next seven years .  While at the same time calling for participation rates to continue to plummet another 2.2 points.  

In short, we can expect around 8.9 million more workers by the end of the decade (9.6 million more than the 2008 peak.) Here comes the BUT; “working participants” will only grow by 3.0 million (62 thousand from the peak participation rate of 2008.)  Somebody tell me I’m wrong!!


Interestingly, it calls for a drop of 1.3% in the 16-24 workers and a tepid 0.2% Continue reading

2012 US SAAR – Strong year, decent behavior, I was wrong

Early in 2012 I went out on a limb with a low-ball forecast for the US market of 13.5 million, I was way low.  2012 sales hit 14,49 million, 1 million higher than I saw coming.  Great news for automakers and particularly dealers — maybe some tough news for buyers looking for a deal.

Main underestimation:

  • Easier access to credit with all major OEM’s reaching back into sub-prime.
  • Increased consumer confidence with a steady increase in SAAR rate including a strong push at year-end.
  • Continued deals as GM and Ford fought to keep the volume if not the market share they gained in 2011 when the Japanese were hamstrung. Continue reading