Cars and iPods Are Different – Tesla’s Retail Strategy Is Flawed…and Arrogant

By Jason Lancaster

Based on an article from the July 26th edition of Automotive News, it seems that start-up automaker Tesla plans is to sell cars the same way that Apple sells iPods. Tesla won’t have dealer showrooms – they’ll have manufacturer-owned “galleries.” Tesla won’t have service departments – they have field technicians called “Tesla Rangers.” Tesla’s stores won’t have a lot full of new cars to choose from – they’ll have a couple of floor models to sit in, a demo unit for test drives, and a website to visit when it’s time to buy.

Unfortunately, all of this means that Tesla won’t have much success with sales, especially once big automakers bring out their own electric cars. Until they recognize the limitations of their strategy, they will be nothing more than a small, niche manufacturer that will probably be swallowed up by a larger automaker down the road. Here’s why:

1. Instant gratification can’t be ignored, and no inventory means no urgency. Ask any auto dealer and they’ll tell you that people don’t like to wait for their car. Because Tesla dealerships won’t have any cars in-stock, there is a real risk that some consumers will opt to buy a competing vehicle rather than wait for their Tesla to arrive.

There’s also the fact that a lack of inventory means there’s no urgency – if a consumer is told “this is the last red one on the lot,” they feel some pressure to consummate a transaction right away. If they’re told “sign here and your car will arrive in 6 months,” they’re much more likely to investigate alternatives. The bottom line is that dealers need inventory to maximize sales, and without ready-to-buy inventory Tesla dealers will be at a disadvantage compared to the local Ford, Toyota, Honda, and Nissan dealers with in-stock inventory.

2. Larger dealers are more effective. Tesla’s plan centers around small little dealers in select markets. However, larger dealers are more capable of selling and marketing vehicles. Specifically, larger dealers can:

• Justify larger marketing and advertising budgets, including brand-level ads
• Afford to invest in long-term marketing strategies
• Expend the resources to be active and visible in the local community (things like baseball team uniforms and sponsoring local events)
• Offer consumers more on trade-in (more on that below)

3. Apple doesn’t sell used iPods, but Tesla will sell used cars. Trade-ins are an especially important aspect of the retail automotive business, and represent a significant flaw in Tesla’s strategy. Since many consumers aren’t able to buy a new car without getting rid of their old one, the average Tesla dealer is going to have to take trade-ins. These dealers can either try to market these trades to the limited number of visitors they get, or they can auction these trades off to other dealers. Auctioning off trades (which will mostly be gas powered) seems like the most likely option for Tesla dealers specializing in electric cars.

Of course, if Tesla dealers are going to the auction, they’ll be forced to offer customers auction value. Large dealers, with thousands of visitors and a wide variety of cars, rarely auction off trade-ins because they can usually sell anything they get. As a result, large dealers can afford to offer a consumer more than auction value for their trade to facilitate a transaction…and that gives them a financial, transactional advantage over Tesla’s small dealers. What if Tesla dealers, as a result of this fundamental disadvantage, gain a national reputation for under-valuing trade-ins? That’s not going to do much for the brand.

4. Manufacturers probably can’t sell cars. In the late 1990′s Ford conducted a dealership experiment. Beginning in 1997, Ford bought back all of their franchises in five markets – San Diego, Tulsa, Oklahoma City, Rochester, NY, and Salt Lake City. These franchises were formed into “auto collections,” and once these dealers were all under Ford’s control, they began to “fix” all the problems that consumers had with dealers.

A little less than three years later, Ford’s auto collection experiment was deemed a failure. According to an Automotive News article from 2002, one of the stores that Ford “fixed” saw a sales decline somewhere between 75-90% over the three years that Ford ran the show, forcing Ford to give up or lose their presence in these vital markets.

While it could be argued that Ford’s factory-owned dealership failures were a result of poor management or a poor market, consider this: The only remaining independent Ford dealer in Salt Lake – Butterfield Ford – saw tremendous sales increases every month while Ford’s Salt Lake Auto Collection suffered. Ford’s corporate stores sank while a local independent in the exact same market thrived. Is a large corporation like Tesla really going to be better at selling cars than a local franchise with ties to the community and very little overhead?

According to Tesla, one of their advantages over bigger automakers is their small size. If Tesla really does understand the value that a small company with low overhead can bring to the table, why do they reject a franchise strategy?

The other irony here is that Tesla has promised to “revolutionize” the auto industry before. Tesla claimed that they could shorten the development cycle of the automobile and bring technology to the consumer faster than their bigger rivals. When they launched the Tesla Roadster in 2006, it was supposed to be the beginning of a new era. Four years later, Tesla has squandered much of their technological advantage, failed to produce more than about 1,000 vehicles, and lost buckets of money. Yet despite this humbling experience, Tesla remains arrogant, assuming that they can re-invent the auto industry in every respect. Good luck.

Author Information

Jason Lancaster is a nine year veteran of the car business and the president of Spork Marketing, a dealership Internet marketing firm.

The New MINI Minor Could be Major

By Kyle Simpson

Just when you were beginning to think that MINI would never make a car small enough for you (the Cooper takes up SO much space), there are rumors that they plan to revive the Minor in a new, improved, and smaller package to rival the Smart ForTwo and the Toyota iQ.

With a name like MINI, it’s no surprise that they would want a slice of the micro-car market, and while the old Morris Minor is closer to the Cooper in size and design, the concept art for the latest version of the MINI looks to give Smart cars a run for their money when it comes to compact styling.

Geneva Plans

While most of the information available on this car is still a matter of speculation, it has been announced that BMW plans to unveil the MINI “Mini” at the world famous Geneva International Motor Show in March 2011. Rumors circulate that the manufacturer is working on prototypes at a factory in Munich, Germany (although it has also been said that the project has yet to be green-lighted).

However, the photos released in conjunction with the announcement depict both a two-door and a four-door version of this tiny bubble-car with models looking like a cross between a Smart car and a Scion.

Safety Standards

In truth, a four-door version of this model is probably out of the question. Since the maximum length of the car is currently estimated at 120 inches (which is 27 inches shorter than the mini-est MINI and slightly more than 7 inches longer than the Smart ForTwo), it would be difficult for the manufacturer to adhere to U.S. and European safety standards if they were to make a four-seat model.

And while a three-seat option is always a possibility, it seems much more likely that MINI will leave that little piece of oddity to the think-tank at Toyota and opt instead for a two-seater, taking on Smart as their major competition.

Three Cylinders

One component that sounds like a good fit for this small automobile is the 3-cylinder engine that BMW has reportedly put in the works for their upcoming Megacity line. This would allow the company to cut productions costs as well as allow for a smaller-capacity gasoline engine (both of which could spell savings for consumers). It all fits into a larger concept of “i” mobility that is slowly infiltrating the minds of eco-conscious consumers around the world who commute but do not carpool.

If you’re only driving yourself around, why would you want to spend more on gasoline to power a large vehicle with unused seating? The concept aims for a market in which two-vehicle ownership would include a small “everyday” car that is easy to park, cheap to operate, and produces lower harmful emissions, as well as a larger vehicle that would be in reserve for occasional use as needed.

Cost Effective

While little is yet known about plans for the MINI Minor, it seems that the only thing halting production at this point is attempts by BMW to overcome cost-prohibitive aspects of manufacturing. In other words, they want to make sure they can make it cheap enough not only to rival competitor’s costs, but to ensure profitability. As luck would have it, they are entering into a still largely untapped market with a brand that was named to sell MINI cars.

Author Information

Kyle Simpson writes for Medical Billing and Coding Online where you can find more information about a career in medical billing and coding.

Resources

Autoblog Green: In depth: BMW Megacity Vehicle and Project I

Auto Spies: Entry-level MINI coming to the 2011 Geneva Motor Show

Geneva International Motor Show (Salon International de l’automobile)

Auto Trends For 2010 And Beyond

New models, including the Lincoln C, may soon be marketed to consumers who are expected to embrace smaller and more fuel efficient models in the years to come.

It is time now for our annual forecast of auto trends for 2010 and the intervening years. Yes, you guessed it: how can anyone predict what lies ahead given the tumultuous year that just ended? Frankly, we agree which is why this forecast is based just as much on speculation as it is on cold, raw data.

Focus On 2010

The first few months of 2010 will bring into sharp focus much of what is coming for the remainder of the year. Indeed, several new product introductions are just months away from making their debut, important cars which will help redefine their respective brands and boost sales. Those cars include that all electric Nissan Leaf, the subcompact European designed Ford Fiesta, and GM’s world car – the compact Chevrolet Cruze.

But those models will also find much competition in their respective categories, which means that these and other models must have defining characteristics which help set them apart from the pack. The Leaf, for instance, will beat Coda Automotive and the Chevy Volt to market, but it’ll soon be battling with similar cars from Toyota, Mitsubishi, BYD, and elsewhere within the next 12-18 months. Nissan will need that head start because by 2015, mostly every major car manufacturer will be selling pure electric cars or a slew of next generation hybrids. (see Business Week: Introducing the Nissan Leaf Electric Vehicle)

Next week’s NAIAS will unveil a bevy of new models and concepts including an all new Cadillac model. We believe that vehicle will be the code named XTS, the large sedan scheduled to replace both the STS and DTS. If not the XTS, look for an all new Escalade to debut, a close cousin of the Buick Enclave. Cadillac’s CTS line, by the way, will be completed this summer when the coupe and various V versions of the line hit the market, giving America’s top selling luxury brand much to crow about.

Lincoln C Concept

Lincoln has been on a roll lately, most recently introducing its stylish MKT crossover to the market while welcoming EcoBoost technology. But Lincoln will not be stopping there: the brand will likely drop several aged models including the Navigator and Town Car over the next few years while bringing to market a car that has already been shown on the auto show circuit: the Lincoln C.

Yes, it is small and it is underpinned by the same platform powering the Ford Focus, but that is where the similarity ends. The Lincoln C will help the brand bring to market a true competitor to the BMW 1-Series with the midsize MKZ also seeing improvements over the next few years to compete against the BMW 3-Series. Yes, it will likely be called the MKC, furthering Lincoln’s naming convention adopted a few years earlier. (see USA Today: Lincoln Concept car makes entrance at Detroit auto show)

Redefining, Expanding Buick

But let’s get back to new models which we’ll see over the coming months. The Buick Regal will be here before you know it, a car based on the Opel Insignia. This model is important for a number of reasons: it helps fill out Buick’s limited line up and it gives Pontiac loyalists one more reason to return to Buick-GMC dealerships now that the Pontiac brand is dead. By the first quarter of next year, the German built Regal will be built in Canada, reducing the costs associated with importing that model.

Kia has been enjoying a surge in popularity much like its Korean cousin Hyundai. But the most significant change for the brand will be UVO, its hands-free entertainment system based on Microsoft technology. Yes, Ford SYNC will have some competition as the Hyundai-Kia juggernaut was one of the first automakers to jump in when Ford’s exclusive one-year contract with Microsoft ended last year. SYNC helped fuel Ford sales and will likely do the same for Kia. (see The Truth About Cars: Kia Uvo Syncs to Ford’s Level)

Honda is not exactly a design leader, but they continue to build high quality vehicles with some of the best resale values of all. Next year, an all new Odyssey minivan will hit the market, as Honda fights back against the all new Toyota Sienna. But it is the automaker’s green car technology which will really make a difference for the brand going forward, as a modified Insight hits the market in the near future with hybrid and pure electric technology following on many models across the Honda and Acura line.

Chrysler Makeover Pending

If Chrysler lasts long enough, the beleaguered automaker may be able to set the market on its side by what it has in the product planning pipeline. The all new Jeep Grand Cherokee will show up this year, helping its SUV brand remain relevant and offer the lone bright spot for the company. But by year’s end, the Fiat 500 will be built in Mexico for select Chrysler, Jeep, Dodge dealers, a car that will give customers reason to show consider Chrysler in the first place.

Yes, much of what will represent the three Chrysler brands in the years to come will be based on Fiat technology which means that come 2015, most Chrysler, Jeep, and Dodge products will be underpinned by its Italian benefactor. That is, if Chrysler can make it through the next 12-18 months in one piece.

Asia Comes Calling

Things get a bit more murkier when it comes to cars from India and China, two countries whose combined population make up 40 percent of the world’s consumer market. Both markets are still relatively young, underfunded, and technology deficient, but that’s beginning to change. As China’s Geely Automotive purchases Volvo and Tengzhong closes on Hummer, they’ll follow on what India’s Tata Motors has already done through Jaguar and Land Rover: purchase Western technology.

Mahindra will become the first automaker from India or China to sell its vehicles here when turbo diesel pick up trucks arrive. Those trucks will be followed by an SUV next year, with Tata promising to get into the mix by selling a western spec version of its super cheap Tata Nano.

Other cars from Chinese makes will eventually hit our shores, including Berkshire Hathaway financed BYD, but those models might be delayed as long as the US car market remains depressed. Consumers will not embrace a new brand if tried and true models offer everything they want in a car with a history of top build quality. (see CNN Money: Why Warren Buffett is investing in electric car company BYD)

Less Is More

The most obvious trend over the next three to four years has nothing to do with new models from new manufacturers or even hybrid or electric cars. Rather, it will be the introduction of smaller, lighter motors into engine bays, including families of four cylinder powerplants. Yes, that two ton sedan once featured a V8 with V6 power the latest standard.

But, car manufacturers in a bid to meet new fuel economy quotas will stuff I4 engines with direct fuel injection and turbochargers in a whole host of vehicles beginning this year with the Buick LaCrosse.

While the V8 won’t completely disappear it will be offered in limited numbers, as will V6 engines that will no longer be offered on most midsize and smaller cars. And transmissions of at least six gears will become the norm, offering yet another way for automakers to squeeze additional mileage from their cars.

Photo Credit: Ford Motor Company