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Comment by nradov | Hacker News Reader

I doubt that most mass-market auto manufacturers want to move away from the franchise dealer model. It's tremendously capital intensive. Tesla can make it work since their cost of capital is so low. Where would Ford or GM get the billions in funding to run thousands of dealerships across the country?

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Having worked at an OEM and in automotive I can tell that what you’re saying is simply not true.

Where would they get the money? From cutting out the middleman, from increasing sales by offering an alternative to the terrible dealership experience (spending 1-2 hours buying a car is not ok) and from gaining the flexibility to offer alternative business models (i.e. subscription models).

Dealerships are the past. They may very well be the deadweight that will cause incumbent OEMs to sink rather than swim.

If any of the major manufacturers were stuck with the entire inventory their dealerships are sitting on right now, that would sink them.

That’s what’s happening. The article mentions that exact scenario.

For every vehicle on a ship or stuck in port there are at least a dozen sitting on a dealer's lot.

The other key insight of the Tesla model is recognizing that three three traditional functions of a dealership don't actually benefit much from being colocated— which is why Tesla puts the showrooms in shopping malls, does the sales online with flatbed delivery, and locates service centers on marginal lands in industrial parks where it's easy to have a big parking lot and hold lots of parts inventory.

The legacy manufacturers could absolutely copy this approach and would love to do so.

I'm not sure, where you live, but here (Europe) car dealers are generally in the kind of urban sprawl, where industry and shopping malls are located as well. And the typical lifestyle brands have a lot of show-rooms in inner cities as well – for all the others I doubt it's necessary... People will buy used anyway...

It’s not about suburban shopping malls, it’s about urban ones.

Traditional car dealerships need someplace to store all the new and used cars which quickly gets into hundreds of cars sitting around. Showrooms on the other hand can get away with representative samples which requires vastly less space. That means they can afford locations with vastly higher costs per square foot.

> I'm not sure, where you live

This discussion is about American auto dealerships.

Seems useful to compare the dealership experience to how it works in other countries. In the US, the dealership experience seems to be pretty bad for many people, at least it was for me and everyone I know through several car purchases. It hasn't been the same experience for the several cars I have purchased after moving overseas. Not sure I could pin down the reasons why. It might be the same reasons that the service you get from banks here is so much better.

I bought my Tesla from the showroom collocated with the service center, and picked up the car from the same location.

Interesting, where was this? All the showrooms I've seen are strictly that and not even legally able to sell you a car. All they can do is "help" you access the website and buy it yourself online.

Almost all automakers are connected at the hip to a capital arm, so I think if anything they'd be unusually well positioned to take on the capex of building out a distribution network. Consider, by analogy, that banks and credit unions are unusual in commercial real estate for almost always owning their own buildings, for the same reason.

Because capital is extremely cheap in low interest environment?

They would want to cut out the middlemen car dealerships.

Where do you get the idea that Tesla has a low cost of capital?

Both Ford and GM have substantially lower WACC than Tesla. The figures are public.

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