Ford CEO Jim Farley on Tesla to his Employees

[PWMDMD]

I'm not so sure Tesla can sustain their direct sales approach. Eventually the market is going to get saturated and Elon is going to have to do something to keep plants churning out cars. For example for 2021 YTD Tesla worldwide sales is less than 650,000. BMW is at 1.9 million. The direct sales approach won't support 2-3M cars/yr In addition as they gain market penetration they're going to have to provide a better post-sales experience for customers (ie. repairs, warranty).

My prediction. Within the next 10 years Tesla will have traditional dealerships in the US because they're going to run out of fanboys who don't care about panel gaps on a $70k vehicle.

I disagree. The dealership model does exactly ZERO for me in purchasing a vehicle.

1. I hate dealing with the salesperson and they add nothing but an additional barrier to my purchase. I don't need anyone to explain models or features. By the time I'm ready to purchase I already know exactly what I want.

2. I hate negotiating prices. If you told me this is the price and it's the same price everyone else is paying I either can or can't afford it/want it at that price and if it's acceptable let's move to the next step.

3. I get zero out of meeting with the finance person other than telling him/her no to all the upsells. I already know what I qualify for long before I walk in there. I always have alternate financing available before I walk in there.

All three of these can be done entirely online.

4. I don't care where my vehicle gets serviced. Pick up the vehicle and bring it to wherever the hell you need to and bring it back. I own a Lexus and for all the money they put into their waiting area I'm annoyed I had to drive there in the first place, I always get a loaner and I spend all of 3 mins there.

I'm in my mid-40's and I have friends in their mid-50's who would have no problem with online buying and certainly, anyone younger than me would have no issues with online buying.

 

[mightymousetech]

I'm not so sure Tesla can sustain their direct sales approach. Eventually the market is going to get saturated and Elon is going to have to do something to keep plants churning out cars. For example for 2021 YTD Tesla worldwide sales is less than 650,000. BMW is at 1.9 million. The direct sales approach won't support 2-3M cars/yr In addition as they gain market penetration they're going to have to provide a better post-sales experience for customers (ie. repairs, warranty).

My prediction. Within the next 10 years Tesla will have traditional dealerships in the US because they're going to run out of fanboys who don't care about panel gaps on a $70k vehicle.

Tesla just built a “dealership” here in Ottawa.

Having a dealer come and pick up cars from customers to bring in for repairs just won’t work. Who the hell is going to go and pick up 100 cars a day and bring them back afterwards. That’s a failed business model from the get go. It may work if you are only working on 10 cars a day, but it does not scale up.

 

[PWMDMD]

Tesla just built a “dealership” here in Ottawa.

They do need some place for people to see vehicles and test drive. Also, I believe some states require a physical presence to sell cars in that state - no doubt lobbied by the dealerships to prevent direct-to-consumer sales.

 

[mightymousetech]

They do need some place for people to see vehicles and test drive. Also, I believe some states require a physical presence to sell cars in that state - no doubt lobbied by the dealerships to prevent direct-to-consumer sales.

Not required here by law. Just the nature of the repair business. What Tesla does now won’t work long term.

 

[PWMDMD]

Not required here by law. Just the nature of the repair business. What Tesla does now won’t work long term.

I guess I'm making a distinction between a dealership showroom and a dealership service department. They will need service departments all over the place - I'm talking about not needing a showroom full of salesmen.

 

[JeffKeryk]

Automobiles are capital intensive so the factory line must run all the time. Automakers rely on dealer floor planning to make that happen. Right now they're still the biggest player in the EV space but that will change. It always does.

I respectfully disagree. It seems Farley does as well. I guess I fail to understand your point.
Legacy automakers have operated using the dealership (middleman) model. That does not mean new manufacturers need to.
Case in point: How much money does Ford, GM, etc spend on advertising? How much does Tesla spend?
How much does a dealership cost to build, maintain and operate? For what?

Speaking to your capital intensive point:
The Dealership model is overhead. The Direct model, via the Internet, can replace (and improve) the dealership function, speed up processing and enable lean manufacturing.
Tesla builds the cars people are asking for by direct sales configuration. Dwell time at a dealership does nothing but incur cost.

Pricing? The price is known; take it or leave it.

It seems so many people expect Tesla to be like other car companies and for their cars to be like other cars. That continues to baffle me.
This is not what they are doing nor do they want to. Quite the opposite.
And they are the envy of every other car company. Just ask Diess and Farley.

 

[JeffKeryk]

I guess I'm making a distinction between a dealership showroom and a dealership service department. They will need service departments all over the place - I'm talking about not needing a showroom full of salesmen.

Tesla does not have dealerships, they have sales centers and service centers. You can go test drive a car, get information, etc.
The key difference is, they carry no new car inventory; you have to order one. No different from ordering at the sales place, at home on the couch or on your cell phone.
Interestingly, Tesla was toying with the idea of renting space in parking lots, fencing it off and putting some test drive vehicles there. You set up a test drive with Tesla on line and they put something on your cell. You can then go get the car and off you go. No human intervention necessary.

I am not sure how Tesla operates in states like Texas where direct sales is prohibited by law. I have heard the cars have to be delivered to Texans out of state, but I do not know this for sure.
Perhaps @4WD has some insight?

 

[UncleDave]

Automobiles are capital intensive so the factory line must run all the time. Automakers rely on dealer floor planning to make that happen. Right now they're still the biggest player in the EV space but that will change. It always does.

Your answer to Jeff doesnt answer my questions to you.

The big 3 and Franchises currently need each other.

The big 3 force all their inventory on the dealers and call the shipment on its way "sold" when in fact it is not.
This way they can run flat out and depend on the dealer, and its up to the dealer to floor, then move the cars.

This all stops when the dealers cant move the cars in time before the next shipment.

Tesla doesn't work that way, they enjoy direct sales and build and deliver only the cars that are actually sold plus a few more vs spitting out random builds hoping to find buyers. They dont pay a dealer to sell, and floor cars that have not been sold.

 

[edyvw]

Edy, can you explain why, in spite of this "huge problem", the cars sell so well and have the highest customer satisfaction of any car?

Bcs. trend. If neighbor has one I have to have one. That is 99% of Tesla audience.
Satisfaction? How else you going to justify spending all that money on plastic that equals my minivan?

 

[JeffKeryk]

Bcs. trend. If neighbor has one I have to have one. That is 99% of Tesla audience.
Satisfaction? How else you going to justify spending all that money on plastic that equals my minivan?

Edy, you're killing me. All good.

 

[ZeeOSix]

Speaking to your capital intensive point:
The Dealership model is overhead. The Direct model, via the Internet, can replace (and improve) the dealership function, speed up processing and enable lean manufacturing.

I think most dealerships are independently owned and operated ... not owned by the car manufacturer, so it's not costing the car manufacture anything.

 

[JeffKeryk]

I think most dealerships are independently owned and operated ... not owned by the car manufacturer, so it's not costing the car manufacture anything.

I don't think CEO Farley agrees with you.
I do see your point as far as the GM calculation at the plant. But from a capital expenditure standpoint, Tesla buys material and builds cars that the end customer has configured. That's lean manufacturing, which is a point the Ford CEO spoke to. Tesla's margins blow Ford's out of the water.

Another benefit to the direct model is changeover due to improvement. Cars are built and delivered in a JIT envirornment as opposed to filling dealer inventory. Others have pointed out to the undelivered F-150 trucks because of missing semiconductor chips. Tesla was better equipped to deal with the shortage because they were not so tied to a strict component requirement.

As I read and reread CEO Farley's words, he is saying the 100 year old business processes are showing their age. That's leadership.

 

[97prizm]

I still don't see how Tesla has high customer satisfaction. They've already said they won't support their vehicles over 10- years-old, still have glaring fit and finish problems, every week change their minds on what product is or isn't supported. Plus his Muskiness asks Twitter followers for financial advice. This company Should be bankrupt. I've never seen mediocrity produced on such a massive scale and it go up in value.

 

[97prizm]

Keep in mind Tesla has double the repairs on new manufactured vehicles than the industry as a whole.

 

[ZeeOSix]

I think most dealerships are independently owned and operated ... not owned by the car manufacturer, so it's not costing the car manufacture anything.

I don't think CEO Farley agrees with you.

So Farley says that Ford owns all the dealerships and pays for all the buildings, their operational costs, employees pay and all overhead? I don't think so.

 

[nthach]

Farley is a long time Ford guy. He isn't going anywhere....

I think Farley came from Toyota USA - and was one of the few non-Japanese to hold a C-suite position besides Jim Press, Mark Templin(who’s supposedly now in Japan after leading Lexus), Denny Clements and a few others.

So was Boeing CEO during MAX crisis.

AFAIK, Alan Mullaly was the last of the breed at Boeing who came in with an engineering background before he left for Ford. His replacement at Boeing was the mark of the bean counters ruling.

 

[nthach]

The only prob

The only problem is that Tesla's quality is horrendous. IMO, once the major automakers get serious about EVs, Tesla is finished. Just look at what Ford, GM and even VW are doing with EVs and they just got started. With the reosurces that they have, just imagine what they will be making in 10 years. How can a mom 'n pop company like Tesla compete?

If Toyota made a BEV successor to the Prius and never gambled on FCEVs(which IMO will never go beyond buses nor leave California and Vancouver, as only New Flyer and Ballard Systems are interested in marketing them and only AC Transit/OCTA/Suntrans in California and Vancouver TransLink’s Coast Mountain Bus Company have an interest in operating them) Tesla would have never existed.

 

[allepunta]

I still don't see how Tesla has high customer satisfaction. They've already said they won't support their vehicles over 10- years-old, still have glaring fit and finish problems, every week change their minds on what product is or isn't supported. Plus his Muskiness asks Twitter followers for financial advice. This company Should be bankrupt. I've never seen mediocrity produced on such a massive scale and it go up in value.

intersting, where can I read about this? I tried a search, found nothing...

 

[DuckRyder]

I've never worked at Ford.

But in my experience when most US companies talk about efficiency they really have no clue. They want people to be efficient, but they put up roadblocks everywhere... ridiculously complicated processes designed by people who have no clue (you know they spent 3 days maybe with 5 total people that do the job) what actually goes on.

Systems that operate in silos and do not talk... why am i copy pasting the same information into 3 "tools"... why when i click on a link to ABC do i go to another page with another link to ABC... You want me to be efficient but I'm supposed to follow this same 5 page document step by step every time I do a simple task that I do 10-12 times every workday because the process might change?

It is a Joke.

I'd bet all the business systems need a complete ground up...

Farley is right, but it is a very steep hill and it'll need some people that are willing to abandon some legacy systems. It starts at the top with streamlining (and i mean really streamlining) everything.

I'd buy a Ford Direct, Harley too...

Tesla has some sort of Center here at the mall... I noticed it the other day on the way to the Apple Store.

I think i have mentioned it before, but some time back while surfing Ford they had a customer survey on whether you would buy a car/truck direct. I'm going to assume that they received a majority yes on that...

 

[javacontour]

So Farley says that Ford owns all the dealerships and pays for all the buildings, their operational costs, employees pay and all overhead? I don't think so.

I think it's more about the costs. Not all costs are direct. Just look at the comments here. "I took my car to Ford and they shafted me on the repair/trade/whatever."

There is a cost to Ford as most consumers don't distinguish between Ford and the Dealer Principle. Lather, rinse, repeat for all others who use the same model.

The cost is in the form of image based on dealership antics.