Tesla vs Car Dealership: The Battle Of David And Goliath

Michigan is the latest state trying to ban Tesla‘s direct sales model. Bill HB 5606 originally intended to offer added protection to franchised dealers and consumers from price gouging by Automakers, and was passed by the Michigan House in September without any anti-Tesla language. Earlier this year the electric car manufacturer was banned outright from selling directly to consumers in New Jersey and made an agreement with auto dealers not to open any additional locations in Ohio. Other states, including Texas, Arizona and Virginia already have similar laws in place.

The question is, why those Auto Dealers deathly want to ban Tesla Sales?

“It’s all about money. Do you know how much money the car dealer makes by selling you a car?” said a car dealer who wished to remain anonymous. In fact, when you get a car loan financed through a dealership, you’re blindly expected to pay some sort of commission. That’s if you get approved for a car loan of course. Some people require Upturn Credit help before they can even get to this stage. Car Dealers make their commission through what is known as a finance reserve. This is an extra percentage added to your interest rate – usually 1 to 3%. For example, a dealer may be also able to get you financed at a 5% interest rate through one of their lending partners. This is called the “buy rate” – the rate at which the bank is willing to loan you the money. The dealer will keep this figure hidden from you. What they will show you is the “sell rate”, the interest rate that includes their commission. In this case, it may be 7%. And they have your 2% difference in their pocket.

It may not seem like much, but an additional 2% interest can really add up over the life of a loan. For example, if you were financing $25,000 over a 60-month term, a 2% finance commission would come out to $1,291, so at the end this is something very important to keep in mind when looking for an auto loan lender.

Although many states and lending institutions have put a roof on the maximum interest rate, a dealer can charge for arranging the financing. The roof is usually 2.5 %, but the dealer can and do charge higher amounts. Lemon laws were introduced in many states to try and prevent dishonest car sales for more money, setting out various car dealer regulations that all auto dealers have to legally follow. These laws ensure that you are not sold a faulty vehicle for an unreasonable price, limiting the amount of money car dealerships are able to make in commission. Dealerships usually try their best to close the sale and most of them will most likely succeed since most salesmen go through dealership sales training.

To secure their pockets, they have teamed up to ban Tesla Sales

Tesla Motor makes beautiful, quality electric automobiles. And moreover, they have planned to innovate the way an automaker sells its cars. Like Apple, Tesla wants to make things, and then sell those things directly to the consumer in stores owned and operated by the company to save consumers money.

“It’s a consumer protection. And why we say that is a dealer who has invested a significant amount of capital in a community is more committed to taking care of that area’s customers,” said North Carolina Automobile Dealers Association President Bob Glaser. This couldn’t be further from the truth.

If Tesla can sell cars directly to consumers, what stops the rest of the car industry from doing that? That is the heart of this issue. The 2% commission will no longer come into Dealer’s pockets. And they’re definitely unhappy about that!

How to stop paying the extra rate of commission to Car Dealers?

Now that you see how car financing can be a huge profit generator for any dealership, how can you prevent them from charging you a large commission when arranging the financing?

Your temporary defense is to shop for your own car financing before going to the dealership. No matter where you live, doing a quick search into something like we buy cars for cash in Dublin (if you live in and around Ireland) or similar depending on your location, you may find that the process of selling your car becomes a lot easier.

Get some online quotes and call a few banks or credit unions. By directly working with banks, you can save your extra rate of commission with car dealer. You can always rely on the Motor lender for bad credit auto loans when all other options have failed to get your new car. Buying a new car is a big deal, and it’s important that you take the time to consider whether or not this is the right thing for you. Do you need to save your money for something else? Do you really need this new car? You need to make sure that you can find the balance between fun and practicality before you purchase anything though. However, if there is nothing stopping you, then go for it.

Your silence is hurting Tesla and those automakers that now or in future want to sell their cars without dealerships.

“I hate the new-car buying experience. I hate the haggling and the cheesy sales tactics. And I think car salespeople are the least trustworthy people,” said a customer who wished to remain unnamed. But for 80 years, that’s been the only game in town. If you’ve ever bought a new car, you’ve had to do it at a car dealer and on their terms. Unless you recently bought a Tesla, that is. By raising your voice to support Tesla’s direct sales model and insisting our lawmakers not to take away our choice of that sales model, we will encourage more tech innovations which will translate into savings for consumers.

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  1. Judy

    I would hope our state vetoes this bill as it would make our dealers more competive in selling autos. Let the consumer choose.

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