Tesla is perhaps the most well known direct to consumer vehicle manufacturer in the US. But now other major manufacturers are looking to sell their EVs without third-party dealerships as well. Colorado is one of the few states currently trying to pass legislation to allow just that. We recently spoke with Tim Jackson, president, and CEO of the Colorado Automobile Dealers Association. Tim gave us his perspective on this legislation and what CADA is doing about it.
Jim Fitzpatrick: I’d like to welcome to CBT news, Tim Jackson, president, and CEO of the Colorado Automobile Dealers Association. Tim, thanks so much for joining us again here on CBT news.
Tim Jackson: Great to be on with you, Jim on CBT and love to get the updates and appreciate your coverage.
Jim Fitzpatrick: Good, thanks. Thanks. Thanks so much. Let’s talk about all the hot issues that you guys have going on out there in Colorado. For our viewers, what is Colorado’s house bill 1325 all about?
Tim Jackson: House bill 1325 was a late-filed bill. It was a surprise to us that it was filed by Rivian or it was brought to the legislature by Rivian, which is a new emerging automaker, a startup automaker, AKA a Tesla type automaker, that’s focused on building SUVs and pickups. They unveiled the first two of those. They call one of them the Rivian One and one of them the Rivian Two. They were unveiled at the LA Auto Show in late 2018. They are nice looking vehicles and their claim to fame is that they’ll have a 400-mile range. And one of the challenges with the electrics, these are fully electric cars, of course. I should mention that. They’re not hybrids or gasoline or anything. They’re fully electric.
The challenge with the fully electric today, really on most models has been the range, what is affectionately called range anxiety because the common range today is maybe somewhere around 150 to 250 miles. Rivian’s claimed a 400-mile range. And if they have that, that’s a major step forward and I think it will appeal to some consumers to have an electric vehicle with that longer range.
Jim Fitzpatrick: Yeah, for sure. And their approach to selling would be direct from manufacturer to consumer?
Tim Jackson: It is. The factory to consumer direct, again, AKA Tesla because that’s the Tesla model. The challenge with that, and really the challenge that Tesla’s had with that, is … And a lot of people think that Tesla makes a really good car and I think it’s a very innovative curve without a doubt. But as you saw in their quarterly financial filings for Q1 2019, they lost another $702 million. Well, the amazing thing about that, Jim, is that if you took out the amount of money that Tesla has to spend in the distribution, something that Henry Ford figured out way back in 1908 and Ransom E Olds figured out in 1908 and that is to have the car sold at the end of the assembly line, Tesla would be profitable today.
And if Tesla were profitable today through using the traditional dealer model, there’d be a lot more bandwidth for Elon Musk and his team on product development, on marketing, on capitalization, on all the other things that he wants to do with Tesla on autonomy and making those cars what they call the Tesla Fleet, the fully autonomous fleet. They’d have a lot more time and money to spend on that if they weren’t spending it all or 25% of their total expenditures are attributable to their distribution model.
And then one other thing, if we can dig a little deeper there, Jim, the customer satisfaction is real high today on Teslas. Not that the consumers don’t like their cars, they liked the cars, but the hate the service. So there’s not enough service centers, not enough techs. These cars do need service. There’s a myth out there that electric cars don’t need any service. They do need service and their wait times can be four to six to eight weeks on traditional service. That’s like just getting it in if there’s a tire problem or steering problem or a brake problem. And even longer if it’s a collision center problem. So a lot of that stuff would be alleviated, really remedied with the franchise dealer model.
Jim Fitzpatrick: Yeah, for sure. So where does the bill stand today?
Tim Jackson: 1325, it was killed seven days after it was-
Jim Fitzpatrick: Done
Tim Jackson: Read across. And so if I can just do the timeline on it. It was read across in Colorado it was a state bill, House bill 1325. So it started in the House. It was filed and read across where it was assigned the bill number 1325. And they start, by the way, with 1001 so that was I guess the 325th bill in the Colorado House. There’s another 300 or so in the Senate. And it was read across on Wednesday the 17th and it was in committee on Thursday the 18th. It was on the House floor on the next Tuesday, the 23rd and it was killed on the House floor on a third reading vote on Wednesday the 24th. Only the second bill this year to be killed on a third reading vote in the house.
Jim Fitzpatrick: Yeah, for sure. So will this rear its ugly head in other states?
Tim Jackson: That’s an excellent question, Jim. And I have to say, I do expect it to. I’d even go further and say I would expect it probably to make a return visit in Colorado. Like okay, we’re going to back up now and really get prepared and make a full run at it, not a surprise run that put us on our toes or maybe keep us on our toes. But I expect to see it here again in Colorado next year. But I also expect to see it and another 20 or 30 other states. In fact, I’ve let my counterparts know around the country you might expect a Rivian bill or something like coming your way soon.
Jim Fitzpatrick: Let’s switch gears a little bit and discuss Trump applying more pressure on the Chinese trade deal. He said on Sunday he would raise tariffs to 25% from 10% to about 200 billion of Chinese imports by the end of the week. The auto industry runs on Chinese imports does it not in terms of parts and stuff?
Tim Jackson: Well, we do and it puts us on the crosshairs on that because taking the brunt. Now to be fair and I guess the overall big picture if we all want free trade and I think that’s ultimately the goal within the automotive industry, we want free and fair trade, is that has to be a two-way street. And to sometimes get a deal, you have to really amp up and ramp up and drive a hard bargain to get to a deal. So if this was the first step to get to something that’s going to be really good and achievable on the other side, I think we’re all going to be patient and wait and want to see and help make that happen. But the pain points between the start and finish on that could be tremendous. And not just on factories and dealers, but ultimately on consumers because if it adds on two or three or $4,000 onto the price of vehicles, it can make those vehicles unaffordable in the US.
Jim Fitzpatrick: Yeah, for sure. That’s another item that we’ve all got to watch and keep close to. Right? That’s very concerning. So let met me throw this at you. The industry took another little dip here in April. What’s your take on that? Do you think we’re headed for some troubled waters throughout the summer in sales or…
Tim Jackson: There does seem to be let’s say a moderate slowing of the auto industry. It’s not like going off a cliff, but maybe starting a downhill trend. Just specific to our neck of the woods or part of the country, we are tracking down about nine-tenths of a percent through the first three months of the year, which is less down I guess than the nation was a whole. And we have set a new all-time high in 2018, which I think the last new all-time high on the national level was in 2016. So it’s still been going up here. Our Colorado economy is better than the nation as a whole. But that said, I think there is a slowing and we’re seeing it here, let’s say a leveling out for a downward trend beginning.
Tim Jackson: And the other thing, and you’ve reported on it and very important that you do, the inventories are building up and the inventories by the factories, on dealer lots, there’s a lot of unsold inventory right now out there of new vehicles and with interest rates, although they’re not exorbitantly high, but they’re certainly much higher than they were two or three years ago. So now that build up of inventory is a greater expense to dealers than it used to be. So I think what this is going to get us into and you’ve seen it and I’ve seen it in the industry, and that is there’s going to be a real push back against overproduction of the cars.
If my lots are full, why don’t you quit producing them and quit sending them our way for a while until we have a chance to catch up on this. And that’s going to be an important message for the factories to slow production a little bit. And maybe for a while quite a little bit. That goes with all the manufacturers, the traditional manufacturers and the electric car manufacturers because some of those we’re building up to, and there’s been signs that the electric cars are slowing as well. So it’s not just the traditional models that are slowing. It’s really all models.
Jim Fitzpatrick: Yup. That’s for sure. Well, Tim Jackson, president and CEO of the Colorado Automobile Dealers Association. Once again, thank you so much for joining us on CVT news. It is always a pleasure and your insights are priceless. So thanks again for joining us.
Tim Jackson: You bet. I’m honored to be one with you, Jim, and thanks for the opportunity.
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