Guest post by Blake Grady, edited by the prof with comments from Econ 244 participants. Original was from May 17, 2013.
This is one I had in draft form but apparently forgot to publish last spring – my apologies to Blake and commenters
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| Tesla Model S |
Consumer Reports recently gave the Tesla Model S a score of 99 out of 100, and other media outlets immediately began proclaiming that the car could be the best vehicle ever made. A small number of journalists responded by arguing that the entire idea of a "best car" simply doesn't make any sense.
...the entire [ratings] concept ... makes no sense
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| Does this vehicle look comparable to the Tesla Model S? |
I agree with them, but I drew an even more extreme conclusion from reading about the car and the consumer reports rating system: the entire concept doesn't make any sense. People buy cars for remarkably different reasons: perhaps a Range Rover to drive around Manhattan in isolated comfort, or the same Range Rover to tow horses to a show. In this case, even with the same vehicle, it would receive two different ratings: one of the New Yorker and one for the horse owner.
This issue becomes worse when trying to compare different vehicles. Comparing an F-350 pickup to a Tesla Model S on the same rating system is almost impossible. The question then becomes why do journalists use this system? My guess is that reviewers have found that people find the ratings systems more interesting when they can compare all of the models together, even if they make less sense that way.
The prof pointed out that such rankings have two audiences. One is the car guys (and gals) who like to argue about features and driveability and styling. Ratings are great to spur discussions over beer (or, perhaps for a Tesla, wine). The other are car purchasers, who are likely to look at sites that compare cars within the same segment. For them, these grand competitions and “best of the best” ranking games are not meaningful, as you point out. However, cars are an aspirational purchase, and “halo” cars and the general image of a brand matter. If nothing else, you want all your cars to have decent to good ratings…
Tyler Kaelin agrees as one of those car guys. Although I read car reviews all the time, my parents (people who have actually bought cars before!) could care less. Their concerns are general reputation in terms of quality and reliability, price, and the test drive. Where does that leave the purpose of these reviews, I begin to wonder? Maybe they are part of that “general reputation.”
Griffin Cook notes that a unified rating system makes sense given a very specific [strong!] requirement: that it is based on the “drivability” of the car and ignores function. In this sense, the slower, less fuel efficient F-350 is a lesser car then the Model S. While a pickup truck is obviously meant to serve a different function, the point of a view of a driver behind the wheel matters. However, Consumer Reports is not that narrowly focused, and their subjective reviews do not provide consistent information for potential buyers who consider their opinion to be authoritative.
Daniel Tomm seconded Blake: the rating system does not make sense if comparing an SUV to a sedan. It would be fine if they had different classes for each type of vehicle (i.e. SUV, light truck, heavy truck, sports car, sedan). Each vehicle serves its purpose — though I do not know what category concept cars such as the ME.WE would fall in. Personal preference makes a difference and like Tyler and the professor said, the car purchaser has the ultimate say. I know when I was first looking at cars, trucks were out of the question because my father thought they were impractical and I would never be lugging around logs or construction equipment. In terms of reviews I never truly looked at “best of the best” but if I saw a car I liked and a friend drove it I would ask their general opinion in order to get real feedback from someone who was not trying to sell me the car.
Yes!!! It would be fine if they had different classes for each type of vehicle. Each vehicle serves its purpose though I do not know what category concept cars such as the ME.WE would fall in. Each and every. The slower, less fuel efficient F-350 is a lesser car then the Model S. While a pickup truck is obviously meant to serve a different function, the point of a view of a driver behind the wheel matters.
ReplyDeleteRegards,
Komatsu Parts
Great post! My own impression is that Consumer Reports made its comment in the context of 4 door sedans, the classic and tradition "family car." While I love the Model S, my own choice would be a Mercedes Benz midsized diesel, either a C or an E. An EV becomes interesting to me when it has actual useable range. 200 miles, then hope and pray for an outlet, doesn't work for me. I'd hate to have to rent a car to take on a trip after spending $80 K or so for a Model S.
ReplyDeleteOne big question in the auto business regarding Tesla has to do with resale value. Elon Musk has guaranteed the residuals on his lease/balloon deals. To my knowledge, know one is insuring these residuals. He has done this to bolster sales to keep up the perception that Tesla is making as many Model S as they can and can barely keep up with demand. With their model of OEM owned stores they have yet to encounter what happens when the demand/supply balance tips toward more supply/production than demand. Will they shut down the line? Will they discount? Tesla has no "dealer inventory buffering" available. If they discount, it impacts resale value, which could put Tesla in a tough spot making up the difference to the banks on the residual projections. Another resale issue has to do with the question of what happens if new technology emerges, rendering the Model S "old technology."
Another question about Tesla has to do with the big question of where the company finds the money to invest in new product development while also trying to own its own dealer network. No other OEM has even tried to pull that off. Tesla and Mr. Musk have a lot to learn. But since it is somewhat amazing they have gotten this far, I'm holding my breath and hoping they "guess right." My Japanese wife, who NEVER notices cars, noticed our neighbors new Model S, and made me go around the block for another look. The car is a knockout. The low center of gravity coupled with the instant torque of the electric motor must make for amazing driving dynamics. I've not driven one. Tesla has been somewhat arrogant with the motor press in general. They are very selective of who the provide a test car to, preferring to get a hint of what will be written before providing a car. When invited to speak at a major auto conference in NYC, Tesla icily replied, we don't do that. They must have thought they would be ambushed by a bunch of dealers.
Dealers and NADA have been attempting to block Tesla at every turn. The issue is the factory ownership of the dealerships. I chastise them at every turn, as I think they are making fools fo themselves. They have nothing to fear from Tesla. They are concerned their own OEMs will begin to open company owned stores in competition with their own dealerships. This is an issue that has been thoroughly flogged on this blog. Auto OEMs should be able to own all or none, but nothing in between. There is something inherently wrong with having to compete with your own supplier. Frankly, I don't think the legacy OEMs are stupid enough to try it but they make noises occasionally that spook dealers, who have MAJOR investments in the dealership operations. i also expect Tesla to sell its factory owned dealer points out to private investment at some point to raise cash for product development and to gain an inventory buffer. If they have been successful at that point, they should realize healthy multiples on the sell out.