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Texas just shut Tesla down on the state level

Tesla CEO Elon Musk is determined to win the dealership fight by any means necessary -- even going to the feds.

A new report from Automotive News says Musk may take the dealership fight to the federal level since working at the state level hasn't been completely successful.

Here's the deal: Musk believes that auto dealerships don't do a very good job at selling specialty cars like Tesla's high-end electric vehicles (Roadster, Model S). Hence, he's looking to run his own Tesla stores around the U.S. where he believes his cars will get a fair shot at being sold. 

However, auto dealerships are fighting back. If Tesla were to succeed at opening its own dealerships, other automakers could try to do the same. The National Automobile Dealers Association (NADA) said that dealerships are necessary to ensure competitive prices for customers, and that it will continue to defend franchise and consumer laws in the states.

While Tesla has been able to fight off auto dealership assaults in some states -- like North Carolina -- it has had a more difficult time in others, like Texas. The state has laws that protect the franchise dealership system where car manufacturers are not allowed to run and own dealerships -- and Texas isn't looking to budge on that issue.


Musk has worked quite a bit to eliminate the conventional dealership model for his cars in Texas, going as far as supporting a recent Texas bill called House Bill 3351, which would allow distributors and manufacturers of electric vehicles (EVs) only to sell directly to customers without the use of dealerships. He also offered to build a second manufacturing plant in Texas, and is even trying to appeal to Texas consumers by discussing a design for an electric pickup truck that would be stronger than any current gasoline truck.

Tesla made a case before the state legislature this past session that Tesla should be one exception to the state laws, and be allowed to sell its cars to the public directly. The state legislature blew it off without even taking a vote, and that was that. According to NPR's State Impact, the reason was because Tesla failed to lobby as much as the dealership associations. Tesla spent about $345,000 in lobbying while dealerships spent about $780,000.

Texas isn't alone in attempting to keep Tesla at bay. New York, Massachusetts and others have attempted to shut down Tesla's stores as well. 

With that, Musk is looking into taking his fight to the federal level in order to bypass each state's restrictions. Musk may lobby Congress or file a federal claim saying that the state laws banning Tesla-owned dealerships are unconstitutional. 

Musk said in April that he'd be willing to make the fight a federal battle. 

"If we're seeing nonstop battles at the state level, rather than fight 20 different state battles, I'd rather fight one federal battle," said Musk.

Sources: Automotive News [1], [2]



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By Mint on 9/17/2013 1:16:06 PM , Rating: 3
but the more I looked into it, the more I realized that the independent dealership model is just a relic from the past.

If manufacturers get a lot of direct sales, they'll have to start compensating dealers for being a showroom and service center or dealers will shut down and the manufacturer will lose sales. It'll be like any other industry. I'm sure Best Buy, Staples, etc. charge for shelf space when they know a lot of customers will go home and buy on Amazon.

I'd recommend a gradual phaseout of dealer legislation, though, to avoid any disruptive damage. Maybe allow 50k direct sales per manufacturer in the first year and then increase the cap slowly year after year. Dealerships shutting down chaotically could leave customers stranded for service.

Will there be job losses? I'm sure, but that's how the private sector works in any industry, and it'll directly translate into consumer savings.




By ebakke on 9/17/2013 1:57:04 PM , Rating: 4
quote:
I'd recommend a gradual phaseout of dealer legislation, though, to avoid any disruptive damage. Maybe allow 50k direct sales per manufacturer in the first year and then increase the cap slowly year after year. Dealerships shutting down chaotically could leave customers stranded for service.
What? You picked a totally random number and made this issue artificially more complex than it already is.

Just remove the laws. Period. Done. The end.

Dealerships aren't going to just shut their doors the following day. Ford isn't going to create an entirely new direct-sales channel overnight. GM may decide "hey, we like selling through dealers." And so on. There'd be no widespread chaotic shutdowns if the state governments simply repealed the laws.


By Mint on 9/17/2013 3:05:29 PM , Rating: 2
I'm just worried that there's a chance of some sob stories about people having nowhere to fix their car when some dealerships shut down. Then we'll hear an outcry of the gov't fixing what wasn't broke, a reinstatement of the law in some states, etc.

Why would GM like selling through dealers? They'd get more profit per car by selling direct.

A repeal of the laws is going to change things drastically over the next 5 years. New car buyers are generally an older crowd, but even they are web savvy nowadays. Other countries are starting to see a standoff between dealers and manufacturers, as this is the time that they are looking to sell direct.


By ebakke on 9/17/2013 3:31:40 PM , Rating: 2
I say we don't worry about hypothetical problems and we instead address the real, current problems. If sob stories arise, we collectively tell the sobbers to grow up and get over it. Government forcing individuals to sell a product in a certain way or not sell a product in a certain way is broken. The only people who can argue otherwise, are those who are benefiting from the force being used against the others.

GM may like dealers for the same reason any other company doesn't sell directly to consumers. I can't buy gasoline from directly from the local refinery. I could only buy my snowblower through a Simplicity dealer. I can't buy nuts/bolts from the foundry.

Simply put, selling directly to the end customer is a lot of extra work. The sheer number of orders you're taking in is much larger (granted, for smaller quantities). You have to figure out how to get the product to the customer. You have to figure out support, repairs, instruction, updates, etc. You have to figure out distribution, and marketing. There are many problems to solve, and for some companies it's worth the extra effort. For others, they sell only to wholesalers. Others, sell through dealers. As with everything else in business, it's a cost/benefit analysis. What's your goal, and what's the cheapest and most effective way to accomplish it.


By Mint on 9/18/2013 2:00:44 PM , Rating: 2
I can't say I disagree with you about legislation. I'm just telling you why I think a phaseout will be more palatable.

You're overestimating the work needed for direct sales, though. Contractors will be lining up at the manufacturer's door to implement a sales and delivery system for even 0.1% commission of the $450B/yr new car market (plus destination). Dealers make most of their money from service anyway, so that's taken care of (service centers aren't closing down, even if they move to smaller lots).

You can't compare cars to other other goods like gas or nuts/bolts. Cars are a huge expense and they're nearly all sold at brand-specific outlets anyway. Can you name anything else that matches those characteristics?

Anyway, I'm not trying to make you empathize with the incoming plight of dealers with direct sales. I'm just telling you that it's going to be disruptive once it catches on.


By ebakke on 9/19/2013 10:54:17 AM , Rating: 2
quote:
I can't say I disagree with you about legislation. I'm just telling you why I think a phaseout will be more palatable.
Humans are resourceful, capable beings. They're more than able to handle the changes that would come about from removing these stupid laws.

quote:
You're overestimating the work needed for direct sales, though. Contractors will be lining up...
Which then just become new "dealers". And thus the original dealers don't have anything to fear. If it'll cost the manufacturers more money to sell direct, that's less of a price difference between the manufacturer and the dealer.

quote:
Can you name anything else that matches those characteristics?
I already gave you one: my snowblower. Or a lawn tractor. Or an agriculture tractor. A new Deere tractor dwarfs the expense of a new automobile, and is sold at brand-specific outlets.

quote:
Anyway, I'm not trying to make you empathize with the incoming plight of dealers with direct sales. I'm just telling you that it's going to be disruptive once it catches on.
And I'm telling you you're speculating. It might be disruptive in some cases. It might not be in others. But in either case, I don't much care. And I'm not sure why it matters. What matters to me, is not restricting the freedom of individuals to interact with others as they see fit.


By Reclaimer77 on 9/17/2013 4:32:26 PM , Rating: 2
There isn't going to be a repeal of any laws. Musk isn't fighting for us. He's fighting for a special exemption for Tesla motors, and that's it. Dealerships aren't going anywhere.


By ebakke on 9/17/2013 5:00:39 PM , Rating: 2
Sadly, you're spot on. The status quo will be maintained.

Sure would be nice though if a few politicians were willing to stand up for freedom and not crony capitalism. Or if the voters would promptly fire any politician who didn't.


By ritualm on 9/17/2013 5:03:02 PM , Rating: 2
Dealerships today are glorified brick-and-mortar showrooms with salespeople working on commission - and with that, some of the more unsavory and unscrupulous practices they employ to push sales.

The first time I shopped for my car, the sales guy took me on a test drive where I was disallowed to make any right-turns. Instead of a "you break it, you buy it" approach, they're not letting me try the car as is while not breaking any local driving safety rules.


By ritualm on 9/17/2013 4:53:15 PM , Rating: 3
Kill the auto dealerships. They're now essentially a cost-plus service.

The price of a car from the dealership might be 60-70% the raw BOM from the automaker itself, 5-10% from local, state and federal taxes/charges. What remains is the cost of paying some guy in suits for commission and dealership's fixed costs.

For the first few years I went to the dealership to change winter tires and basic checkups. When I found out those same jobs can be done at an auto shop for many times cheaper, the only reason I ever go back to the dealership is for product recalls.


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