Print 54 comment(s) - last by vitp.. on Sep 19 at 3:27 PM

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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RE: Nope
By flatrock on 9/17/2013 2:29:12 PM , Rating: 2
I'm not convinced that dealerships really increase costs all that much.

If the manufacturer runs the stores they still have to pay employees, managers, run the service part, and the used car business. The used car part seems like a particularly poor fit, but trade-ins are an important part of auto sales.

Overhead doesn't go away when you remove the dealerships, and like any owner the car company is going to expect a reasonable return on the money invested in the store itself. There is additional capital investment, additional costs, and additional risk. Stockholders will demand additional revenues to maintain profit margins. That means that you will likely just end up paying about the same amount in the end.

RE: Nope
By Keeir on 9/17/2013 3:04:10 PM , Rating: 5
I'm not convinced that dealerships really increase costs all that much.

While what you say is "true". It is also true that dealerships do not -decrease- price.

For GM, the dealership network is large enough to ensure most customers end up with the same level of service (with ~25% significantly worse or better) however crappy that may be.

For companies/brands like Telsa, Smart, Fiat, etc, the a bad dealer can spoil large areas and decrease/alter brand perception significantly. Or two competing dealerships.

But without the requirement of dealerships, companies like GM even could go to internet ordering, flat pricing, service contracts, etc. These types of options could allow for significantly reduced overheads which -could- be passed on to the consumer! I wonder what percentage of consumers would wait 2 months (on a "custom" order) for a price decrease of 5-10%?

RE: Nope
By Solandri on 9/17/2013 3:18:14 PM , Rating: 2
Yeah, dealerships make less sense today when you could conceivably custom-order a car online and simply wait for the manufacturer to ship it to you.

They made a lot more sense back in the day. Contrary to the above posts condemning them, they were actually good for the manufacturers too. The dealership did all the local market research work to decide how many of each model car to order, and assumed the risk of cars cluttering their lots if they overestimated and didn't sell. The manufacturer could then concentrate on building cars, instead of on market research and warehouse storage.

The logical solution here is that low-volume car sales should be exempt from the dealership requirement. It makes no sense to require dealerships if your volume would only make it practical to have a dozen dealerships nationwide. Likewise, the dealerships are going to fight Musk's proposal that EVs be exempt, because they can conceive a future where EVs are the majority of car sales.

RE: Nope
By ebakke on 9/17/2013 3:37:53 PM , Rating: 3
Your solution turns a two sentence law into a two paragraph law. Which will later be amended for some other "logical reason" to include another 4 paragraphs to remedy a different unintended consequence.

The solution to this problem is not more government. Just strike the laws and let individuals freely engage in commerce with one another however they see fit!

RE: Nope
By artemicion on 9/17/2013 4:49:42 PM , Rating: 3
I find it ironic that a supposedly red state like Texas has a law in the books like this one that unnecessarily regulates businesses.

Just goes to show you that political rhetoric is mostly hogwash. Obviously, Texas republicans are more interested in pandering to their constituents (local car dealerships) instead of adhereing to their political philosophy of less government. De-regulating the industry would hurt the local car delears that vote for them and would primarily benefit out-of-state car manufacturers who can't vote for them.

RE: Nope
By ebakke on 9/17/2013 4:57:51 PM , Rating: 4
Republicans stopped caring about small government ages ago. The only difference between the GOP and the DFL today is which type of government intrusion you'll get. They both expand the size/scope of the government, and they both can't figure out how to balance a budget. The GOP wants to bring in less than they spend, and the DFL wants to spend more than they bring in.

RE: Nope
By Solandri on 9/18/2013 2:16:52 AM , Rating: 2
You're confusing Republican with Libertarian. Libertarians believe in less government regulation. Republicans (the non-Libertarian ones) believe in whatever laws give businesses in their governing region an advantage over businesses outside it. In this case, since the auto manufacturers are outside Texas while the dealers are within Texas...

RE: Nope
By drycrust3 on 9/17/2013 4:30:13 PM , Rating: 2
For companies/brands like Telsa, Smart, Fiat, etc, the a bad dealer can spoil large areas and decrease/alter brand perception significantly.

Not being an American, I would have thought any reputable manufacturer would stipulate things like the customer service standards, visibility from a main road, and amount of departure from their recommended pricing a dealer can offer when putting out tenders for dealers in an area. What is to stop a manufacturer from terminating their contract with a "bad dealer" if that dealer fails to comply with the terms of their contract?
To me, the only way a manufacturer makes any money is at the till, i.e. cash from what is sold. If a car show room has no sales, then the manufacturer won't get any money. If dealers in Texas thought they could make a mint out of selling exclusively Tesla cars at the recommended prices with the customer service standards, then Tesla wouldn't be having this fight with Texas.

RE: Nope
By DanNeely on 9/17/2013 4:49:37 PM , Rating: 2
At some point in the past the existing dealers managed to get contracts that made it virtually impossible for car manufacturers to revoke their franchises. Historically when the car companies cut a brand they had to give the dealers affected a franchise for one of their other makes or spend a huge pile of money to buy them out.

GM and Chrysler both used bankruptcy as a club to cut down the worst performing of their dealers in areas where they had a lot more than they needed; and their dealer networks were huge compared to their Asian competitors. ex Pre-recession numbers had GM with 4x as many dealers as Toyota but selling about the same number of cars. Chrysler was even worse off with 3x as many dealers but was selling less than half as many. AFAIK despite the cutbacks a few years ago their dealership networks are still much larger than the competition.

The only real leverage the car companies have over their dealer network is that they can offer better showroom payments to dealers who match the official style/layout/appearance guidelines.

RE: Nope
By Keeir on 9/18/2013 7:42:02 PM , Rating: 2
Not being an American, I would have thought any reputable manufacturer would stipulate things like the customer service standards, visibility from a main road, and amount of departure from their recommended pricing a dealer can offer when putting out tenders for dealers in an area. What is to stop a manufacturer from terminating their contract with a "bad dealer" if that dealer fails to comply with the terms of their contract?

Well, for one thing the very nature of a relationship. In the US, Car Dealerships have atonomy when setting prices. Where I live, all the VW dealers try to get an additional 1,000-3,000 USD (above MSRP) for Diesel models. VW has hundreds of dealers though... I wouldn't have to go too far to find one willing to go MSRP or "Invoice" etc. I also have a brand image of VW that one dealer can't change. Tesla is going to be hard pressed for a while to meet both of those conditions for the majority of people in the US. Dealing with US car dealerships often (hey, I like cars), I completely understand Elon's desire to have control over initial brand image and brand value in the retail channel.

RE: Nope
By ClownPuncher on 9/17/2013 3:07:55 PM , Rating: 2
The issue is more about crony lobby than cost to customer. Why are we paying jackbooted thugs to bully both us and the manufacturer?

RE: Nope
By mjv.theory on 9/17/2013 3:20:25 PM , Rating: 3
You are probably correct that the existence of "dealerships" is an inevitable cost factor in buying/trading-in, test-drive and servicing. Surely, Tesla must also include this cost in their business model.
However, the rest of the world, that is, all of the world that isn't the USA, manages to cope fine without the need to legally enforce the "right to profit" for middlemen, so wholly unconnected with the manufacturer. The most typical model is a franchise, quite often a multi-manufacturer franchise. But there is no good or logical reason why a manufacturer shouldn't be able to sell direct.
Viewed from outside, this part of US law is utter madness and clearly of no defensible benefit to anyone but the dealerships themselves.

RE: Nope
By Shig on 9/17/2013 3:33:34 PM , Rating: 3
Well Texas banned sales of the Model S, yet people are still driving them in Texas. It's just like the drug war, prohibition, etc. If people want the product, they're going to get the product, you're just hurting your own economy by enforcing draconian rules.

If no one wanted the car it would be a different story, but the model S is the first American made sedan that can compete with BMW 7 series, Mercedes S class, and Audi 8.


RE: Nope
By Rukkian on 9/17/2013 4:50:15 PM , Rating: 2
Yeap, now they have to go out of state, to a state that is not stupid, and pay sales tax on a 80k car to that state. A couple thousand of those and loosing the potential for a factory in their state to build a state of the art high tech car that is from an American company.

RE: Nope
By ihateu3 on 9/17/2013 11:28:13 PM , Rating: 2
So the new car dealerships are there for no reason at all? They exist to make no profit???

If they made no profit off of new cars, then they just would not offer new cars at all, plain and simple. They would only be a used car lot like any other millions of used car lots out there...

So going on your philosophy, all new cars sold have no profit at dealerships, but used cars do, so they choose to sell new cars for no reason at all, and sustain themselves from used. Then why do they even offer new cars at all?!?!?

RE: Nope
By Shig on 9/18/2013 3:15:34 PM , Rating: 2
You're mistaken on your logic. The end of the tunnel is that dealerships as a whole in their current form are now obsolete. Automakers need to think of another use for the dealership.

Take Nissan for example, they are turning their dealership network into an EV charging network for the Leaf EV. So while you're charging up for free at the 'dealership' you can go look at the new products they have and have a cup of coffee.

You'll obviously still need dealership networks for maintenance and repairs. Stop being so short sighted.

RE: Nope
By Shig on 9/18/2013 3:17:24 PM , Rating: 2
Edit - By obsolete I mean the sales people are obsolete in their traditional aspect. They'll be more like sales people at the Tesla Motors stores, where you go in, they talk about the car, then if you like it you'll go online and order it, cutting out the 'dealership markup'. Innovation is key, you have to think about dealerships in another light now.

Elon Musk changed everything in only a few business quarters. Silicon valley baby.

RE: Nope
By Motoman on 9/18/2013 5:38:09 PM , Rating: 2
Where in the f%ck do you get the idea that dealers would have to sell cars for no profit?

If GM/Ford/et al wanted to remain in the dealer-centric model, then their cars would all get sold via dealers, and the dealers would make money. The point isn't that dealership employees don't deserve to make a living - the point is that the assertion that dealerships are "necessary to provide price competition" is f%cking retarded.

As I have already noted, dealerships serve useful purposes for distributing inventory, and providing access to warranty services and of course regular maintenance and repair.

If GM et al decided to sell directly to consumers, like Tesla does (and like vast numbers of manufacturers in other industries), then maybe things change at dealerships. Maybe all GM cars sell at a fixed rate, and all dealerships get a fixed % of that sale when the car comes out of their inventory...just to think of one example. Or maybe the dealership model stays the same, and dealers try to compete for car sales based on out-servicing the customer. Ooooo...scary idea - gaining customers by providing better service.

Ultimately GM et al would still need the dealer networks - they can't possibly function without them. They *have* to have the inventory distribution, and they *have* to have the availability of warranty services. If stuff changes, the industry will change with it, and dealerships won't be going anywhere.

Only the a$$-smackingly stupid idea that dealerships keep costs down for consumers.

"There is a single light of science, and to brighten it anywhere is to brighten it everywhere." -- Isaac Asimov

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