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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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RE: Nope
By Keeir on 9/17/2013 3:04:10 PM , Rating: 5
quote:
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
quote:
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
quote:
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.


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