Print 93 comment(s) - last by senecarr.. on Mar 14 at 8:11 PM

Tesla said Governor Christie’s administration has "gone back on its word"

Tesla Motors has been trying to push its direct sales model into various U.S. states, and while it saw a bit of success with New Jersey, a new state rule could destroy Tesla's plans. 

According to Tesla, New Jersey Gov. Chris Christie’s administration recently proposed a new rule that requires that a person have a franchise agreement with an auto manufacturer in order to be granted a license to sell. 

This is a problem for Tesla, considering it already operates two stores in New Jersey and had plans to open more. It's possible that Tesla could have to stop selling its all-electric Model S and any future vehicles in these stores and instead use them as showrooms where customers can look, but not buy. 

"Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature," said Tesla in a statement. "The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state.

"Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market."

Tesla CEO Elon Musk and President Barack Obama

Tesla has been in a battle with many states regarding its direct sales model. The issue is that auto dealerships feel Tesla's new sales model threatens their network, which many other automakers rely on. If other automakers were to follow Tesla's example, it would put the dealerships in a bad spot. 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.
Tesla CEO Elon Musk, on the other hand, 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, the problem for Tesla is that auto dealerships have much deeper pockets -- meaning that they have a lot more to spend on lobbying, and lawmakers will surely side with them when money is involved. 
In fact, auto dealers spent $86.8 million on state election races across the U.S. between 2003 and 2012. They also spent $53.7 million on federal campaigns. Tesla, on the other hand, has spent less than $500,000 on both state and federal politics. 
Tesla has gone head-to-head with many other states that are protecting auto dealerships, such as Massachusetts, Ohio and New York. 
Just last month, it was reported that Ohio Sen. Tom Patton (R-Strongsville) backed a new bill called Senate Bill 260, which aims to prevent Tesla and any other automaker from "applying for a license to sell or lease new or used motor vehicles at retail." Tesla opened its own stores in both Cincinnati and Columbus, as Ohio's current laws allow the automaker to do so. However, Senate Bill 260 would certainly put a stop to it, unless existing stores opened before the bill are deemed safe. 
What's interesting is that Patton received at least $42,825 between 2002 and 2013 from state and national auto dealership owners, employees, and political action committees. 

Source: Tesla Motors

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

Just stop
By Motoman on 3/11/2014 12:35:11 PM , Rating: 5
This BS with requiring a middleman in-between an auto manufacturer and the consumer has to stop. Any and all people who think there's the slightest validity to this requirement please go take a long walk off a short pier.

This is nothing but cronyism and profiteering based on the efforts of lobbyists.

There are ZERO credible reasons why a middleman *must* exist between an auto manufacturer and a consumer. None. If there was, it would necessarily be so for ALL products as well - not just cars.

RE: Just stop
By Solandri on 3/11/2014 1:33:49 PM , Rating: 1
Middlemen do exist for pretty much all products. Very few manufacturers or farmers sell directly to end-users. They all sell through distributors and retailers. The grocery store you buy produce at? Middleman. The department store where you buy your clothes? Middleman. Middleman. Pretty much every laptop brand? Middleman (the laptops are actually designed and built by little-known Taiwanese companies like Quanta, Pegatron, Wistron, Foxconn).

Most producers and manufacturers just want to concentrate on growing or building stuff. They don't want to deal with market analysis, demand estimation, and the headaches associated with product distribution. They'd rather hire a company which specializes in that. This is actually good for the economy because the distributor can use the market analysis structure it already has in place for one product, to analyze the market for another product. Much more efficient than each manufacturer having to have its own marketing department in-house. Same goes for retailers. Most distributors don't want to deal with the headaches of buying retail space, dealing with individual customers, etc.

What's changing all this is the Internet. Before, it was hard to get marketing data without an army of people out there doing product surveys. Now you can get it by watching people's web browsing habits. Likewise, before it was difficult for a manufacturer to do direct-to-end-user sales. Now you just set up some computer scripts and databases, and the end-customer orders can automatically be compiled and grouped together as if they were orders from a distributor.

The main difference I see with car dealers is that their price is negotiable. In most of the world this is considered a good thing - haggling is normal and expected. But for some reason it's considered a hassle in highly developed societies, and people would rather pay a fixed price. I guess people's desire for everyone to be treated equally overrides their desire to want to get the best possible deal. So it's considered better for everyone to equally pay a high price, then for everyone to pay a different but on average lower prices.

RE: Just stop
By Motoman on 3/11/2014 1:52:43 PM , Rating: 4
Middlemen do exist for pretty much all products. there a law that requires it? No.

Why is there no law that requires it? Because there's no possible reason to create such a requirement.

Vast numbers of products are sold directly from the producer to the consumer. And it's categorically incorrect to say that either the producer or the consumer is at any kind of disadvantage because there wasn't a middleman.

In all cases, the middleman increases the cost to the consumer - by necessity. Not having a middleman, at a bare minimum, benefits the consumer by not causing his price to increase.

RE: Just stop
By Solandri on 3/11/2014 2:09:00 PM , Rating: 3
quote: there a law that requires it? No.

Completely agree. If the middleman requires a law for their existence (like car dealerships), then most likely they are unneeded.

In all cases, the middleman increases the cost to the consumer - by necessity. Not having a middleman, at a bare minimum, benefits the consumer by not causing his price to increase.

Completely disagree. If there is no law requiring a middleman and a middleman exists, then they exist because they are lowering prices. That is how the economy works - by eliminating inefficiencies which raise prices. Just because you don't understand how they're lowering prices doesn't mean they aren't lowering prices.

Take garbage hauling. In your ideal world without middlemen, everyone would haul their own garbage to the dump once a week. 120 million households, all driving their cars to the dump once a week. Then someone gets the bright idea that there should be a middleman - someone who goes around to each house and collects their garbage, then hauls it en masse to the dump in one trip. Saves fuel, saves time, saves money, and is a middleman.

RE: Just stop
By Motoman on 3/11/2014 2:36:38 PM , Rating: 2
Completely disagree. If there is no law requiring a middleman and a middleman exists, then they exist because they are lowering prices.

This is so horrifically wrong I don't even know where to begin.

A middleman increases cost because it has to. There's facility costs, payroll, shipping, you name it. There is no possible universe in which implementing a middleman does not by necessity increase costs...unless you think some commerce fairy is magically making that part free.

For many consumer goods, a middleman exists because of, you're not going to to Korea to buy an LG washer and dryer in person from LG. But that's not to say that there's any reason LG can't just sell directly to consumers via their website, and dropship their stuff around...that's just a business decision for them.

Traditionally middlemen exist as distributors - buying in bulk from the producer who doesn't want to mess with one-off sales anyway - and then selling to the consumer in one-off sales themselves - MAKING PROFIT ON THE TRANSACTION AS THEY DO. How do they make profit? Because they increase the cost of the product to the consumer. Period.

In the modern world, particularly driven by online commerce, more and more logistical issues are being solved and more and more producers can easily sell directly to consumers. Your assertion that middlemen exist to decrease price is moronic - they exist to facilitate logistics, and the need for such facilitation is dropping constantly as time goes on.

When you go to a farmers market and buy a melon from the farmer himself for 25% of the cost of the same melon at Cub Foods, you saved 75% because there was no middleman - or, possibly, middlemen. By your theory, buying directly from the farmer at the farmers market would cost more than at Cub Foods.

But that doesn't work that way, now does it?

RE: Just stop
By Wy_White_Wolf on 3/11/2014 3:44:35 PM , Rating: 2
I see you haven't been to too many farners markets. Melons quite often cost more there than at the Supermarket. Economics of scale fall into place here.

A farmer selling at a local farmers market has to charge higher price as he would be very limited on the number of melons he can sell. Selling at wholesale to a chain he can deal in a large volume and not need to make as much per melon and still turn a profit.

That is where tesla fits in. They are trying do do the farmers market of car sales. But others can deal in a larger volme and not need to make as much profit per car sold.

All I see Tesla as needing to do is issue a franchise agreement to themselves.

RE: Just stop
By Motoman on 3/11/2014 4:45:45 PM , Rating: 4

You must go to some pretty crappy farmers markets.

The middleman serves a purpose only for logistics...and in that equation, he necessarily raises the cost to the consumer.

Logistics is the beginning and ending of why middlemen exist. Saving money for the consumer does not, in any way, figure into that equation.

RE: Just stop
By The Von Matrices on 3/12/2014 2:15:39 AM , Rating: 2
Your argument is only true because you are neglecting all the non-monetary costs involved with purchasing an item. The cost most people forget is the cost of time. When you can save a half hour per day traveling between stores by simply going to a large chain store, then a slightly higher nominal price is a more than acceptable tradeoff. You see people doing crazy things when they don't consider these time costs, like spending hours clipping coupons to save less money than could be earned by simply working at a job for the same amount of time.

There are many reasons people go to specialized shops like farmers' markets. They might enjoy traveling to them, they might meet friends there, they may want to support local businesses, and they might even find a slightly lower nominal price. But for commodities the only people who visit specialized stores for the lower price will be the few that can justify the extra time spent traveling between them. Middlemen are not present in everyday life because of some conspiracy to raise nominal prices for the consumer; they are here because they lower overall costs to the consumer.

RE: Just stop
By Solandri on 3/12/2014 5:21:26 PM , Rating: 3
The middleman serves a purpose only for logistics...and in that equation, he necessarily raises the cost to the consumer.

I'm only going to explain this once more since you're clearly resistant to examining the situation in any other way than the narrow scope you've pre-defined it in your mind.

Shimano makes fishing reels. They could do the logistics for distribution (marketing research, finding and booking transport companies, etc) by themselves. Yes it would reduce cost compared to a middleman who only buys and resells Shimano reels.

Penn also makes fishing reels. Like Shimano, they could do the logistics themselves, and it would reduce cost compared to a middleman who only buys and sells Daiwa reels.

But look what's happened. You now have two companies, both with their own in-house logistics division doing the same thing . That is duplicated work. Now multiply this by the dozen companies that make fishing reels, and you're talking about a whole lot of duplicated (wasted) work.

In steps a distributor - a middleman. They do the market research for all these different reels simultaneously. They negotiate a single contract for retailers to carry the reels. They handle the transportation contracts with a single employee. They track shipments with a single database.

This eliminates a lot of work and saves a lot of time compared to when each reel manufacturer did it in-house. Consequently the middleman is able to handle the logistics work at less cost than any single manufacturer could do it in-house. The manufacturers sign up with the middleman to distribute their goods, and the final price is lower for the customer. The middleman has lowered prices.

Logistics is the beginning and ending of why middlemen exist. Saving money for the consumer does not, in any way, figure into that equation.

Saving money for the customer is everything in a competitive environment. If you can save the customer money compared to a competitor, more of them will buy your products and you will make more money. Using a distributor saves manufacturers money, which they then pass on to customers in the form of lower prices.

It's the same reason why I moved my previous small business over to a hosted mail service. I'm technically competent enough to run my own mail server. But the amount of my time it took and spare resources we'd have to keep on hand (extra hard drives, computers, backups, etc) made the cost enormous.

The hosted mail service has those same costs, but they're able to distribute them over hundreds of customers. Their ratio of techs to mail servers is about 1:100, so they're not spending most of their day browsing the web waiting for a problem to crop up. They keep spare drives in the closet, but where I needed 100% redundancy (1 operating drive, 1 spare), they may only need 10% redundancy (100 operating drives, 10 spares). The labor involved running and validating the backups was about 1 hour/month. But the hosing service could do it for 100 mail domains simultaneously making their labor cost 36 seconds/month. Lower than my costs to do it in-house.

When a middleman consolidates work like this, they lower costs for everyone. You're purposely thinking of middlemen as only people who flip - buy something and resell it with no value added. You're right that flippers increase costs. But other middlemen add significant value to the product distribution stream, and consequently lower costs.

RE: Just stop
By Motoman on 3/14/2014 4:22:40 PM , Rating: 2
You're not smart.

The reason why middlemen serve logistics roles is because not everyone lives next to the Shimano factory.

If, somehow (doesn't matter how for this exercise) you could get a 100,000 people in the Shimano parking lot all at once who wanted a reel, you could most certainly buy 100,000 reels from Shimano at the bulk rate, and everyone would have their reel as cheaply as it could possibly be gotten.

That's the best-case scenario. Highly unlikely, but case.

Middlemen buy in bulk from Shimano, and perform the function of a distributor - WHICH NECESSARILY INCREASES THE COST OF THE PRODUCT TO THE CONSUMER. Because they have to pay for, at a minimum, their apportioned amount of the logistics costs. And, realistically, whatever additional % the middleman wants to stick on top of it.

At no point did I ever say the middleman wasn't performing a service - at all points I said all he was good for was logistics. This is irrefutably true, and it is also irrefutably true that having the middleman in the equation necessarily increases costs to the consumer. Period. Case closed. There is nothing more to say, and you need to shut your moronic mouth because you're clearly in way over your head.

No one should force a middleman into a retail transaction by law. There's no just cause for it. In the specific case of buying Tesla cars, Tesla is perfectly capable of receiving an order from a consumer and shipping the car out - or, probably, letting the consumer pick the car up at the factory (I'm guessing). REQUIRING that a dealer (middleman) be inserted into that equation MUST NECESSARILY INCREASE THE COST TO THE CONSUMER. Because the dealer doesn't work for free.

Now please stop making the internet stupider with your incessant willful ignorance about these simple facts.

RE: Just stop
By Mint on 3/12/2014 3:25:45 AM , Rating: 2
All I see Tesla as needing to do is issue a franchise agreement to themselves.

Yes, that's all they should need to do.

But laws prevent them from doing so. They require the dealer to be independent.

RE: Just stop
By BifurcatedBoat on 3/11/2014 4:45:07 PM , Rating: 2
Keep in mind that cost can also come in forms other than money.

RE: Just stop
By Reclaimer77 on 3/11/14, Rating: -1
RE: Just stop
By senecarr on 3/13/2014 9:57:49 AM , Rating: 2
Your reasoning implies that logistics are FREE when done by the party making a product, and suddenly NOT FREE when done by some other party that is not the producer nor consumer of the product.
If LG had to sell everything themselves via their website, they'd incur a cost. At the same time, consumers would have view several different websites instead of one showroom to make an informed purchase between LG, Samsung, etc. This time spent is a cost (just not one reflected in a price).
I think the problem is you're fixed on the price and want to call that the cost. They are not the same thing.

RE: Just stop
By Mathos on 3/11/2014 2:25:25 PM , Rating: 1
One of those rare times I agree with you.

What certain other people around here don't realize. Is that the produce you buy at the super market... Doesn't come from a local farmer. It comes from industrialized farms and hot house growers. Local farmers do quite often sell directly to consumers. The shear amount of fresh fruit and veggie stands I see in the local area around places I've lived proves that. Good luck finding that near large cities though.

And, a lot of American manufacturing companies do sell directly to consumers now, via the internet. Unfortunately, due to major chains like Wally world, selling mass amounts of made in China crap, it's becoming increasingly harder to find American made goods in chain stores. Quite a few of the cabinetry places I've worked at sell direct to consumer as an example.

Now as far as the auto dealership thing. They're as full of shit as it comes. Someone needs to protect the consumer from the shenanigans that most dealerships pull. Nothing like going to the brands web site, looking up a vehicle with the loadout you want, having them give you a price, and then going to a dealership to buy the exact same car, to have them try and tack another $5000-$8000+ on the vehicle. Then they try and lie and cheat you out of any incentive programs going on at the time, or they try and charge you extra to install things that came preinstalled. Oh you can tell the lovely dealerships I've had to deal with around Texas.

RE: Just stop
By Motoman on 3/11/2014 3:46:49 PM , Rating: 2
There are few institutions so anti-consumer in this world as car dealerships.

RE: Just stop
By milktea on 3/12/2014 4:43:46 PM , Rating: 2
Agree with you on the car dealerships.

But first off, after reading many of the posts with the word 'middleman', I just like to stress that middleman is a general term that covers a broad range of businesses. So I would avoid making general statments on the term middleman. Otherwise, you're just stereotyping which is quite off the track. Some middleman are good for the consumers, while others are debatable.

But getting back to the car dealerships, I'm in full agreement with your thoughts. People who thinks 'CAR' dealerships doesn't charge you more (on top of manufacturing price) is just in complete ignorance. They need profile inorder to survive and to hire dealers. And most often than not, they will try to sell you all the extras that you don't really need. Some people just doesn't know how to say 'no'. There's a lot of psychology in consumer spending buying and selling. Personally, I find no benefits haggling with a 'car' dealer. It's stressful and time wasting (opportunity cost there). And I don't know anyone who'd like to haggle to a dealer.

The question is, 'car' dealership do they really benefit the consumer? And if not, the 2nd question is, are they essential to the well being of the economy?

RE: Just stop
By jdietz on 3/12/2014 5:37:05 PM , Rating: 2
Kickstarter people hire middlemen (Amazon Fulfillment Services is a popular one) to service their customers. Servicing your customers is hard. Most companies would rather leave it to other to care for retail customers.

Anybody know Ford/Toyota/Honda/GM opinion on direct-to-customer sales? Do the big guys want to do direct-to-customer sales? I think you can buy direct from big automakers, but it doesn't save you any money (if you're buying only one or two cars), which is why nobody does it.

RE: Just stop
By inperfectdarkness on 3/12/2014 3:29:51 AM , Rating: 2
To be fair, Amazon isn't a middle man. Neither is Ebay. They are both essentially operating a flea market. The company that offers the floor space/accommodations that the flea market operates in is NOT a middle man--but rather someone offering floor space for a price. At a farmer's market, for example, the goods are direct-to-consumer sales--though the stall has to be rented/purchased from the market owner.

It is a seemingly small distinction, but a significant one. MANY vendors on Amazon/Ebay do offer direct-to-consumer sales. Don't think of it as middle-man with a markup; think of it as a online shopping mall where each store produces its own goods in-house.

RE: Just stop
By coburn_c on 3/11/14, Rating: 0
RE: Just stop
By Motoman on 3/11/2014 4:49:10 PM , Rating: 2
The credible reason for keeping auto dealers local is to keep auto sales profit local.

For what possible reason do you think that makes any sense? Because it's also the *local* people PAYING for that unnecessary "local profit." All you're doing is robbing cousin Peter to pay cousin Paul.

Your little rant though about trying to tie dropping the requirement to have dealerships into destroying your communities though is just hilarious. The shareholders are already getting their money, and they'd continue to get the same amount of money - with or without a dealer. The question is simply whether or not there's another hand out in the middle.

You want a dealership, then fine. Have a dealership. Just don't pretend there's any basis to have to require them by law.

By the way...if dealerships were "necessary" you wouldn't need a law to force them into use, now would you?

RE: Just stop
By coburn_c on 3/11/2014 6:38:42 PM , Rating: 2
unnecessary profit?

That's nonsense, the dealer markup won't disappear anymore than the the Bose markup disappears when you walk into a Bose store.

In case you have completely missed it, this argument is about letting the manufacturers run the dealerships. Any savings that would come about for the consumer would only be temporary while they run the locals out of business. Once firmly in the monopoly it is likely prices would rise as corporate could control local competition.

This is entirely about shifting dealer profit from local small businesses to corporate. If you think the dealership will just magically disappear and you will order your car via UPS then you are mistaken.

RE: Just stop
By Reclaimer77 on 3/11/2014 7:38:21 PM , Rating: 2
In Moto's world you can buy an unlocked flagship smartphone for like $200. It's the carriers (middleman) that make them $700!

RE: Just stop
By Motoman on 3/11/2014 8:41:21 PM , Rating: 2
In case you have completely missed it, this argument is about letting the manufacturers run the dealerships a matter of fact, no such thing has been uttered until you did just now. This categorically isn't about letting manufacturers run dealerships - it's about whether or not a state should *require* dealerships in order to sell cars there at all.

Any savings that would come about for the consumer would only be temporary while they run the locals out of business. Once firmly in the monopoly it is likely prices would rise as corporate could control local competition.

What monopoly? Is there only going to be one automaker left if the laws requiring dealerships are lifted? Or is the consumer still going to have the choice between Chevy, Ford, Chrysler, Dodge, Cadillac, Lincoln, Jeep, Acura, Honda, Toyota, BMW, Audi, Volvo, Mitsubishi, Kia, etc. etc. etc. ad nauseum? Oh that's'll be the latter. In which there isn't the slightest whiff of a monopoly.

And even if there are manufacturer-owned dealerships...who cares? Did it make any difference when Apple started opening their own stores? Or Nike? Do corporate-owned Burger Kings somehow dominate over franchisee-owned Burger Kings?

Get a f%cking grip.

RE: Just stop
By Mint on 3/12/2014 3:49:47 AM , Rating: 2
quote: a matter of fact, no such thing has been uttered until you did just now. This categorically isn't about letting manufacturers run dealerships - it's about whether or not a state should *require* dealerships in order to sell cars there at all.

No, actually you are incorrect.

This whole issue IS indeed about Tesla being able to run their own dealerships, i.e. Tesla Stores/Galleries. How many people would buy a car without ever sitting in it or doing a test drive? Only a small fraction. Tesla isn't so cocky as to think that they can operate showrooms with significantly less overhead than dealerships.

What they really want is to control the sales message for their products, and point out things you wouldn't hear from a dealer getting 90%+ of his revenue from gas cars.

What monopoly?
Indeed. The rest of your post is correct. coburn is dead wrong about the implications.

RE: Just stop
By Mint on 3/12/2014 4:21:16 AM , Rating: 2
First of all, the middle-man is NOT what created the middle class. Blue collar workers did. All economic activity helps the middle class, and as long as Tesla keeps on growing (buying machines, building factories, hiring workers, hiring engineers, contracting supercharger installers, contracting service "rangers", etc) as opposed to hoarding profits, the middle and lower classes benefit.

In this case, Tesla isn't cutting out the middle guy. They're helping them.

How many EV-centric dealerships do you see? Nothing compared to the number of Tesla stores. They all have employees/managers paid by Tesla, and they wouldn't exist independently (mainly because dealers get half their revenue from service, which is almost zero for EVs).

Tesla cares more about getting their message out than locally maximizing sales per salesperson, which is how dealers maximize efficiency. That means more sales employees per car sold, not fewer.

Dealers aren't going anywhere, as they're too essential for car distribution/sales/service. The only people that are under threat to get cut out are the higher income dealer owners.

"I modded down, down, down, and the flames went higher." -- Sven Olsen

Most Popular Articles5 Cases for iPhone 7 and 7 iPhone Plus
September 18, 2016, 10:08 AM
No More Turtlenecks - Try Snakables
September 19, 2016, 7:44 AM
ADHD Diagnosis and Treatment in Children: Problem or Paranoia?
September 19, 2016, 5:30 AM
Walmart may get "Robot Shopping Carts?"
September 17, 2016, 6:01 AM
Automaker Porsche may expand range of Panamera Coupe design.
September 18, 2016, 11:00 AM

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki