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

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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.

"We’re Apple. We don’t wear suits. We don’t even own suits." -- Apple CEO Steve Jobs

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