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Tesla can continue selling its EVs directly

In a big win for Tesla Motors' auto dealership battle, the state of Ohio will allow the automaker to sell its electric vehicles directly to customers. According to AP, Tesla Motors and the Ohio Automobile Dealers Association negotiated the deal Tuesday, and it was approved by a Senate panel. 

This means that Tesla can continue selling its $69,900+ Model S sedan EV directly to customers in both of its existing Ohio stores -- which are in Columbus and Cincinnati.

Even better news for Tesla is that it can open a third store Cleveland as well, but it won't be allowed to open any more than that. 

The bill also made sure to prohibit other automakers from opening manufacturer-owned stores in the state of Ohio. This ensures that others can't follow Tesla's path and try to get rid of auto dealers altogether. 

Tesla CEO Elon Musk said 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.  
 
The problem is that auto dealers don't want to sell Tesla vehicles, and they're also barring Tesla from selling its own vehicles (with the exception of online, where customers can physically touch or test drive the EVs).  


Elon Musk [SOURCE: Green Optimistic]

But auto dealers say that they are necessary middlemen between auto manufacturers and consumers. They've insisted that their role provides fair play for consumers when it comes to warranties and service issues. 

Tesla was granted authorization by Republican Gov. John Kasich through the Bureau of Motor Vehicles to sell its EVs directly to customers via an issued license. 

Earlier this month, it was reported that Ohio auto dealers were supporting a bill that would stop Tesla from opening stores outside of its only two locations in Ohio. 
 
It recently came to light that Ohio Sen. Tom Patton (R-Strongsville) backed the anti-Tesla 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." 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. 

But this recent agreement with Ohio auto dealers is a win for Tesla, especially when other states -- like New Jersey -- are giving Tesla the boot. 

Earlier this month, New Jersey Gov. Chris Christie’s administration proposed a new rule, which requires a person to have a franchise agreement with an auto manufacturer in order to be granted a license to sell. 
 
A week later, the New Jersey Motor Vehicle Commission voted in favor of the ban of direct auto sales. Tesla already operates two stores in New Jersey, and had plans to open more before this new rule. These now need to become showrooms as of April 1.

On the other side of the country, states like Texas and Arizona are rethinking Tesla's direct sales model (which they currently ban as well) in order to secure Tesla's giant new Gigafactory for EV batteries. The factory aims to supply batteries for up to 500,000 EVs by the year 2020. The gigafactory would cost $5 billion USD, span as much as 1,000 acres, and employ about 6,500 people. It would also largely be powered by renewable energy, hence its need to be in a Southwestern state. 

Source: AP



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RE: Yea!
By invidious on 3/27/2014 4:53:03 PM , Rating: 0
It's a little naive to say that auto dealerships are not needed. If dealerships didn't exist then the manufacturers would be forced to stock thousands of vehicles and rent showrooms all across the country. Taking on all of this financial burden and risk of inventory management would result in higher manufacturer prices and negate the benefit of buying direct from the manufacturer in the first place.

The only time buying direct from the manufacture provides a good deal is when the manufacturer normally passes all of their inventory costs onto resale locations. But manufacturers do not typically give wholesale prices to end consumers because their contracts with their resale partners typically restrict such behavior.

This is how things work in the free market and I think for the most part it is working fine in most industries with minimal government involvement. There is no significant harm to the resale market if one manufacturer chooses to not utilize the reseller business model. I see no reason why politicians should be involved at all.


RE: Yea!
By FITCamaro on 3/27/2014 5:04:02 PM , Rating: 1
Don't you know that government solves problems?

Yeah I laughed pretty hard after writing that too.


RE: Yea!
By Mint on 3/27/2014 5:07:16 PM , Rating: 3
That's exactly why the laws should be removed. If that happened, I strongly suspect dealers would negotiate with manufacturers and come to an exclusive sales agreement.

But there would still likely be savings for the consumer, because thousands of independent dealers will never be as efficient as a unified distribution entity (as we see everywhere in the economy).


RE: Yea!
By Grast5150 on 3/27/2014 6:49:22 PM , Rating: 2
That is not how things work in a free market. Dealerships are the result of government mandating/restricting free market.

Your argument assumes that prices would have to be higher if the manufacture had to stock. You mean like almost everyother product? That is the lamest excuse I have ever heard. The only thing dealerships due is raise prices by being a middleman. this means the auto manfactures can churn out a stead stream of car regardless of there ability to be sold. The dealerships are the buffer. The dealerships are not Robin Hood. All of the cost of having inventory of cars which people do not buy is rolled into the cost of the cars that are selling. Otherwise dealerships would go bankrupt.

Dealership need and show go away! Using the free market as an excuse is lame!!!!!!


RE: Yea!
By Reclaimer77 on 3/27/2014 7:00:53 PM , Rating: 4
Dealerships don't need to go away. Simply declare all laws forcing the use of dealerships illegal.

If manufacturers want to use dealers, great. If they don't and want to direct sell, that's great too.


RE: Yea!
By milktea on 3/27/2014 7:11:56 PM , Rating: 2
Agree, Dealerships don't go away.
Just let the manufacturers decides if they should use their 'own' dealers or the 'private' dealers.


RE: Yea!
By milktea on 3/27/2014 7:33:48 PM , Rating: 2
I'm not saying Auto industry doesn't need dealerships. I was questioning why US have 'franchise' laws requiring that new cars be sold only by dealers (not owned by the Auto manufacturers).

And in response to your statement about the 'financial burden and risk of inventory', apparently Tesla believes that they can better manage that.

The question is why is there a 'franchise' law in the first place? And why do we need 'Automobile Dealers Association'? That to me is just plain bureaucracy. And it's taking tolls from consumers.


RE: Yea!
By 1prophet on 3/28/2014 5:35:07 AM , Rating: 2
Why franchise laws?

excerpt
quote:
The regulation of auto franchises arose as a response to car manufacturer opportunism early in the twentieth century.

According to Surowiecki (2006), in 1920, Henry Ford took advantage of its established dealer network by forcing dealers to buy inventories of new cars that they were unlikely to sell.

The reason that the company could “force” dealers to take the cars was that they had all made important investments in their facilities and reputation. Thus they had sunk costs that could be expropriated.

Ford and General Motors used the same strategy again during the Great Depression. These episodes demonstrated to policymakers that the franchisor, with its greater information and fifi nancial resources, might exploit investments made by the franchisees. Federal regulation followed these periods


http://faculty.som.yale.edu/FionaScottMorton/docum...


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