Print 32 comment(s) - last by mars2k.. on May 26 at 3:27 PM

The FTC takes another stand against "harmful" laws forbidding direct-to-consumer auto sales

It looks as though Tesla Motors has some friends in high places. Just last month, three Federal Trade Commission (FTC) directors wrote a blog post in which they blasted states that have implemented laws to forbid Tesla from selling cars directly to the public.
“In this case and others, many state and local regulators have eliminated the direct purchasing option for consumers, by taking steps to protect existing middlemen from new competition,” wrote the directors in April. “We believe this is bad policy.”
Now the FTC staff has issued a press release that singles out Missouri and New Jersey for their bans on direct-to-consumers auto sales bans. The FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics note that both states “operate as a special protection for [independent motor vehicle dealers] – a protection that is likely harming both competition and consumers.”
The FTC singles out the abuse of Tesla in particular, stating:
The prohibitions on direct sales in Missouri and New Jersey particularly affect Tesla Motors, a relatively new entrant in the auto market that has been prevented from selling directly to consumers, the staff comment states. But their effects are likely more far-reaching.
The FTC goes on to conclude that the legislatures for the states of Missouri and New Jersey should “permit manufacturers and consumers to reengage the normal competitive process that prevails in most other industries.”

We have the feeling that National Auto Dealers Association (NADA) won’t take too kindly to the strong wording from the FTC. When the FTC’s pro-Tesla blog was posted last month, the NADA responded by claiming that “the fierce competition between local dealers in a given market drives down prices both in and across brands” and that “buying a car isn’t like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold.”
The NADA, which represents nearly 16,000 auto dealerships and 32,000 franchise locations, will likely also respond to the latest comments from the FTC, and we will provide you with an update once a statement is provided.

Source: Federal Trade Commission

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RE: to the NADA, Thanks but no thanks
By BRB29 on 5/20/2014 11:17:27 AM , Rating: 3
Middleman = higher cost

We have way more than 3 automakers now. We don't need middlemen to drive competition.

Direct sales should increase competition and lower costs. Everyone can have access to every make and model. We're not limited to whatever dealer is available.

NADA's argument make no sense.

RE: to the NADA, Thanks but no thanks
By Solandri on 5/20/14, Rating: -1
RE: to the NADA, Thanks but no thanks
By Spuke on 5/20/2014 1:23:29 PM , Rating: 1
Great points Solandri!

By Reflex on 5/20/2014 2:44:23 PM , Rating: 3
All of those use cases can just as easily be contracted out, they do not require middlemen or dealers to perform, and in fact those services are used by the dealers, they do not do these tasks themselves.

As I've pointed out before, middlemen can lower costs. If the distribution and marketing process for all the automakers is similar enough, substantial money can be saved by having a middleman consolidate those tasks. Rather than have 3 automakers run 3 of the same marketing surveys (one each), the single middleman can run a single survey.

This is already done. Surveys are contracted out (and are already done by the automakers, not the dealer chains which have an inborn bias). Many studies are done without being contracted by any specific entity and industry players purchase the reports. Middlemen really have no role other than reporting data to those running the studies, and there is no real efficiency to be gained here that has anything to do with whether you have middlemen or not.

Or rather than each automaker having to set up a trucking system to distribe cars to each major metro area, a single middleman could handle transportation for all the automakers.

Third party trucking companies already handle this, not the dealer chains. That is paid for by the customer in the form of the 'delivery fee'. There is no savings to the automaker or the customer by this.

Any time a task can be consolidated, that's an opportunity for a middleman to save the end customer money. Otherwise, you can carry the "middlemen are bad" belief to ridiculous extremes. Why should automakers advertise in newspapers and on TV? That's a middleman! They should each set up their own newspapers and TV stations to run their car ads. Why should you shop at a supermaket? That's a middleman! You should be buying each of your groceries directly from individual farmers.

You are mixing up middlemen and services purchased from third parties. They are not the same thing and they exist the same regardless of who is placing the service orders. If anything it is cheaper for the automaker to do these things as they have larger economies of scale than any individual dealer chain. Buying national advertising spots, for instance, is far cheaper than buying spots in every local market.

Whether a middleman would increase or decrease costs in this particular case isn't for the government or us on a web forum to decide. Just allow both, and the market will sort out which saves the consumer money and/or delivers better service.

This is exactly what is being asked for. Let the automaker decide if they want a dealer chain or not. Stop using the force of government to keep dealer chains in business. My personal bet is that dealer chains quickly collapse and service improves for everyone.

RE: to the NADA, Thanks but no thanks
By NellyFromMA on 5/20/2014 2:49:02 PM , Rating: 2
Middlemen involvement and task / workflow consolidation are distinct from one another.

Any task that can be consolidated and executed via a middleman can be done in-house as well, with your own resources (human or otherwise) and probably for less than the "contact" of out-side resources.

The only time I can perceive a net-gain of value for a single sale involving a 3rd party / middle man is when costs were shifted from the present deal to another deal, which implies harming another purchaser which is the crux of the issue; it isn't about one deal, its about the experience across the board.

It isn't whether or not "middlemen are bad" as virtually all generalizations are destined for failure.

Rather, it's the insight that when operations are brought in-house that make sense for a business' services / products that there is high likely hood for "synergy" by better utilizing any and all available resources in a way that is simply not possible with a third party.

Instead of two private entities seeking distinct profit margins you have one entity looking for a single profit margin that can be made to be less than the sum of the latter via synergy.

I agree with your main point overall though; let both models exist and see which consumers gravitate to. I just think there's a lot of reason to support the thought that direct sales can and likely would lead to better consumer experience and lower bottom-lines for consumers.

By Reflex on 5/20/2014 4:36:17 PM , Rating: 2
This entire situation played out in the PC market in the 80's and 90's. I owned a small shop at the time and reading the industry press (Computer Reseller News) it was interesting to see the focus on proving that the channel provided more value than just buying direct from Dell. Guess which one won that argument? Nowadays you are almost always better off just ordering direct, avoiding the disingenuous salesmen and getting better service even if its not always local.

By thesaxophonist on 5/20/2014 7:19:38 PM , Rating: 2
Exactly! It's a free market (in principle at least). Let the buyers decide. That's the easiest option, and the best one.

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

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