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FTC states that dealerships are scared of competition

It looks as though Elon Musk and the auto company he helms, Tesla Motors, just gained a few new friends. In a new blog post, the Federal Trade Commission (FTC) came out with guns blasting against states that have rallied around automobile dealers in an effort to prevent Tesla from directly selling vehicles to consumers.
 
The blog was written by Andy Gavil, the FTC director for Office of Policy Planning, Debbie Feinstein, director of the Bureau of Competition, and Marty Gaynor, director of the Bureau of Economics.
 
The blog post pointed out that times are changing and it’s no longer the 1900s. The officials point to the fact that just as consumers used to buy directly from local stores only to then move to mail-in order catalogs and now internet shopping, that businesses must adapt to survive.


Tesla CEO Elon Musk and President Barack Obama
 
“For decades, local laws in many states have required consumers to purchase their cars solely from local, independent auto dealers,” noted the FTC officials. “Removing these regulatory impediments may be essential to allow consumers access to new ways of shopping that have become available in many other industries.”
 
“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. We believe this is bad policy for a number of reasons.”
 
The officials also pointed out that Tesla poses no serious threat to auto dealers seeing as how it only managed to sell 22,000 cars compared to the 15 million total sold in the U.S. in 2013.


Tesla Model S
 
More poignantly, the FTC officials asserted, “These protections expanded until in many states they included outright bans on the sale of new cars by anyone other than a dealer—specifically, an auto manufacturer. Instead of ‘protecting,’ these state laws became ‘protectionist,’ perpetuating one way of selling cars—the independent car dealer.”
 
In the end, the FTC officials warned that dealers (and their lobbyists) should welcome competition in the auto sales space, and should not keep barriers to competition as the status quo, stating, “Our point has not been that new methods of sale are necessarily superior to the traditional methods—just that the determination should be made through the competitive process.”
 
“We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are—expressions of a lack of confidence in the competitive process that can only make consumers worse off.”

Updated 4/25/2014 @ 3:34pm
The National Dealers Association (NADA) has responded to the FTC officials with the following statement:

“For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands – while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power,” said Jonathan Collegio, NADA vice president of public affairs. “And 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.”

Source: FTC



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Good!
By SlickRoenick on 4/25/2014 8:20:06 AM , Rating: 5
Glad there is still SOME sense in Washington.

side note: is it just me, or does Musk look really, really pale in that photo?




RE: Good!
By Flunk on 4/25/2014 8:56:59 AM , Rating: 2
Yes, but in comparison to President Obama, the only other person in the photo, Mr Musk is very pale.


RE: Good!
By Solandri on 4/25/2014 9:27:34 AM , Rating: 5
It's a common problem when shooting pictures of black people together with white people. Cameras don't have as much dynamic range of your eye, so those pictures will usually turn out with the black person's face being too dark, or the white person's face being too light.

The same problem exists when shooting wedding photos (bride in white, groom in black), or portraits of Asians (usually the black hair turns into a featureless inkblot). Back in the film days there were a wide variety of low-contrast films designed specifically for high dynamic range to counter this problem. In digital, the best way to counter this is with HDR. But if the pic wasn't shot in HDR, the best you can do with a quick edit is to tweak the levels curve. (The correct solution would be dodging and burning, but that potentially violates the standards set by most news organizations for photojournalists.)


RE: Good!
By Reclaimer77 on 4/25/2014 10:13:59 AM , Rating: 2
Musk looks pale because he IS pale...


RE: Good!
By Lord 666 on 4/25/2014 1:31:29 PM , Rating: 5
Musk looks like he is asking Obama out on a date.


RE: Good!
By Samus on 4/26/2014 3:10:42 AM , Rating: 3
Well, he probably is axing him for a favor.


RE: Good!
By GotThumbs on 4/28/2014 9:15:09 AM , Rating: 2
Musk knows how to stroke Obama's ego. "You catch more flies with honey than you do with vinegar."

At the end of the day, Musk is the REAL mover and shaker IMO.

How many other companies have paid off their federal loans as fast as Tesla did?


RE: Good!
By GotThumbs on 4/28/2014 9:07:58 AM , Rating: 2
Musk spends less time on the Golf course and more time in his office/businesses. Thats how Musk built his businesses and is so successful today.


RE: Good!
By EricMartello on 4/30/2014 6:30:10 PM , Rating: 2
Are you one of those 'know it alls' that likes to read himself write? HDR for press photos? No, and please, get a clue before you start spouting off nonsense.

The DSLR cameras that journalists would be using, like the Canon 1DX or Nikon D4, have more than enough dynamic range to correctly capture colors in a relatively neutral scene such as the one in this article. Musk is pale, probably because he spends a lot of time indoors.


RE: Good!
By Reclaimer77 on 4/25/2014 9:05:29 AM , Rating: 3
It's just someone blogging their opinion, not something with teeth to it or a Congressional bill.

We're a long way from getting movement on this issue. And while I believe what the States are doing is wrong, I would be reluctant to support Federal action forcing the States to change these policies directly.


RE: Good!
By KFZ on 4/25/2014 12:44:16 PM , Rating: 4
If you're not prepared to get the great middle man (the federal government) involved when states are using their power to literally block competition in an industry the fed has continually been involved with (Cash-For-Clunkers, EPA fuel economy standards, bail-outs of US automakers), just what the hell is the Fed for?

Now I'm as purist as they come when talking 10th amendment, States rights, but the States do *not* have the authority to enact anti-competitive laws to preserve a business racket and block business owners from rights to sell their own products.

This isn't like being a developer for Apple where it's their house, their rules. It would be like big box retailers getting governors to close Apple stores and block website orders.

I'm sorry, maybe it's just me, but when I'm in the market for a $1000 laptop the first thing that springs to my mind isn't "Gee I'm glad *Wal-Mart* sells computers, I don't trust those manufacturers!" And when I take out a warranty I sure as heck don't thank my lucky stars that the Geek Squad is there to save me from getting *screwed*; I trust anyone behind a counter knows what they're doing...


RE: Good!
By Reclaimer77 on 4/25/2014 1:15:03 PM , Rating: 1
quote:
but the States do *not* have the authority to enact anti-competitive laws to preserve a business racket and block business owners from rights to sell their own products.


The FDA does NOT have a right to enact anti-competitive policies to block business owners from rights to sell their product.

See what I did there? It's a matter of perspective. This issue isn't as black and white as you make it out to be. From the NADA's perspective, they are protecting consumers from bla bla bla. Sure it's a pile of crap, but it's legal crap.

Anti-Competitive? Again, that seems like hyperbole here. Tesla is allowed to compete all they want, as long as they follow the same rules ALL players have to adhere to. Is that truly anti-competitive?

Nobody is telling Tesla they flat out cannot sell vehicles in their state. Can we at least agree on that much?

I just have a problem with the increasing Banana Republic behavior of our Federal Government. We're supposed to be a Constitutional Republic with VAST States Rights, nay, State SOVEREIGNTY.

I want this changed as much as you do. I just want the legal process and rule of law to be adhered to. Not the FTC or whomever to take unilateral action.

This is an issue between the people, the manufacturers, and the States. And it should STAY that way. We cannot continue having the Federal Government involve itself in every goddamn issue.


RE: Good!
By Reclaimer77 on 4/25/2014 1:20:49 PM , Rating: 1
quote:
Now I'm as purist as they come when talking 10th amendment


And how can you say that? We haven't even heard what the Court's have to say about this yet and you're ALREADY calling for the Federal Government to steamroll the States!?


RE: Good!
By karimtemple on 4/28/2014 12:51:01 PM , Rating: 1
I often find you to be reasonable about things, but you're really on the wrong side of this one lol.


RE: Good!
By ven1ger on 4/25/2014 2:42:59 PM , Rating: 5
The rules that States are using to block Tesla from operating are anti-competitive as it creates a barrier to enter the market. It sets an artificial barrier to the market and prevents start-ups like Tesla from entering the market.

If this hits comes in front of SCOTUS, it most likely will rule against the States. Because it sets up a trade barrier within the State from a business in another State to do business. There are supposed to be no trade barriers between states. It is within the scope of the Federal gov't to regulate trade between states via the Commerce Clause.


RE: Good!
By Reclaimer77 on 4/25/14, Rating: 0
RE: Good!
By drlumen on 4/25/14, Rating: -1
RE: Good!
By ven1ger on 4/25/2014 5:13:51 PM , Rating: 5
Ever went to a state where the dealership is the only dealership to sell that particular car? In Hawaii, all the Toyota dealerships belong to one company. No options to get a better deal at another dealerships since same owner.

Does that mean that we should ban all internet sales, as internet companies can be considered not competing fairly in each state vs brick and mortar companies that have to maintain a physical location and pay local taxes on each sale. Brick and mortar companies have learned how to adapt by offering services, better pricing, incentives and even engaged in internet sales or closed up because they couldn't or wouldn't adapt.

The business models have changed, and using the law to prevent this only hurts the consumer.


RE: Good!
By captainBOB on 4/25/2014 6:23:12 PM , Rating: 2
You aren't very familiar with dealerships then, they share the podium with ISPs for the most anti-competative practices out there.

In many parts of Texas for example all the dealerships with different names are all actually owned by the same parent company. The different names are a disguise to make it seem like there is competition. When in reality there is no such thing.

In larger metropolitan areas like Houston where there are potentially 3 auto groups with hundreds of dealerships, the relationship between the companies is much more akin to ISPs than to actual competing businesses. There is no actual competition going on.

When you work for a dealership selling cars, your only objective in selling cars is to "protect the cheese", or in layman's terms: Sell the car for as high a markup as you can maintain, selling the car at MSRP is not an option. Everything else like customer service is lipstick on a very ugly pig.


RE: Good!
By Reclaimer77 on 4/25/14, Rating: 0
RE: Good!
By littlebitstrouds on 4/26/2014 12:53:42 PM , Rating: 2
How is it, that I can leave anantech for 6 months and Reclaimer is still trolling these boards with nonsense. Do you really not get how rich white guys have been influencing local policy for years.


RE: Good!
By wordsworm on 5/1/2014 12:03:16 PM , Rating: 2
I agree with you for once. I want to be able to buy my weed without any government interference. Unfortunately, the worst level of government for creating barriers to commerce are usually local: mayors and city councils are often the ones who overregulate to the point of suffocating the economy.


RE: Good!
By EricMartello on 4/30/2014 7:53:19 PM , Rating: 2
quote:
The FDA does NOT have a right to enact anti-competitive policies to block business owners from rights to sell their product.


I agree, the FDA has too much regulatory power which has resulted in a pay-to-play environment for drug companies, and to a lesser degree, people selling food or other consumable products. They were actually talking about relaxing some clinical trial policies to allow people to use experimental treatments without having said treatments "officially" cleared for human use - supporting the notion that their regulations are onerous and often without benefit considering how they stifle development for treatments of diseases and other afflictions.

quote:
See what I did there? It's a matter of perspective. This issue isn't as black and white as you make it out to be. From the NADA's perspective, they are protecting consumers from bla bla bla. Sure it's a pile of crap, but it's legal crap.


The word you're looking for is protectionism and this is just another example of it. I don't much care for electric cars in general, but Tesla should be able to sell them however they please and not be forced to set up a "dealer network" simply because that's what years of lobbying has produced. Legality is always subject to debate and open to interpretation.

quote:
Anti-Competitive? Again, that seems like hyperbole here. Tesla is allowed to compete all they want, as long as they follow the same rules ALL players have to adhere to. Is that truly anti-competitive?


I wouldn't use the word anti-competitive to describe this situation, but it is unamerican. Laws that cannot prove their worth or justify themselves by using objective, concrete data (not doctored stats and "expert testimony") should be struck down.

Being forced to invest in a dealer network rather than allowing factory-direct sales can be construed as placing an undue burden on Tesla, and without there being a demonstrable reason for doing so, they should be allowed to sell direct.

Of course, the benefit of having a dealer network is that you have a place to get your car serviced...so I'm not necessarily advocating their business model - but I'm saying they should be able to run their business that way if they choose.

quote:
Nobody is telling Tesla they flat out cannot sell vehicles in their state. Can we at least agree on that much?


Creating unreasonable stipulations on how a product can be sold is effectively banning sales.

quote:
I just have a problem with the increasing Banana Republic behavior of our Federal Government. We're supposed to be a Constitutional Republic with VAST States Rights, nay, State SOVEREIGNTY.


More fundamental than that, the laws and regulations of any government - state or federal - should follow the guiding principles of the constitution. Laws that got on the books because someone somewhere paid off a politician are not just laws.

quote:
I want this changed as much as you do. I just want the legal process and rule of law to be adhered to. Not the FTC or whomever to take unilateral action.


Protectionism is one result of cronyism, and it comes to pass by manipulating or circumventing the rule of law. To undo it "by the book" requires too much time and effort, all for an uncertain result. These kinds of laws simply need to be evaluated by objective entities that DO NOT have a conflict of interest, and struck down or upheld on their merits alone.

quote:
This is an issue between the people, the manufacturers, and the States. And it should STAY that way. We cannot continue having the Federal Government involve itself in every goddamn issue.


True, but an issue where the fed gets involved to ensure the playing field isn't stacked against newcomers (as it is within the auto industry) is one task that the fed should be involved with.


RE: Good!
By hpglow on 4/25/2014 6:59:52 PM , Rating: 2
He looks like a vampire about to dine.


FTC
By RobertFahey on 4/25/2014 10:32:53 AM , Rating: 5
I hope the FTC acts as a body and issues a ruling or statute on the subject. So far this is just a blog post co-signed by three members, not any official edict. I suppose it's a little better than the co-signed letter last month from a posse of 70 law professors and economists, but an official stance from the FTC would be nice.

On the other hand, does "banning" brick and mortar transactions in four states really hurt Tesla numbers? Probably not. The resulting debate probably HELPS via free advertising, frankly. I wouldn't mind seeing the headlines continue.

www.teslamondo.com




RE: FTC
By Reclaimer77 on 4/25/14, Rating: -1
RE: FTC
By Rukkian on 4/25/2014 11:45:11 AM , Rating: 5
I actually agree with what you are saying, and understand it should be the state's perogative to limit dealerships (even if I think it is anti-competitve and has bribes written all over it).

There is one place where I do think it is the FTC that should be involved, and that is if you order online, and it is coming from another state, it is not really the state that should regulate it, it is the federal government. Interstate commerce should be regulated at the federal level imo.


RE: FTC
By LRonaldHubbs on 4/27/2014 11:35:03 AM , Rating: 3
Godwin alert! Your argument is ended before it even really started.


RE: FTC
By Nutzo on 4/25/2014 11:08:51 AM , Rating: 2
I can see a reason to not allow a manufacture making direct sales to become dominate in a specific state. If GM was selling direct, and had 80% of the sales in a state, the lack of competion would give them a virtial monopoly.

However, I don't see this happening with Tesla (at least not for a very long time). As much as I would normally defer to states rights, this is an interstate commerce issue. I thing they would require states to allow direct sales as long as the manufacture's market share is below some number like 10%.


RE: FTC
By amanojaku on 4/25/2014 11:28:51 AM , Rating: 2
quote:
If GM was selling direct, and had 80% of the sales in a state, the lack of competion would give them a virtial monopoly.
This makes no sense. If GM sold direct, how would that prevent other companies from selling direct?

If everyone sold direct and GM ended up with 80% of a market, that would imply GM did something right in its design, manufacturing, pricing, and advertising. On the other hand, if 80% of the cars sold through dealers were GM, it could be because GM illegally gave dealers incentives to favor its cars. It's much easier to manipulate a few hundred car dealerships in a state than it is to manipulate a few million people.


RE: FTC
By Piiman on 4/26/2014 12:25:16 PM , Rating: 2
Agree
Anyone thinks a middle man that jacks up prices so they can pretend to give you a deal later is a good for consumers are nuts.

Do you really think dealerships are fighting this for our good?


RE: FTC
By Belegost on 4/25/2014 12:08:48 PM , Rating: 2
How would it make a difference if GM got 80% of the car market through direct sales or through dealership sales? There's nothing preventing GM from grabbing 80% of the market right now - well, except for Ford, Toyota, Chrysler, Honda, Nissan, Subaru, etc. etc. etc...

And provided that GM got such a dominant position through legitimate means, then more power to them, they must have provided cars with pricing, features, reliability and marketing that served the consumers better than their competition.


RE: FTC
By sadsteve on 4/25/2014 12:56:23 PM , Rating: 2
Hm, would GM having a direct sale virtual monopoly in any way prohibit some other auto manufacture from entering the direct sales market? If so, please enlighten me.


RE: FTC
By Nutzo on 4/25/14, Rating: -1
RE: FTC
By Jeffk464 on 4/25/2014 1:11:20 PM , Rating: 3
Which of the two guys pictured is actually from Africa?


Free Market
By Flunk on 4/25/2014 9:02:47 AM , Rating: 3
Score one for the free market system.




RE: Free Market
By SuckRaven on 4/25/2014 11:00:47 AM , Rating: 4
Yeah. I really don't understand how selling one thing vs. another should be regulated in as far as "how" the system of distribution should work.

Selling Tesla car should be no different than selling lemonade from a lemonade stand. However, I guarantee, that if middlemen found a way, they would insert themselves between the lemonade stand and then end buyer. No different with cars. This model of dealerships maybe works, because it is a model that has been around forever, and because all of the major kinks have been worked out. It is still the case, that it is basically a union of corrupt cronies.

As a corollary, no one seemed to complain that Apple opened up Apple stores even though you can buy Apple products elsewhere. The funny thing, is, Apple products are no cheaper despite the location.

Mr Musk is not only trying to avoid then middleman, but also bring more affordable prices to customers for his product. Of course he is encountering fierce opposition from the entrenched parties that are raking in profits hand over fist with the current system.

Funny too, how his SpaceX venture is going really well, and NASA relies almost exclusively on it (Other than Russia) now that ObiWan has dismantled the space program. Well, Russia seems like a political suicide, because we have to be mad at them because of the whole Crimea thing, or else ObiWan will cut our funding even more.

http://www.anandtech.comwww.dailytech.com/NASA+Cut...

Oh curruption and politics...........it's like bread and butter.


RE: Free Market
By SteelRing on 4/25/2014 12:18:17 PM , Rating: 2
He might be looking for a new job soon. Did you think the dealerships are going to take this punch and move on? Hell no, their lobbyists are busy digging dirt on this guy now and sending them over to he senators and congressmen on their payrolls. At best he'll be resigning soon with a fat new job dragging him away from these policy making business, at worst they'll throw him under the bus and leave him to rot and die.


What?
By Piiman on 4/26/2014 11:56:18 AM , Rating: 3
"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.”

Hmmm and what does a dealership have to do with any of that? The dealer didn't check or sell me Insurance, the Dealer while they can get financing isn't the only way and generally rates are higher than you can get elsewhere, The dealer never checked my license nor do you need one to buy a car anyways, the dealer didn't remove any hazardous material, heck they probably added a few...so WTF are they trying to claim here?

LOL Seems like they are grasping at straws to maintain their monopoly to sell cars.




RE: What?
By gacneaux on 4/26/2014 12:58:33 PM , Rating: 1
direct selling from the net kills jobs. dealerships employ sales people and office people and mechanics. think about that. kill more jobs through the internet.


RE: What?
By Mr Perfect on 4/26/2014 1:22:11 PM , Rating: 2
Tesla wants to open their own stores though, that's what this whole fight has been over. These jobs would just move to a company dealership.


this is terrible
By gacneaux on 4/26/14, Rating: 0
RE: this is terrible
By dfedders on 4/27/2014 12:14:43 PM , Rating: 2
Oh no! We need to stop these digital cameras and camera phones too! They are killing the film business! What will the people who work at Kodak do? They are killing jobs!

If the auto manufacturers sell cars direct, they will still need to hire people to sell the cars. Sure, Crazy Bob's Auto Depot may go out of business, but other jobs will be created.

I'm fine with getting rid of the "middlemen". Realtors included.


RE: this is terrible
By 1prophet on 4/28/2014 8:01:53 AM , Rating: 2
They are probably still lamenting over Blockbusters demise while pointing the finger at Netflix and Red box.


Constitutional Slam dunk
By ptmmac on 4/25/2014 6:23:27 PM , Rating: 3
There is no way that the FTC can stand by and let this blockage of interstate commerce stand. Reclaimer77 is off his rocker if he thinks the states are doing this because of democracy. The only reason this is happening is because the dealerships have bought all the votes in the state government to keep out competition.

You can actually watch in real time how they are buying off individuals. New Jersey reversed course on this issue simply because the Governor got in trouble with the bridge traffic scandal that broke about how his staff was attempting to use bridge closings to hurt politicians who did not do what the Governor wanted them to do.

The reason the tenth Amendment is the weakest in the Bill of rights is local control was always the cheapest and easiest to buy. That may have changed. If it does I will support the application of the 10th amendment to fix the problem. We have a system of checks and balances that are supposed to create firewalls between different branches and levels of government to make corruption expensive and difficult. If it smells rotten, then it usually is rotten especially where politics is concerned.




duh
By Motoman on 4/25/2014 6:57:00 PM , Rating: 2
quote:
FTC Backs Up Tesla, Says States Shouldn’t Block Direct Auto Sales


File that under "No Sh1t Sherlock."

Everyone who thinks there's the tiniest possible bit of validity in laws that force auto sales to go through a middleman need to be removed from the gene pool. Their stupid might be contagious.




Fallacy
By futrtrubl on 4/26/2014 3:33:31 AM , Rating: 2
quote:
while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power - See more at: http://www.dailytech.com/UPDATE+FTC+Backs+Up+Tesla...


Except the factory can already set the price they sell to the dealers so... what's the dif?




By sweetca on 4/27/2014 9:24:24 PM , Rating: 2
That is all.




To The Highest Bidder
By drlumen on 4/25/14, Rating: -1
RE: To The Highest Bidder
By Brandon Hill (blog) on 4/25/2014 11:58:22 AM , Rating: 3
There are Tesla service centers located across the country and the world.

http://www.teslamotors.com/findus


RE: To The Highest Bidder
By Belegost on 4/25/2014 12:01:53 PM , Rating: 4
And even if it was the case you had to send it to California for service, that's something you would know when you buy the vehicle, if you decide to buy it anyways then you deal with the situation you bought into.

If you don't like it, buy a different car with local service centers...


RE: To The Highest Bidder
By kyuuketsuki on 4/25/2014 12:00:05 PM , Rating: 4
Whether or not you'd be able to get the car repaired is something for you to consider before you buy the car. It's certainly not an argument for not allowing direct sales. You could also consider the fact that electric cars require far less maintenance than ICE cars.


RE: To The Highest Bidder
By ven1ger on 4/25/2014 2:52:25 PM , Rating: 2
For anything you purchase off the internet, you'd want to know what you have to do if it is defective. If you have to pay for shipping back you typically factor that into your purchasing decision.


RE: To The Highest Bidder
By captainBOB on 4/25/2014 6:24:56 PM , Rating: 1
Tesla provides you a temporary replacement Model S while yours is in service.


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