The Real Reason Why Dealer Associations Continue to Battle Tesla Motors Has Nothing To Do With Tesla

JAN 2 2014 BY ERIC LOVEDAY 38

The battle that Tesla Motors continues to face with various state dealership associations is starting to bore us.

It’s the same story over and over again with the only real difference being the name of the state involved.

Sample Tesla Store

Sample Tesla Store

Sure, Tesla has won some battles of note (and lost some too), but Tesla has shown that whether or not it can legally sell in a state is basically a non-issue.

Take, for example, Texas.  Though Tesla Motors legally can’t sell its vehicles from within that state’s borders, Texas is one of Tesla’s top states in terms of registered Model S sedans.

Tesla’s work-around (sell in a nearby state that allows Tesla to operate its way and deliver the vehicle from an out-of-state site) shows us that dealership laws within a particular state might make it more difficult for Tesla to operate there, but we fail to see how those dealership/franchise laws have restricted sales.

So, why do dealership associations continue to battle Tesla Motors?  The answer is simple.  John O’Dell from Edmunds.com stated it best in a recent Columbus Dispatch article:

“What’s the real fear? That other (automakers) will follow in Tesla’s footsteps.”

That’s the only reason that dealer associations continue to battle.  If it were only Tesla to be worried about, the associations would let it go.

In the end, the battle really has nothing to do with Tesla.  It just so happens that in their attempt to deny Tesla, dealer associations hope to prevent any future automaker from doing it how Tesla does it today.

O’Dell adds:

“Dealers have a lot of clout.  They have a loud voice and are huge income generators in most states.”

It always ends up to be about money.

Source: Columbus Dispatch

Categories: Tesla

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38 Comments on "The Real Reason Why Dealer Associations Continue to Battle Tesla Motors Has Nothing To Do With Tesla"

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Dave K.

Because it’s always about money, “if you want to know why something is the way it is follow the money”, pretty much everything, including every war. Why didn’t we get EVs back in the 70s when we had our oil cut off? Too much money would be lost. Why did Chevron buy the Nimh battery patents and sit on them? Why did all the OEMs take their EVs back and crush them in the 90s? Same answer.

Aaron

Not every war. Many wars are based on differences in religion. Money and religion: The two evils of the world.

Model S

good thing im not religious

Aas

good for whom? for you surely isn’t.

EVMD

I’m sorry I am lost this is about laws in China of USA?

brg2290

Do you mean to ask…”this is about laws in China or USA?”

The article references Texas, as in USA. Nowhere does the article mention China.

David Murray

I thought this was pretty much common knowledge.

Tom Moloughney

Yes David I think most knowledgable about the subject understand this. However you still see occasional comments and even articles about how the NADA is afraid of disruptive technology and wants to suppress electric cars which is not the case. They would welcome Tesla and anyone else as long as they agree to use their model where the middleman(them) gets their cut.

Nix

Tom, the problem for car dealerships, is that they don’t think they will ever get their cut on EV’s. Because the trend in gas car dealerships is to make more and more of their money in their Parts and Service departments, not in their new car sales department.

The idea of an electric vehicle that needs very little maintenance and repairs scares the heck out of these dealerships.

For example, according to their SEC 10K filings, Autonation dealerships get 63% of gross profits out of their Parts and Service Dept.

http://www.businessinsider.com/the-surprising-source-of-car-dealers-profits-2012-2

KenZ

I see your point, but I still think Tom and the author are right. While an EV certainly takes away much of the dealership income, if the dealership is a REQUIRED middleman, then they’ll just up the price accordingly for EVs. They’re not so dumb as to lose amortized money/profit margins.

And I doubt that conventional dealers really think EVs are going to ever be that significant of a market segment. You and I might disagree with that, but for at least the next 10 years, that kind of thinking is largely correct.

Lou Grinzo

Yet another example of how our transition to cleaner, better energy usage is hampered by infrastructure issues. Instead of the obvious things we talk about all the time, like the hideous expense of building a network of hydrogen fueling stations, for example, this is an entrenched business model that won’t willingly yield to change.

MrEnergyCzar

They don’t want low maintenance electric cars sold, less need for the dealer service infrastructure…

MrEnergyCzar

Rick

I wonder why Musk doesn’t just establish an independent dealership network?

Darkj

Less control, less margin, less quality.

brotherkenny
Far higher costs, and less control over the message. Not to mention that dealers are independent businesses that may or may not (mostly not) be honest. Their honesty or more often dishonesty is attributed to your company (whatever car company you are). For instance, GM dealers are notoriously dishonest (and many others too) and for some, like myself, previous lies and attempted cheats by GM dealers makes me not buy GM products. While that may seem unfair, since the dealerships are actually not part of corporate GM, I think my only recourse for such dishonesty is to boycott GM products. I know I have made several complaints to banks and better business bureaus, but those organizations are more about theft and cheating that GM. So the only option for a bit of justice is to not buy the products. With EVs, the early sales will be hard enough even without the dishonest dealers. While some dealers might be able to manipulate sheep into the EVs, that kind of dishonesty does not help EVs in general since it just creates the impression of falseness that EVs cannot afford. The way to make EVs work is to sell them to people who… Read more »
PJS

Musk has everyone paying full MSRP for every Tesla sold as well as service agreements and parts such as wheels and tires. Why would he mess that up?

Nix

Actually, if you want to buy a Model S directly from Tesla at a discount, you can buy one of their service loaner cars for less than MSRP:

“The loaner cars will also be available for “immediate purchase,” Tesla said, with the aim of avoiding an “aging fleet of overused cars.”

“The loaners will be available for immediate purchase at a price that is lower by 1 percent per month of age and $1 per mile,” Tesla said in a statement.

http://www.edmunds.com/car-news/tesla-service-loaner-fleet-to-include-fully-loaded-model-s-tesla-roadster.html

PJS

So Musk controls the price of used Teslas, too. Nice work if you can get it!

Nix

No, nobody controls the price of pre-owned Tesla’s. These are cars that have not been sold yet, that have been used as service loaners. Don’t be THAT troll…..

PJS

A “service loaner” is used car sold with a new title. Clever!

SeattleTeslaGuy
The auto dealers don’t fear new technology – they are happy to sell anything that people want to buy. The big auto makers fear the EV as a disruptive force but the dealers don’t care about it other than if they backed the wrong horse. EVs aren’t eating into their profits now and nobody ever accused them of having long term views. No, the thing the dealers fear is disintermediation – or, more prosaically, being cut out as the middle man. If an automaker can sell directly to the public then the dealers stand to lose sales. This is a pretty simple and obvious concept. As to the claim that they will lose service revenue – that is a secondary problem but there will always be factory authorized service locations and a dealer stands a much better chance of retaining that than Joe’s Service down on the corner. And, EVs may not need as much service but they make up for it with much more expensive service – I suspect the total service revenue per car will be a wash. I’ve said this many times, the Tesla sales model is as much a disruptive item as their technology. There is… Read more »
James

I ordered exactly what I wanted… it took Ford 5 months to build and deliver it. Two weeks ago they dropped the MSRP $4000. I hate the sales process where there isn’t one price for the same thing. Luckily, there are 3 major Ford dealers near each other so I could start a bidding war, it was a pain, but I cut the price of the car a few thousand. The whole process is Ford sells the car to a middleman that isn’t the same price everywhere.

The consumer looses out by never know the price. Two people on the same day can get different prices for the same vehicle based solely on their skill in negotiation.

SIvad

Dealership laws don’t state that an independent dealership has to be affiliated with NADA. Couldn’t Tesla help set up a shell dealership franchise network following the letter of the law. They could then intentionally sell their cars to the dealerships at a loss so that the dealer could mark up the price to standard MSRP. Then the franchise contract would state that the dealers at the end of the year would pay a franchise royalty of a certain percentage of total sales back to Tesla Motors. Subsequently that percentage would be the difference of the mark down from Tesla per car sold. That mark down from Tesla would also include just enough left over for the Franchise to pay salaries to staff and owner and for building maintenance, operation, etc. which Tesla would have to pay for anyway if they owned their own sales and service centers.

SIvad

I know that doesn’t totally make sense but I guess what I’m trying to say is that there might be a way to create a shell franchise that follows the law but through franchise contracts would eliminate any profit from the shell dealer. The shell dealer would go into business with Tesla being aware of this and in return would still get paid a salary just like they would if they worked at a Tesla owned service/sales center. Tesla might even act as the lender to provide the “loan” to build the franchise lessening the financial risk to the owner.

bennyd

The internet is a powerful tool.

James

It’s been a boon for the consumer’s ability to deal, but the model is still disadvantageous to the consumer.

scott moore

Their correct that the war started long before Tesla. With the arrival of the internet, and price shopping for cars there, the dealers have had the sword hanging over their heads that the car makers might just take sales orders online and bypass the dealers. Its pretty much the same thing with all merchandise these days.

Chris O

Nonsense, the franchise dealers are well protected by the franchise laws against their suppliers changing their retail model. Nor is it apparent why they would choose to do so , it works well for ICE vehicles. Not so for EVs however. What the dealers could achieve by forcing Tesla into a retail model that doesn’t suit its product is that Tesla loses its competitive edge. I’m sure that’s welcome for those dealers that are facing tough competition by Tesla in the luxury sedan class with more competition in lower class cars to come.

Dwayne

Buying only custom built cars is the future. And that is the real issue. Brick store fronts do not provide enough value for what they cost us. If ya want a nice pair of jeans, you go to the store and get scanned and the factory will send them out custom fit the same day. Can you hear us NADA? Ya need to buy a scanner! Either earn your pay or get out of the business.

Dwayne

There one thing I don’t understand…… It seems to me that the franchise laws are blatantly unconstitutional and NADA would be scared to death to have them tested in the supreme court. Am I missing something about interstate commerce and the constitution? I am a engineer not a lawyer ……

Nix

The Supreme Court has upheld the franchise laws multiple times, sometimes with 9-0 decisions dating back to the 1970’s.

These laws were originally designed to protect the rights of existing franchisees (dealerships) against unfair competition from the car makers. This made sense back in the 1950’s, where the US had just gone through a decade of new car companies trying to break into the automotive industry in state after state. It was too easy for a car maker to get franchisees to do all the hard work breaking a new car company into a new market, and then force them out of business by jacking up their wholesale costs while undercutting their sales prices in the car company’s own stores.

Tesla argues that since they have no existing franchisees, these laws don’t apply to them. This has been a winning argument in some states already, as it should be everywhere.

Nix

Dwayne, this also isn’t an interstate commerce clause case, because these are all State laws. The federal interstate commerce clause simply doesn’t come into play. SCOTUS has upheld these State laws as constitutional under each State’s law and order authority. This is the same State authority that would ban bait-and-switch sales tactics.

As originally intended, these laws worked under the same sort of principle as a law banning bait-and-switch sales tactics. The bait being offering the dealerships a franchise to sell their cars, and the switch being the car makers coming in and undercutting the ability of the franchise to sell any cars by competing unfairly against them using the car maker’s own stores.

What makes this similar to a bait and switch is that the car maker has 100% control over both the wholesale price the dealers must pay, and the retail price that the car maker charges in their own stores. This is what makes it unfair competition.

Dwayne

Thanks for the explanation …….

Foo

This is news? It was always obvious dealers were afraid of losing their place in the food chain, not specifically opposition to Tesla, or EVs. Although there probably is something to be fact that EVs are not likely to be maintenance cash-cows either, but I think this is secondary. Dealers are mainly worried about losing their reason to exist.

Stimpacker

Tesla should keep fighting/working around dealership law restrictions. The dealership folks’ biggest yap is how they are pro-consumer and how you can let them bid against each other. That’s the biggest BS ever. There are so many times I walked into dealerships and saw “Dealer Markups” added to the selling price of popular cars. Even Pontiac, in its death throes, had markups on the Solstice. Politicians are stupid. Sales tax are still paid, so nobody’s really losing any revenue.

Nix

I always get a good laugh when dealerships start talking about how they are there to protect consumers!!

Koz

I don’t blame dealers for being alarmed and trying to protect “their own”. Nearly everyone would do the same in their shoes. I blame the states and politicians for accepting their feeble argument. They are correct, in that their business model is at risk and it is not so much Tesla itself. The risk is direct sales succeeding. They know others will follow and GM, Ford, etc will try to setup a new unencombered brand to use the direct sales model. That is where the dealers real battle will be and one they could actually make a meaningful (albeit losing IMO) argument against. They should be concentrating on tightening the legislation against JV’s and other business entities that existing car manufacturers may try to use instead of drawing the line in he sand against a true independent like Tesla. Although Daimler and Toyota do have stakes in Tesla and that could be a weakness in Tesla’s argument but they are minority stakes.

Martin Tesar

Would be terrible for dealers to experience another method that give more value and honesty to consumers now wouldn’t it SHOCK HORROR ! …. it always about the money … 🙂