Tesla Store in LAEnlarge Photo
Franchise lawyer Bellavia has another argument, though: that the states might have a legitimate public-safety issue because stores aren’t licensed dealers. “The advantage of a franchised system is that independent dealers have a vested interest in their business, with many millions of dollars invested,” he argues. “There is a financial incentive to abide by laws, and satisfy customers as the penalty is the loss of a huge investment.”
The Tesla buyer in states other than California “does not have the same protections, and may be told that they are dealing with a California company and therefore have a far more difficult time seeking redress,” Bellavia believes.
Franchised dealers are under contractual obligations to franchisors (either manufacturers or distributors), and accept legal liability under state and local laws applying to licensed dealers.
Dealerships bring dollars to the local economy
There’s also the fact that our franchise sales system, like it or not, pumps a lot of money into the economy and employs far more people than all of the automakers, combined, do directly. U.S. new-vehicle dealerships (there are about 17,540) employed a peak 1.1 million people in 2008, and with the economic recovery it’s on the rise again, to about 933,500 in 2011, according to the NADA.
The amount of money that dealerships bring to local economies is rather astounding as well. The average U.S. dealership in 2011 had an annual payroll of $2.6 million, split over 53 people, for an average annual amount of more than $49,000 per employee. Nationally dealership payroll totals $45.8 billion—11.7 percent of the total U.S. retail payroll. And on a local basis, dealerships provide extensive support to civic and charitable organizations.
2012 Tesla Model S SignatureEnlarge Photo
For now, no states or municipalities have decided to pick that fight with Tesla, and as a niche player Tesla doesn’t pose a major threat to the franchise system. And for Tesla, keeping it simple, keeping their overhead and liabilities low, and keeping its structure simple, is looking like a strategy for survival.
“We have the car; it costs a certain amount to build; and we have that margin, and we don’t give any of that up,” said Blankenship. “We look at it more as a retail model, as a business, where we will make a margin on each car, not 'How much can I make and put this car on the road?'”
“That’s how we’re going to bring cashflow into the company, to specifically do business like a retailer, not like an auto dealer.”