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Tesla Motors is facing a formidable opponent it may not have sufficiently appreciated: the auto dealers of America, and their state associations.
Tesla, you may remember, is selling its electric cars online, not through franchised, independently owned dealers, and delivering them directly to buyers from the factory.
In doing so, Tesla Motors [NSDQ:TSLA] has removed the two parts of car shopping that customers clearly hate most: haggling and buying.
Its Tesla Stores, it says, are simply educational showrooms where no cars are actually sold.
Dealer groups--who view the approach as a dire threat--do not believe this, and they are both changing state laws and suing Tesla to prevent the company from opening its stores.
By the beginning of this month, Tesla faced lawsuits in four states over its stores.
Conciliatory, polite
On Monday, Tesla CEO Elon Musk weighed in, posting what was for him a relatively polite, conciliatory response to those challenges on the company website.
"In many respects," he wrote, "it would be easier to pursue the traditional franchise dealership model," which would save Tesla money and broaden its distribution much more quickly.
The problem, he argued, is that any conventional dealer has a fundamental conflict in explaining the advantages of battery electric cars when they rely on gasoline vehicles for the bulk of their sales and profits.
The 2012 Tesla Model S is so different from any other car, he said, that consumers require a great deal of education before they can even start to think about buying.
That's what the Tesla Stores do, he wrote: let the public learn about the Model S from product specialists--who are not on commission--and, critically, about electric cars in general.
"Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again," Musk said.
Contrary to spirit of the law?
He acknowledged existing state laws and pledged that Tesla follows them. "We do not seek to change those rules," he wrote, "and we have taken great care not to act in a manner contrary to those rules."
In respect to two lawsuits filed against the company, he said Tesla believes they are "starkly contrary to the spirit and the letter of the law."
Musk noted that they were filed in one case by a Fisker dealer, and in the other, by "an auto group that has repeatedly demanded that it be granted a Tesla franchise."
He also noted that U.S.-style franchise laws do not exist elsewhere in the world, and described Tesla's plans for service facilities in some detail.
Laws in 48 statesIn 48 states, according to the National Automobile Dealers Association (NADA), franchise laws forbid or severely restrict the ability of automakers to sell vehicles directly to the public.
The specific wording of those laws varies from state to state, but most are based on the rationale that letting big automakers sell cars to customers would stifle competition.
And there's some history--from half a century ago--that supports the notion that franchised auto dealers may face unfair competition from factory stores selling the same cars.
Tesla Motors, of course, doesn't have a single franchised dealer.
It has only factory showrooms, and the only way to purchase a Tesla Model S is to order it online.
[UPDATE: Yesterday, NADA upped the ante. It said in an e-mailed statement it was seeking a meeting with the startup automaker to explore "serious concerns about Tesla's intentions."
Its chairman William Underriner told reporters the dealers' group "has 'a whole mess of lawyers in Washington' who work on state franchise laws," which presumably NADA could deploy in every state where Tesla has or seeks to open a store or service facility.]
Changing Colorado law
But dealers insist that Tesla's showroom workers are part of the sales process, even though they can't take money for cars.
They view that as a violation of state laws, and are fighting the company on several fronts.
In Colorado, for instance, the state dealer association got a bill passed in 2010 that amended the laws governing dealer operations and their business arrangements with automakers.
The bill, which was signed on March 22, 2010 and took effect immediately, prohibited Tesla from opening any further stores in the state.
As the association wrote in its 2010 End of Session Report:
An existing provision in Colorado law already prevented a manufacturer from operating a dealership so long as they were not [sic] franchised dealerships. This statue [sic] narrows provision [sic] so a manufacturer that has any dealerships in Colorado, whether franchised or not, is prohibited from operating a dealership.
A Tesla Store in Colorado had opened in 2009, spurred in part by interest in a then-active $42,000 tax credit for the purchase of a Tesla Roadster.
Asked for comment on the 2010 Colorado legislation, Tesla spokeswoman Shanna Hendriks said only:
Tesla’s business model was developed in the best interests of consumers and the advancement of electric vehicle technology. In doing so, we have worked closely with regulators to operate within compliance of all current state and municipal laws.
That's as close to a "no comment" as you'll get. Tesla currently has just one Colorado facility, in Lone Tree, south of Denver.
Dealerships: the best way to protect buyers
Two weeks ago, Tim Jackson, president of the Colorado Automobile Dealers Association, spoke at length with Green Car Reports on dealers' reasons for opposing the Tesla model and fighting its stores.
It's really, he explained, all about protecting consumers. He offered three different reasons for the group's action.
Have an opinion?
"It's really, he explained, all about protecting consumers."
Yes, everyone I know leaves a dealership thinking, gee, that dealership is really interested in protecting me and my interests rather than their own interests.
Large Animal Droppings.
Consider this: If Ford or Toyota owned all of their dealers, do you think you'd ever be able to work one of the dealers against the other to get the lowest price? NO. If you want to buy a new Ford/Toyota/Nissan/whatever, you pay the price they tell you or you leave.
Now imagine if all dealers were that way...would that be better? Maybe the service wouldn't suck so hard sometimes (*maybe*), but the pricing would undoubtedly be worse.
One other thing: it's hard to get decent service at my local Sears or Best Buy, both of which are corporate owned. If these were locally owned, they might be more helpful.
Compare that to this:
http://www.thecarconnection.com/news/1078681_car-customers-hate-haggling-more-than-anything
Scion is a better example, but much like Saturn, they're a bit player. It's hard to scale that model to the entire industry and assume it will work well.
Let’s not lose sight of the real goal here. And that is to maximize the value of the dollar for all parties concerned. If a car dealership can add value to the "next / extra" dollar being spent… they will survive in a free market.
Perhaps the words "protect us" are inappropriate, but dealers do fill some sort of beneficial role in the industry. They can be played off one another for best pricing, they can be counted on to contribute to the local community (when was the last time a large manufacturer sponsored a local little league team?), and because they are locally owned and managed they're more efficient.
As for your larger "it's all just economics" argument, that's only true if manufacturers create franchises. If they don't, dealers can exist.
Finally, I would argue that - much like politics - consumers get the dealerships they deserve.
then they ridicule you,
then they fight you,
Go Tesla!!
Dealerships protecting consumers!? Please! Am I the only one that thinks this doesn't pass the smell test? This from the industry that sells you unnecessary warranties and special under-coatings.
Traditional auto makers are just a bunch of hypocritical whiners, and are the true party guilty of anti-competitive practices. Our laws should not be protecting them at the consumer's expense.
We all know what NADA is protecting, and it's not the consumer. This is an association funded by dealerships, not funded by consumers. The arrogance of trying to tell us they are just watching out for our best interests is stunning.
Go Tesla!
In this Tesla are correct and it's a key problem for Nissan asking most dealers to sell a Leaf. Doubt many Leafs are sold, they are requested by determined customers.
I visited many Nissan dealers early this year in the hope to find a discounted 2011 Leaf. Salesperson are between clueless and blatantly biased against this car. I was repeatedly offered "alternatives" (ICE), etc. Dreadful experience.
Selling EVs (or supporting them in any way, by offering charging for example) is a direct conflict of interest for any dealership with a service department.
Nissan will have to address this somehow.
Avoiding the issue entirely is a very smart move for Tesla indeed.
Generally, the newest car in a class wins the Car and Driver "showdown". Well, the new Malibu actually did worse than the OLD Malibu, now GM is stuck with that design for the next 5 years. This is why we had to bail out GM; they have become more like a government run, inefficient albatross. There is NOTHING innovative at GM. I can't remember the last time I looked at a Chevy and thought, "Hey, that's a nice looking car". It's all about unions and money.
Tesla pricing is based on their costs, and desires to compete. They want to sell for enough profit, but at the same time have to sell low enough to gain market share. That is your bargaining point, think it is too pricey? Buy another brand.
I say, "Go Tesla!" The auto industry needs competition.
This model is much more like the Apple business model; corporate-owned stores therefore no unfair competition. This is just a bunch of union-driven failures using strong-arm tactics to stifle competition. When it comes to GM, it's the only way they can win, they clearly don't know how to produce a competitive product or run a business.
Of course, the guy who yells at you on TV about how this dealership or the next is willing to GIVE you a car... might need to look for a new job.
It will help your case significantly if you provide backup for your opinions. News stories or government statements supporting the notion that the laundry list of companies above is "faced with government defunding" might be a good start, for instance.
Have an opinion?Join the conversation!