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Tesla Faces Tough Regulatory Hurdle From State Dealership Laws
First time accepted submitter vinnyjames writes "States like Arizona, Texas, Massachusetts and North Carolina either have or have recently added legislation to prevent Tesla from selling its cars directly to consumers. Now there's a petition on whitehouse.gov to allow them to sell cars directly to consumers." Laws that protect auto dealerships aren't newly created for Tesla, though, as explained in this interview with Duke University's Mike Munger.
I think we've just figured out what the next big thing is. Mercantilism should have disappeared centuries ago.
Now? The petition has been up since June 5th. I guess this is a last ditch effort to get signatures as it's over 44K short.
I've seen your face before .. back when Michigan fought Japan through legislation in Washington DC. How have you been? I see you are on the rise again as people pretend you're their last, best hope.
A feeling of having made the same mistake before: Deja Foobar
Tesla victory in NC
go figure...once they go on test drive....they love it.
There are two kinds of people in my town: those who work at car dealerships, and those who would rather go to the dentist than shop for a new car.
There are plenty of people who would like to purchase a Tesla if they had the means, and Tesla has lower-priced cars on their roadmap. Just because this wouldn't affect someone right now doesn't mean they shouldn't support it for when they need it. It's the "first they came for X, but I said nothing" scenario. Just because you're driving a gas car now doesn't mean you shouldn't support Tesla or any other EV maker. I'm sure the various auto dealer associations would love to get a bunch of laws passed in their favor before Tesla releases their lower-priced models in a few years. If you don't want to see that happen, then now is the time to speak up.
"Our two-party system is like a bowl of shit looking at itself in a mirror." - Lewis Black
Impossible! North Carolina and Arizona, at least, are libertarian paradises - very "business friendly" - that would _never_ pass legislation interfering with markets or freedom to contract. Never! There must be some misunderstanding.
sPh
If they want to be really cool about it, they could have someplace you could deposit $50000 worth of bitcoins and have the car delivered directly to your doorstep.
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
Just because I'm not interested in buying an electric car (and don't live in one of the states affected by this) doesn't mean that I don't have a horse in this race. What's at stake here is the ability of ordinary people to buy whatever brand they want even if the only way they can do so is by going directly to the manufacturer. Being required to go through a dealership is a form of restraint of trade, and when the merchandise comes from another state, that makes it interstate commerce. Everybody who's concerned with the rate at which the current administration is eroding our rights has a horse in this race, not just those who want to buy a Tesla car.
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Three things,
Middlemen don't like being cut out. those that try find themselves cut.
Manufacturers, factories, etc don't want the headaches of dealing with uniformed idiots. Ever work a computer Hell desk? yea that has been going on for as long as we have had machines. The average person is barely above being an idiot and half the population is dumber than they are. I have explained the same thing to the same person 30 times in the last 3 months she still doesn't get it. She can't open her mind up to possibilities other than what she already knows.
Lastly, Middlemen provide slack, and options for the supply chain. In today's tight supply chains they are even more important than ever. As if the factory doesn't have your part your stuck unless your lucky enough to have a middleman with extra.
i thought once I was found, but it was only a dream.
Manufacturers, factories, etc don't want the headaches of dealing with uniformed idiots.
If manufacturers don't want to deal directly, they why do we need laws prohibiting them from doing so?
Middlemen provide slack, and options for the supply chain.
If middlemen really added value, then customers would be willing to pay for that value, without government coercion.
Planet Money did a great piece on dealership laws awhile back, talking about a startup that wanted to sell cars directly, and how insurmountable the obstacles they faced ended up being.
It is a solemn thought: dead, the noblest man's meat is inferior to pork.
From what I understand, Elon Musk wants to control the Purchase Experience as close as Apple does with their computers.
Remember the time before Apple Stores? When you went into a computer store to buy a Mac, the sales guys would try to sell you anything else but not a Mac. Because it was so much easier for them.
With the Apple Store, that all changed and the purchase experienced is fully managed by Apple.
Elon Musk, being an adherent of Steve Jobs' approach, also wants to display his products in the best possible way and he believes that only sales people who exclusively sell Tesla cars (i.e. stores that only sell Tesla cars) can sell it right and that these people should then be also employed by Tesla Motors.
I get that and if I was him, I would do the same. This is really a crucial time for Tesla (and electric cars in general) and I wouldn't want any GM, Ford or Chrysler-sales person trying to sell my cars - next to all the other cars he has on display...
So, why not allow the option of middlemen, and the option of direct sales. If what you say is true then middle men will foster a better experience, capitalism will prevail, and companies dependent on direct sales will falter.
Right?
This signature is false.
It's not forbidden in the U.S. by the national (federal) government. Some local (state) governments do forbid it to protect a class of people called "car dealers".
Why you ask? Same reason the British forbid Indians from making their own salt: to protect the profits of a certain group. It's not unique to the U.S., I'm sure it happens all over the world. Is it fair? No it isn't.
And where was the political outrage towards Apple when they opened their own stores, for causing "unfair" competition with the other retailers?
(Obligatory computer analogy in this car thread.)
The manufacturers of other cars have to sell through dealers because of these laws, and they don't want Tesla to have an advantage, and the existing dealers want a chance to become dealers for Tesla so they can get a share of that action.
The average person is barely above being an idiot...
I admire your optimism.
Thus the laws were originally intended to protect consumers on the local level. Now, especially in the face of subversive business models like Tesla's, matters have changed. Local dealers are in closer league with manufacturers, the latter often even providing financing for purchases. The arrangement is mutually beneficial: manufacturers can prevent upstarts like Tesla from getting a foothold in the market; dealers, acting as middle-men, can reap the rich benefits of rentseeking through powerful lobbies targeted toward state governments. N.b., however, this arrangement does not prevail in all states.
Thanks for the answer.
I probably was not accurate enough in my question. Question was rather "how this happened and still happens..."
Now, a little search provides a really good link I found: http://www.justice.gov/atr/public/eag/246374.htm
I thought there was a real reason historically but it just seems that car dealers effectively lobbied their state governments to introduce these "Franchise Laws" after they were established. And it was in order to "... protect their investment in real estate and showrooms, etc..." - So, as you said, the traditional protectionist malaise as everywhere (reminds me of the stupid solar industry in Europe which actually managed to convince the EU Commission to introduce tariffs on Chinese solar panels... up to 67% ... now the Chinese are striking back with tariffs on European products *sigh* - will this never end?)
If middlemen really added value, then customers would be willing to pay for that value, without government coercion.
Well, there are middlemen that add value, but they're not typical auto dealerships. They're facilitators that help you locate the car you're looking for. Many of them have agreements with dealerships that will get you the best price or near it without having to dicker, and you only pay a [relatively] small commission to the "dealer" that you're actually dealing with. This only really makes sense when buying a fairly new vehicle, otherwise the commission can be disproportionate. Of course, their value would fall without this sort of protectionist nonsense.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
I'm really confused by this... Europe is constantly being lambasted by some in America about the consumer protection laws restricting free capitalism. These kind of laws seem the antithesis of free capitalism - they're designed to keep the local rich rich. I don't see their purpose, at all.
This kind of law wouldn't last 5 minutes in the UK, let alone the rest of Europe. The salt tax on India is getting on for a century since it was repealed, prior to independence.
I thought there was a real reason historically but it just seems that car dealers effectively lobbied their state governments to introduce these "Franchise Laws" after they were established
Because then, as now, car dealers are businessmen. And hang out with the lawmakers.
Or are actual lawmakers themselves. Like Scott Rigell in Virginia. Who owns Freedom Ford. Do you really think he would craft laws that challenge the car dealer status quo? Not likely.
And where was the political outrage towards Apple when they opened their own stores, for causing "unfair" competition with the other retailers?
(Obligatory computer analogy in this car thread.)
There were tons of complaints by tons of people; they were unable to buy the laws because the resellers were not franchisees. Here's a short list of pissed off people:
All U.S.: http://www.sfgate.com/business/article/Apple-dealers-biting-back-Mac-sellers-say-2636871.php
Australia: http://www.macworld.com/article/1027780/australia.html
France: http://www.padgadget.com/2011/12/30/apple-reseller-sues-apple-in-france/
Portugal: http://appadvice.com/appnn/2012/07/portuguese-reseller-interlog-fails-sues-apple-for-hefty-sum
LA and Boston: http://appleinsider.com/articles/11/02/22/apple_repair_consultants_upset_over_changes_to_apple_retail_referral_policy
The current Apple pissing contest is over the changes to the repair referral channel. They're going to lose to Apple's wishes there, too, since what Apple sells is a holistic customer experience rather than selling only consumer devices.
For anyone interested, NPR's Planet Money team ran a very good story back in February on this topic. If focused on the entrepreneur behind carsdirect.com, who ran into the same obstacles in the 90s when he tried to set up a Web site to sell cars directly to consumers.
http://www.npr.org/blogs/money/2013/02/19/172402376/why-buying-a-car-never-changes
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Modest doubt is called the beacon of the wise - William Shakespeare
You've missed something. All QE does is funnel cash into PDCFs on Wall Street. It's not increasing the money supply.
They are simply buying notes on a one-to-one basis, which keeps the balance sheet in balance. The only time that cash escapes into the general economy is through a lawsuit settlement. Otherwise it stays locked up in equity issues and offshore partnerships. If it got loose into the economy, you'd have runaway inflation.
The Chinese dump cash directly into the pockets of their own international service firms to offset their losses when they underbid the shit out of everything they touch. Then because they have direct control over the value of their currency, they simply alter the number to make it appear that value didn't vanish. In other words, they cheat.
This works as long as the cash keeps flowing out of Wal-Mart and into their companies. When the cash stops, they will have the exact same problem Wall St. had in 2007. They'll be long on concrete with no buyers. That's spelled F-U-C-K-E-D in economic-speak.
So the vanishing Chinese value is actually being subsidized by guess who?
The fucking unemployed American taxpayer. Have a nice day.
So the argument against removing the laws (for all auto manufacturers) and making the dealers "sell" themselves to the auto manufacturers is what exactly? That dealerships lobbied really, really hard to sell you a product that they add no value to? Can you say "crony capitalism"?
Having purchased a Tesla Model S the experience is the exact opposite of when I purchased a Toyota. Tesla's showrooms do not sell cars. They show them. When I went to the showroom I could ask questions without any pressure to buy the car. The only way to buy a Tesla is on their web site so there's no sales critters trying to get a commission. There are a myriad of options to choose from which allows you to get the exact car you want. I got the paint color, interior color and all the options I wanted. It went to the point where I chose the wheel colors and whether or not to have a rear carbon fiber spoiler (I chose not to). There's also no haggling over price. Tesla basically builds to order without having to deal with an inventory of cars. You order your car and they deliver exactly what you ordered, or in my case I picked mine up at the factory and took the tour.
At the Toyota dealership I didn't have much choice. I could choose any car as long as it was on their lot, plus there's the high pressure sales. The only thing worse than one of their car salesmen is a used car salesman (which they also sell there).
Dealerships don't really protect the consumer. As far as I'm concerned, they're leeches. A relative of mine bought a Fisker Karma and the dealerships are basically helpless since Fisker is more or less bankrupt in all but name. The warranty is basically worthless as is any pre-paid service and parts are unavailable. Since Fisker laid off their engineers even support is limited even if paid by the owner. The dealership my relative goes to is better than many. Many dealerships completely dropped any and all support for Fisker so the owners are completely SOL. There's nobody to even perform routine service on the vehicles.
I groan every time I have to have something fixed that's not under warranty at Toyota. They charge a premium for the service since they know that with a Prius you're unlikely to take it elsewhere.
Dealerships also wouldn't make nearly as much profit on service either. Tesla has vowed to not make a profit on service, but then again, service should be a lot simpler than a gasoline powered car. There's no transmission to service or wear out, only a simple gear reduction. There's no 5K mile oil changes, the motor is lubricated for 12 years. There's no fuel pumps or spark plugs to replace.
Since the number of cars sold is fairly low, a dealership would also be selling o
Tesla service consists of a 12,500 mile inspection, replacing the wiper blades and brake pads if needed (brake pads should last basically forever), rotate the tires, replace the cabin air filter and possibly flush the coolant. Service also may include hardware upgrades, software upgrades are distributed over 3G and can be applied by the owner whenever it's convenient.
Tesla has vowed to not make a profit on service. When I broke one of the clips on my roof they had to replace the entire panel next to the glass sunroof. If the panel were on my Prius, the dealership would probably charge $200-300 just for a replacement panel plus a fortune in labor. Tesla charged me $100 and $175 labor to replace it, which after explaining what they had to do to replace it was a bargain.
Things are quite different now than they were in the 1950.
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Do manufacturers of other cars have to sell through dealers because of the laws? Or did dealers get these laws passed so manufacturers have to sell through them? One way could be interpreted as dealers just wanting to have a level playing field. The other way could be interpreted as dealers protecting themselves from competitive alternative business models.
It's not just the middleman in this case, though I agree with your comments regarding mercantilism. The beginning points to numerous aspects acting as Cartels. Unions became cartels, franchises became cartels, and executives became cartels. When everyone is a criminal, things never end up well.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
I thought No Child Left Behind was supposed to fix that.
I think of that fact every time I sit in a doctor's office. Half of them are below average, too. :-(
Yes. They are called general practitioners. The other half tend to specialize in higher paying fields, like surgery or anesthesiology.
For better or for worse, medical schools set their standards so high that only the most qualified (typically overqualified) ever get the opportunity to even study medicine, let alone practice. You may have a physician who was at the bottom of his class, but he's still likely to have more knowledge and intelligence than anyone else working or waiting in his clinic. It's not like IT, where there is a job for everybody, with a very wide spectrum of credentials or abilities (or lack thereof). Nor is it like those with a liberal arts degree, where employers just presume the degreed applicants don't know a thing about working life and have them start at the lowest position in the company, most often side-by-side with non-degreed hourly employees, and then only promote those noobs who show some potential to figure it out and actually make some effort to show up on time, properly dressed, and without a bad attitude.
Given that the student loans for the professions can easily top $100k, success is the only option. There is no bankruptcy allowed, and without a physicians salary there is little hope of ever having more than a Spartan existence, regardless of how earnestly one tries to pay off such loans by any other means.
All goes back to Wickard v. Filburn, under FDR's long-standing administration. Perhaps the most destructive Supreme Court ruling in our modern era. At a time when America was fighting Fascism abroad, this decision probably did the most to entrench Fascism, corporate hegemony and cronyism in the United States, usurping the natural rights of free citizens as well as transferring power from the state level to Federal government agencies.
The logic behind the Wickard v. Filburn decision seems to stand in opposition against the small government ideals of conservatives, the civil liberties of individuals as espoused by liberals, and the value of a free market as advocated by libertarians, yet this attitude seems to be growing more pervasive throughout our government, especially on the Federal level, with rarely any outcry from voters, the politicians they elect, or from hardly any of the many outspoken critics of our government and society. What is behind this sheeple mentality?
Don't forget another reason for resellers - manufacturers don't want to deal with 1 piece orders constantly - it's way too much overhead for them. It's cheaper for them to sell 100 units to one person, then that person to sell it to 100 people, than for the manufacturer to sell to those 100 people.
Also, resellers can handle warranty issues locally - manufacturers then can deal with the reseller to handle it - e.g., the reseller can exchange 5 units to customers, then the manufacturer can send 5 extra units as replacements. Less overhead for the manufacturer, and local sellers may know their market better.
There are exceptions - like Apple, who can handle it all vertically, but they tend to be the exception. Even then their ordering systems aren't as slick as say, Amazon's.
Rather, it was used as a short term solution, around the turn of the last century, to get dealers set up across the country quickly without having to spend the capital to do so themselves.
As a bit of a counterpoint, remember that we use middlemen *everywhere.* Amazon, Walmart, grocery stores, department stores... the list goes on and on. Damn near every single business we buy from is a middleman.
Usually it is in our best interest to go through a middleman as it ends up with savings for everyone. The middleman usually buys in bulk (thousands of items) and then sells to us (1 at a time) at a markup. The manufacturer gets the benefit of a steady, predictable cash flow while we get the convenience of buying one at a time.
Of course, that's how it usually works. Not everyone wants that though. In today's connected world we can pay a premium straight from the manufacturer for items custom created directly for what we need. Cars, as large capital investments for most people, are a perfect example of this - especially as the "premium" is usually the same price that you would be charged from the middleman anyway. For middlemen to survive they need to provide a "value added" effect to the merchandise and I do not see that happening with most car dealerships.
tl;dr version: You use middlemen every day, usually love it, but if they don't provide extra value they shouldn't exist.
There is nothing wrong with the points you make. They are all good points. However, none of them is an argument that supports laws requiring a company to use middlemen.
The truth is that all men having power ought to be mistrusted. James Madison
In which case you don't need a law preventing manufacturers from doing so - they'll use resellers because it is cheaper/better for them. That there is such a law is usually evidence (not proof, there are other possible explanations) that manfacturers do in fact want to sell directly. If no one wanted to speed we wouldn't need speed limit laws after all.
I'd like to, though. Abolishing these laws would be one step in that direction.
That used to be true. Nowadays there's this thing called "the internet." Maybe you've heard of it?
All these arguments are absolutely beside the point. If it's better, it doesn't need laws enforcing it. If it's worse, it shouldn't have laws enforcing it. Either way, the laws should go.
That's wrong.
a) the show room is a value add regardless off who pays for it, and it's cheaper to the consumer for the manufacturer to do it. There is no middle many percentage on top.
b)" you would have no choice on what dealer to go to, " Says who? That would only be the case if separate dealerships weren't allowed. and manufacturers still have to compete against other manufacturers.
c)" consumers will go to what dealer provides the best value and service." as they would continue to do. again, you are making the the assumption that this would some how take away the option of having dealerships.
"actually stifle your options."
you mean like stifling my option to buy direct from the manufacturer?
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