Tesla's fight with America's car dealers

Tesla's fight with America's car dealers(money.cnn.com)

69 points by browser411 13 years ago | 87 comments

> Until then, said O'Connell, Tesla will sell its cars the way it wants. If some states don't allow that, then Tesla will simply sell them elsewhere.

I think this last line of the article is very important. This has the power to get the consumer on Tesla's side of this fight. If enough of the right people in Texas (and other problem states) want this car and think the laws are stupid... they'll need to find a way to make that happen. Laws can be changed. If not then they'll just get them out of state.

mayneack 13 years ago | |

This is especially relevant at this stage of Tesla. I would guess that there aren't a lot of people wandering through the mall to buy a tesla or making it one stop on their trek through the dealerships. People (right now) are setting out to buy a Tesla. It's also expensive enough to warrant going to one of the already established outlets, even if that involves travel. I doubt not being able to sell physically in North Carolina will really hamper their sales too much.

darkarmani 13 years ago | |

> If enough of the right people in Texas... they'll just get them out of state.

It's very unfortunate that the state is Texas and not a state like Rhode Island. They (dealers) have 15 hours of protection in Texas.

beat 13 years ago |

This is a straight-up technological disruption of an existing sales channel. The third-party dealerships are an artifact of primitive 20th century supply chain management - they're basically a caching mechanism to handle latency in the network, to put it in computerese terms. With the power of computers and online ordering, Tesla has no need for these dinosaurs. They can "cut out the middleman and pass the savings on to you", terms every consumer can understand.

The fear for the dealers is not that Tesla will go around them, but that other manufacturers will follow. The big car makers already have experience setting up alternative brands to play with techniques that are too radical for their mainstream business (remember Saturn?), so it would be easy enough for something like GM spinning the Volt off as a new car company, not just a Chevy, and running Tesla-style sales.

If that happens, dealers are doomed.

auctiontheory 13 years ago |

I love how Texas, of all places, puts up the most regulatory hurdles against a new technology and business model.

nostromo 13 years ago | |

I grew up in Idaho. People there will talk about how important limited government is... until you mention farm subsidies.

Suddenly they'll speak convincingly about the benefits of centralized markets, price controls and protectionist trade policies with no sense of irony.

fennecfoxen 13 years ago | | |

And Democratic partisans will attack regulation when Republicans are making it, and many Republicans are perfectly glad to use the power of the state regulatory agencies to stymie abortion clinics in any way they can get away with. Everyone and their dog makes an exception for whatever's expedient; bottom story of the day, honestly.

If you want something _notable_, get me a politician standing up for principles which may be against their immediate self-interest (e.g. Claire McCaskill, D-Mo, on recent IRS shenanigans).

pkulak 13 years ago | | |

Kind of like how republicans are all anti-gay until their first kid comes out?

pnathan 13 years ago | | |

> Suddenly they'll speak convincingly about the benefits of centralized markets, price controls and protectionist trade policies with no sense of irony.

Well, maybe a farmer. This Idahoan doesn't hold with the farm subsidy system currently going.

nazgulnarsil 13 years ago | | |

Corn pone pinions.

taeric 13 years ago | |

I'm not sure I understand the apparent surprise here.

Firstly, there is a reason why, when driving through small towns, the names you see on the car dealerships are among the richest (if not the richest) around. Further, it is far from shocking that they have leveraged the power they have to entrench themselves.

What is so special about Texas that you would think they would be unique?

jonknee 13 years ago | | |

Texas likes to boast about smaller government and more personal freedom. Except with cars apparently.

If the tea party were a state it would be Texas and Austin would be forced out.

jlgreco 13 years ago | | |

I am guessing because Texas is infamously a red state, and Republicans are perceived as claiming to be against government regulation.

lquist 13 years ago |

Money can't buy press like this. Suddenly Elon Musk is the underdog fighting the vested interests that be and Tesla is the little engine that could.

adventured 13 years ago | |

Fortunately for Tesla, they have a good decade of playing the underdog card ahead of them. Ford and GM do $280 billion in sales combined.

nathantotten 13 years ago | | |

It isn't Ford and GM fighting this, it is the dealers. I actually doubt that GM and Ford care much about protecting the dealers. My guess is, or should I say hope, that GM and Ford executives are looking at Tesla and thinking about how they might make more money with that business model in the future.

daniel-cussen 13 years ago | | |

I'd say it's legitimate. If you're the youngest successful American car company and the only one from this millennium I'd say it's not wrong to do. It's similar to how Stanford is thought of as a relatively new school because it was organized in 1891, much more recently than rival schools.

axus 13 years ago |

The article brought up the point that Tesla owns all of the service centers. I don't care if Tesla owns all the dealers, but having a monopoly on Tesla repair would be bad for consumers. If the process for becoming a "Tesla mechanic" allowed competition with the Tesla service centers, that would be OK.

atourgates 13 years ago | |

Do the provisions of the Magnuson-Moss Warranty Act, which basically say you can get your car serviced anywhere you want without voiding your manufacturers' warranty, not apply to Teslas?

interurban 13 years ago | | |

I don't see how that law comes into effect in this situation unless they left something out of the article. It didn't say Tesla is preventing others from opening services centers, just that Tesla owns them all so far.

There's probably a non-trivial amount of model specific knowledge needed to repair a Tesla that can't be picked up at a general mechanics' school. Maybe when Tesla's sales volume increases there will be a higher demand for mechanics that Tesla couldn't fill and 3rd party shops will open.

Shivetya 13 years ago | | |

Going to have to wait for an owner to challenge it, or repair shop which tries to obtain the necessary technical information to do so.

disclaimer, I work a major auto parts supplier, etc. It will be very very interesting to see if tries to circumvent this law, which I doubt he can. If anything shuts down his expansion it may be through this route. As in, they may force them to curtail selling until they can provide the independent support.

revelation 13 years ago | | |

I think we are up for another fight on this topic very soon, but not only with Tesla. There are existing laws that force manufacturers to provide standardized maintenance interfaces, provide guidelines to shops etc., but increasingly cars are controlled by propietary computer systems.

And the whole thing takes a turn for the absurd when you consider electric cars. Sure, force manufacturers to provide documentation on how to replace a bumper.. but its purely naive to think you could have just any mechanic service a completely computer controlled high-voltage battery compartment.

jared314 13 years ago | |

It might matter later in Tesla's life, when they have a larger number of cars on the road (3 to 5 years), but right now Tesla is the only one who can ensure the quality of the customer experience. Ensuring a good customer experience, right now, will sell more cars than lowering the cost of maintenance.

orangethirty 13 years ago |

The American automotive industry is where sleaze bags get trained. It is home of the biggest scum of the Earth. I currently contract with a startup that caters to it, and am impressed daily with how vile these people are. Its is downright evil.

darkarmani 13 years ago |

> The traditional dealer franchise system is best for car buyers, Wolters insists, because it preserves competition between dealerships selling the same products.

I'm not sure I understand this argument. If I follow this argument to completion, what they are basically saying is that when you have lots of middlemen selling the same product, that "preserves" competition between them, limiting the amount of additional cost they add. Wouldn't removing the middleman also remove that additional cost?

Contero 13 years ago | |

I think the idea is that if the manufacturer was the only one selling, that they could inflate their prices higher than what the middleman overhead would be since they're the only one offering that product.

Why he thinks competition between brands isn't enough to counteract this I have no idea.

darkarmani 13 years ago | | |

> I think the idea is that if the manufacturer was the only one selling

But aren't they the only ones selling tesla cars to the dealers anyway? Couldn't they just inflate their prices to the dealers?

revelation 13 years ago | | |

Exactly. Price differences for the very same product is not competition, its market inefficiency.

linuxhansl 13 years ago |

Wow. In "The Land of the Free" a company cannot sell its own products as it pleases and is potentially forced to go through middlemen that provide no added value other then forcing folks to haggle?

This is not medicine we're talking about (where I can see pharmacists as an important part of the system).

How can it even be suggested to be illegal to open up a store and sell your own product? Should Apple be barred from selling their own products in Apple stores and go through Walmart instead?

beachstartup 13 years ago |

there's a reason they call them stealerships.

greyfade 13 years ago |

Isn't this exactly what happened to Preston Tucker?

adventured 13 years ago |

In a sane system, America's car dealers would be viewed as an illegal cartel that interrupts trade and would be abolished. Indeed, a trade-interrupting cartel is exactly what they had in mind as they pursued a legislative agenda for decades to make it nearly impossible to sell new cars in the US without going through their system.

maeon3 13 years ago |

Will Elon Musk fold under the pressure and cooperate with the dealer network when they offer to sell at low to no markup to bring him into the extortion racket of Car Dealers?

I loathe buying cars so much because of the snakes that run those Dealerships. They want the car buying process to be so excruciatingly painful so people will leave money on the table to "Just take my money and make the pain go away".

How far are Dealers willing to go to make it illegal for Tesla to sell cars anywhere? Would they go so far as to outlaw the production of Tesla vehicles in America because it goes against the Dealer protection racket?