Car Dealership Franchise Battle


imagesPAGE UPDATED APRIL 28, 2014

The Federal Trade Commission has published a statement on their web site providing non-policy guidance to state legislators.

How manufacturers choose to supply their products and services to consumers is just as much a function of competition as what they sell—and competition ultimately provides the best protections for consumers and the best chances for new businesses to develop and succeed. Our point has not been that new methods of sale are necessarily superior to the traditional methods—just that the determination should be made through the competitive process.

Read the full post on the FTC web site here.

Original Post Content Begins Here

Frequently in the news is Tesla’s state-by-state battle against laws that require franchises to sell cars to consumers. Tesla wants to sell direct with showrooms and superior online tools to confiture features. Pricing and product are transparent with their system. There are arguments about monopolies, consumer protection and safety. All valid questions and should be asked.

The Tesla Experience

in 2013 I bought two cars. It was the first time since 2002 that I bought any car. I like keeping them a while. First was a Tesla Model S. I test drove my neighbor’s car and then went to my computer. In a mater of less than 20 minutes I had configured my car and knew the cost for each option as well as the total price. I used my credit card for my down payment. The only thing to do was to wait until they built my car.

All along the way Tesla updated me as to the status of the car. When it entered production, touch points along the way and finally when it was ready to be delivered. Everything was done online through digital communications with each of them signed by a designated representative including contact information. A couple of times I wanted to talk to someone so I called my contact. She was always available and had answers. They use DocuSign technology to deliver paperwork and collect your eSign. Frictionless process.


Then I got this email.


Car Dealership Experience

Later in the year my wife needed a new car. She wanted an SUV and started with lots of online research, narrowing it down to about three choices. She took test drives on all of them. As we were in the consideration time frame, weighing the pros and cons, the phone kept ringing and the emails kept coming. Messages from the dealer sales people poured in insisting they wanted to “earn” our business and we could definitely “make this work.” Everyone was polite, but it was annoying and overbearing. We leaned toward a Ford, but Toyota was also in the mix. The price difference was thousands of dollars apart with the Toyota being higher. As we came home, exhausted from days of going from one dealer to another and having dozens of conversations, we got an email from the Toyota internet guy. Suddenly he was able to somehow match the price of the fully loaded Venza to the Ford Edge. How was that possible? If we weren’t savvy and chose the Toyota, we would have considerably overpaid. The argument that dealers keep prices low is only true if you are skilled at negotiation.

Outdated Laws

The United States is the only country with this type of law on the books and I believe it’s time to make a change. There should be ways to accommodate both the dealers and Tesla. A new law could be written carving out American car companies for example, that would make the current dealer network feel more comfortable about foreign companies setting up shop in the states. You could make the law limited to electric drive cars only as a starter. Ease into the concept vs. a complete overhaul. Dealers are deeply entrenched and say that Tesla would need to expand their number of service centers or consumers would be inconvenienced in case of needed repairs or recalls.

An electric car has hundreds fewer parts and will not need nearly the service visits as a gasoline car does. As Tesla car sales grow they will have to grow the number of service centers. Why build them if you don’t need them? They have shown they can move quickly when they need to, much more quickly than traditional automakers and dealers.

The objective is to build a car that seldom breaks and doesn’t saddle you with regular costs once you buy the vehicle. This model is difficult for many to understand because the system is 80+ years old and we just get used to things. Often we forget that things can be different and in a good way.

As far as the safety and recall argument goes… Well Toyota recently paid a $1.2 Billion fine for deceiving the public and government agencies. Where were the independent dealership voices during these years? Did they demand meetings and transparency of Toyota to protect their buyers? Did they threaten to cancel orders until the problems were fixed permanently? Then there are GM’s recent and ongoing problems with ignition switches and air bags. These problems were known for nearly a decade and ignored. People, a lot of people died. In all the articles I’ve read on these recall incidents I never see any dealership or coalition of of automotive retailers quoted in the articles or taking publicized action in their neighborhoods to show they are going to suspend sales of these cars in the name of consumer protection. Perhaps there are some instances, but it is not obvious. And if they did make some demands they are clearly not good at getting results. So exactly what do dealerships do to protect consumers from shoddy cars that continue to be manufactured and sold for years after problems arise.

But dealers should not worry so terribly much. Although their new car sales will lose a few sales to Tesla, they will be able to continue servicing all those used cars that will be dropped off by new Model S, Model X and Model E buyers.

This is obviously an important topic for Tesla owners for sure, but all of us should take a moment and process what is changing and why. If you are a fan of free market and American innovation, then you should be keenly interested in how this plays out.

A collection of articles that explore this topic are listed below.

To The People of New Jersey – Elon Musk

Tesla Can Topple the Auto Dealers’ monopoly – Bloomberg Review

In Washington State, Tesla Finds Way to Share Road with Dealers – Reuters

Tesla versus the Rent Seekers – Alex Tabarrok from Marginal Revolution

State Franchise Laws, Dealer Terminations and the Auto Crisis – Francine Lafontaine and Fiona Scott Morton

Dealerships by Brand

How Christie Tore Down Tesla – Editorial from The New Jersey Star-Ledger

Let Consumers Decide if Car Dealers are Needed – Editorial from The New Jersey Star-ledger

Tesla Thaw? Suddenly States Are Moving On Laws Favoring The Company’s Stores – Forbes

Tesla Crafts Truce with Ohio Auto Dealers – The Wall Street Journal

Shut Up and Deal. Tesla vs. the Auto Dealers – The New Yorker

Who Decides How Consumers Should Shop – Federal Trade Commission (FTC)

I will add links as the story continues to unfold.

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