Dealership battle- MN making way for Tesla stores

Dealership battle- MN making way for Tesla stores

After the court win- MN working on licensing --

Statement from dealer's rep:
"We think everybody should play by the same rules," said Scott Lambert, the association's executive vice president. "Tesla is trying to sell cars on the cheap, and it's just not fair because they don't have the cost of running a dealership."

What a ridiculous statement and one that shows why they are losing these battles- lazy in their protected status- Tesla doesn't have them because they no longer have the same value (if they ever did)
from Tesla- they make no bones about it:
"We're cutting out the middleman," O'Connell said. He added that the approach is unique in the automotive market. "That can disturb the status quo because it can change consumer expectations, which can lead to more competition."

Vall | March 13, 2013

So he is basically admitting that if they were allowed to sell tesla cars in their stelerships, they will certainly be more expensive (the consumer will pay more). And that for him is FAIR?!?!?! Really?! So passing the savings from cutting out the middle man is somehow bad...

kenliles | March 13, 2013

exactly- you'd think they would at least come up with a better spin on it; Like dealer are necessary for the public good or something (bogus but at least an attempt);

his comment reflects how safe they've been for so many years;

it's about time and it's no wonder dealers earn the reputation they have, since they cooked into the stream by law... they never counted on a brand new manufacturer coming along that never used dealers at all- gotta love it

Captain_Zap | March 13, 2013

They wouldn't have a problem if there was an equitable amount of value added for their inflated prices and the amount of time one must spend in their torture chambers.

Pungoteague_Dave | March 13, 2013

Vall, I don't think that is what the dealers are saying - I don't agree with them, but they are asserting that TM cuts a bunch of standard car delivery and service costs out of the equation with their model, making their sales model less competitive.

Most car manufacturers make an 11-12% gross margin on sales through dealerships. Tesla states publicly that they are targeting a 25% margin this year. Therefore TM is NOT planning to pass any savings through to consumers - they are trying to benefit from efficiencies that they believe can be injected into the car sales process, and innefficiencies that exist in the dealership model. The bottom line is that the 'new'sales model propmoted by TM is as capitalist as it gets - increasing margins and net profits.

This works when you have a product that is better than and differentiated from anything else on the market - Apple does the same with their products in the direct-to-consumer model, except with 100% mark-ups. It works if you are better then the other guy and don;t have to compete on their terms. Apple gets a lot more for their products compared to competitors, never has sales, and isn't promotional in pricing. TM is trying to do the same, except in a highly regulated product, where bad behavior by manufacturers decades ago created rules to defend the entrepreneural car dealer. It isn't right in this instance, but there's a reason... remember that in the 1950's and 1960'sm when these laws were written, there were only three big car sources in the U.S., plus one or two smaller ones that have long since failed (AMC, Hudson), so protection from monopolistic leanings had some legitimacy then (before the advent of imports and global manufacturing blurred the lines of what's American, etc.). Again, not defending the dealer model, but it did have historical justification.

andrigtmiller | March 13, 2013

These dealer laws have nothing to do with protecting against a monopoly of car companies. Dealers are independent businesses, and are not part of the car companies at all. When these laws were passed in the various states there were plenty of other car companies competing with the big three auto makers. All these laws are the product of the dealers wanting to protect themselves from competition. The politicians were more than happy to cooperate even though there is no consumer benefit, because it gets them campaign donations and votes.

Plain and simply this is statism, and an example of the worst aspects of government interference with, what should be a free market. If a company comes along with a different model for purchasing their product, they should be free to do so. If the result is better consumers will choose the new model, and the old model will disappear. This is typically called creative destruction in free markets. This an absolutely necessary aspect of markets, and should be encouraged. This is how consumers benefit from a free market.

Now, if your goal is to protect your existing business you would love to have legal protection from these free market effects. If you are a politician that wants to perpetuate your own power, you love to pick winners and losers.

One interesting thing that is starting to happen is you see Ford coping the Tesla store model to some extent.

It will be a tough fight, but I bet we see a direct model in autos start to take off, with Tesla leading the way. All the consumer research shows that the dealer is the worst part of the experience of buying a car. If auto companies want to have a better customer relationship, they will have to change that experience.

Vall | March 13, 2013

Dave, Tesla is not aiming for the profit margins of dacia, skoda, great wall or something like that. BMW Group has had profit margins around and above 20% for 8 of the last 10 years. It is obviously not unheard of in the industry, especially for a company that has zero low end models.

"Therefore TM is NOT planning to pass any savings through to consumers"

"Tesla is trying to sell cars on the cheap, and it's just not fair because they don't have the cost of running a dealership."

Computer says no, if they eliminate the overhead of dealerships, and the dealers say they are selling cars cheaper than they would have if they did it through dealerships (because they don't have the cost of running a dealership), then those savings ARE passed onto customers. Should tesla's "new" model be more marxist, leninist, or fascist, as opposed to being capitalist, or what? You make it sound as if dealerships work for some tiny profit or for the good of mankind, when in fact some of them are filthy rich, have contributed to campaigns, spend tons of money on lobbying, and are themselves political party members.

You also make it sound as if giving dealers legal protection somehow eliminated the monopoly of the big 3, when in fact it did nothing of the sort. The monopoly was broken by the japanese, not by the dealers. "Bad behavior" is a pretty good description of the behavior of the dealers, especially the windbags that are suing tesla for no legal reason, since tesla is not competing with them, and the laws they bribed politicians for (banning manufacturers from competing) are still in place. Ford, GM, Toyota can't do what tesla is doing. But even one new manufacturer every 60 years seems like a huge threat to them, so they are trying to crush this minuscule company, that is expected to sell as many cars per years as toyota sells camrys a week. Oh, and btw, apple market share is being constantly eroded globally, only in the us do they still hold significant percentage. Phones like the BB Z10 cost as much as an iphone 5, and they are not more expensive to build. Same goes for most of the high end LG, HTC or Sony models, each of them has their own online stores. Guess your "solution" to break apple's imaginary monopoly would be to take apple stores and give them to independent franchise dealers. Not by other manufacturers introducing competitive products.

DouglasR | March 13, 2013


Dealers had those laws enacted to protect themselves from the very manufacturers that they represented. Manufacturers encouraged their dealer-franchisees to invest, advertise, and build up the market for these cars. Once the market was hot, the manufacturers would swoop in and undercut their own franchisees, driving them out of business, and then jacking up prices once the dealers were out of the picture.

I wish I had your confidence that unbridled, unregulated capitalism is the answer to all of our economic problems. Unfortunately, historical examples from the Great Depression to the recent financial crisis suggest that, without some regulation, people tend to pursue their own economic interests at the expense of everybody else, and ultimately can cause a lot of destruction that is not at all creative.

I think the dealer laws are obsolete and should be repealed. But that doesn't mean I trust the auto companies to protect the public interest.

andrigtmiller | March 13, 2013

You don't have to trust the auto dealers. Much of what you mention about history are complete myths. The best regulation is the consumer. You vote with your dollars. No one forces you to buy anything with the new exception of Obamacare

Companies go out of business if they don't please customers.

shop | March 13, 2013

The much simpler answer to the "problem" of having manufacturers compete with franchisees is called a contract. When a franchisee opens up a dealership, they should negotiate with the manufacturer that the manufacturer won't open a store in their area or sell direct to consumers. Nobody is forcing anyone to open a franchise store when there is the possibility of manufacturers killing off those franchisees. Also, realize that in other industries, like fast food, there are company owned stores and franchise owned stores and they seem to get along just fine. It's all in the contract, and you don't need state laws to make it all work out.

Vall | March 13, 2013

You make it sound as if the financial crisis happened in an environment without regulation, where the federal reserve didn't keep interest rates low to pump up the economy, didn't buy up securitized mortgages through Fanny and Freddie, rating agencies weren't the only ones with NRSRO license (thus eliminating competing agencies), there was no FHA, no FDIC, no previous bailouts for failed but well connected banks and companies, that encouraged risky behavior, since greenspan had shown he will not allow prices to fall and anyone to fail (the greenspan put).

Once the market was hot, the manufacturers would swoop in and undercut their own franchisees, driving them out of business, and then jacking up prices once the dealers were out of the picture.

Any examples of that happening? Did they jack the prices above the levels originally set by the dealerships? Did they form a cartel to raise and lower prices simultaneously, so that they wouldn't lose customers? Who prevented imports by taxing them heavily? The customers? Or the government through tariffs (imposed again through the lobbying of car manufacturers)? Good thing the japanese decided to build factories in north america, and they still raped the big three, despite all the protectionism. So in the end trying to protect GM etc from competition ended up costing them their life, but even then it was not enough to kill them (as happens in a free market with those who cannot compete) as they got bailed out... again...

shop | March 13, 2013

Apple is an interesting case in point. Throughout the 1980s, and 1990s they switched from dealer channels to selling direct and back again so many times it was hard to keep track. Today they have both, you can buy stuff at Bestbuy, through AT&T, Verizon, etc. or direct from an Apple store. Business should be all about flexibility since conditions in the various markets change all the time. It is entirely possible Telsa will want a dealer network in 20 years, but no one knows that now.

Kleist | March 13, 2013

It may have been the case 50 years ago, but today dealers become monopolistic. 10 years ago my auto row were indivually owned franchises, today GM, Ford, Chevy, BMW, Toyota, VW, Honda etc are all the same dealer. Same sales person can sell you any brand of car and has no real knowledge about the details. Side effect of that is that the service has gone from OK to very bad... no competion pay big and shut up, because I don't care. To see a different dealer I have to go to the next town.
Current dealers have to evolve to stay relevant. Initially they are fighting change like the media companies were fighting tape, cd, dvd, napster, etc and later they found out how to profit even more from these changes. The dealers evolve and add value to the process or they are gone.
The comparison with Apple misses the point, yes it is true in terms of mall stores, but Apple has huge inventoies of standardized products.The TM model reminds me more of Dell years ago what every computer manufacturer has copied since then: custom build and deliver the product within a few weeks. Biggest variable cost in production is always inventory and finshed goods inventory is much more expensive then unfinished goods. That is how TM will disrupt the industry and exploit the inefficiency of the current large inventory dealer model.
It will be not for long that other car companies have tob come up with their own version of the TM model... Audi is already experimenting with virtual showrooms.