Tesla May Lose Another One

Steve Finlay 2

October 20, 2014

3 Min Read
Tesla May Lose Another One

If the more you do something, the better you get at it, electric-vehicle maker Tesla by now must really excel at arguing its case.

It has done so enough times. Yet, success has been sporadic. And the battle goes on.

Tesla uses a factory-direct sales model instead of the established franchised dealer system. The departure from tradition has created a fuss nationwide.

Tesla is fighting its fight state by state because each one has its own set of dealership franchise laws.

The automaker has won some and lost some. It lost in Arizona, Colorado, North Carolina, Texas and Virginia. It won the right to run its own stores in Massachusetts, Minnesota and New York.

State dealership associations have spearheaded efforts to stop Tesla from bucking the franchise system. Such trade groups seldom get involved in stuff like that. It is rare nowadays for a new automaker to come along, let alone one bent on doing things its own way.

The National Automobile Dealers Assn. is not actively involved in opposing Tesla. NADA says that’s best left to individual state associations. Is it states’ rights? Or something else, like a strategic war of attrition on 50 fronts? Tesla has become a combat veteran but it runs the risk of becoming shell-shocked.

The latest battlefield is Michigan where legislators passed a new bill requiring all automakers to sell through dealers.

Existing Michigan law prevents an automaker from running factory stores that compete with franchisees. But Tesla has no franchise operations in the first place. The new bill specifically bans factory-direct retail auto sales of any kind.

The Michigan Auto Dealers Assn. pushed for the legislation. Naturally, Tesla and its backers claim state legislators are in the dealer association’s pocket. If that’s the case, it’s a deep pocket. The measure passed overwhelmingly with bi-partisan support.

I predict Gov. Rick Snyder will sign the bill. I interviewed him in August and asked him about Tesla. It’s clear how he feels on the issue. Here’s an excerpt from our Q&A:

WardsAuto: Tesla has opted to not sell cars through the traditional franchised dealership network. They are fighting with many state dealership associations who invoke franchise laws. Are state dealer-franchise laws out of date?

Snyder: They’ve worked in Michigan a long time. It’s not a priority on my list to change that. The dealer system works well in Michigan. They take good care of customers, and they have good relationships with the people making the cars.

WardsAuto: So do you think Tesla should not be selling cars on its own?

Snyder: I’m not going to say that. It’s not my role to make that decision…

Maybe it wasn’t his call two months ago. But it is now.

One could argue lawmakers have no business dictating how cars are sold. Presumably, the market should do that. But here’s the thing: The market most likely would come down on the side of the franchise system.

That’s because NADA, although hardly a torch-carrying consumer advocate, probably is right when it says prices would increase if automakers sold cars directly. There would be no intra-brand competition like there is now. Automakers would set prices, not individual dealers vying hard for business.

Automakers invented the franchise system. They did so because they didn’t want to bear the cost of nationally carrying expensive inventory costing several thousands of dollars per unit. Better to spread the cost out among local dealers, the reasoning went. And it’s worked.

Tesla says that if it sells enough cars, it eventually may switch to franchised dealers. Were that to happen, it wouldn’t represent a major change of heart. It’s because direct sales are a losing proposition for mass producers of vehicles.

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