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> legislative efforts underway in Texas, North Carolina, Colorado, and Virginia to prevent Tesla from dealing directly with customers and instead conform to ant

by songzme 13y ago

> legislative efforts underway in Texas, North Carolina, Colorado, and Virginia to prevent Tesla from dealing directly with customers and instead conform to antiquated franchise laws requiring them to only sell cars via independently owned car dealerships I really don't understand this. This is like saying... I make a product and I can't sell the product that I've made myself. Someone else is required to sell it for me. This law seems unfair and ridiculous. Is there a reasoning/history behind this and how it came to be?

totalforge 13y ago
Middle men don't like confronting their own mortality. If Tesla succeeds, they can't sink their fangs into the revenue stream. If Tesla really succeeds over a longer period of time, the other car makers might start getting ideas.
- songzme 13y ago
  so how did it ever come to be where car manufacturers are required to sell through dealerships?
  - jared314 13y ago
    Running a local car dealer takes a lot of capital investment to pay for inventory and trained personal. With the franchise law, the government is encouraging, and protecting, the local business's upfront investment. This creates revenue, employment, and consumer supply to a local area. If the manufacturers dictated the price, as apposed to suggesting it (MSRP), it could starve the dealers, eliminate consumer choice, and lower local government revenue. (Local, in this case, can be considered city, county, or state government)
  - 30thElement 13y ago
    There's 2 reasons on top of the generic problems with vertical integration, at least that I know of. First, once an independent dealership opens, they're gonna forever be afraid that the manufacturer is going to cut off their supply and then open an official dealership next door. It screws up the value equation for opening a dealership in that the small family owned business takes all the risk so the giant mega corp can swoop in and take all the profits once they finally show up (at least that's how you pitch it to the voters). Second, dealerships make their money off of the maintenance as well as the sale. Allowing the manufacturer to dip into that maintenance revenue stream will create perverse incentives that hurt consumers. The first one doesn't really apply, as Tesla has the capital to start all of the dealerships they need and that's basically what they want; they don't want 3rd party dealerships popping up at all. The second one applies to Tesla, but I don't think it really matters. They are The Experts in electric cars right now, so any significant maintenance will probably just get shipped back to their factory anyway.
aray 13y ago
There are historical reasons why the existence of dealerships would have helped the consumer -- via more showrooms, real estate, distribution, etc -- but I'm of the opinion that those times are past. Things like the internet have mostly made those requirements irrelevant, and dealers are more than capable of reaching out to most of the consumer base now.
sliverstorm 13y ago
AT one time, showroom/service center combos were a very good thing for consumers. Consumers want to test drive many vehicles before they buy. They want to have a range of options on hand to chose from. After they buy, they want somewhere they can entrust their car to for repairs. In summary, the type of role the dealership fills was and possibly still is an important role in the automotive market. This is where dealerships came from. Manufacturers, especially when they were smaller, didn't want to deal with establishing such a presence in every town in America, so they left it to private business. This brings us to the existing franchise laws. I'm told the rationale goes like this; if a manufacturer were to suddenly decide to sell its own vehicles and cut out the middleman, said middleman would be completely and utterly screwed for obvious reasons. The laws, thus, are a form of guarantee for the prospective middleman. He knows his extremely capitol-intensive venture cannot be toppled two years later when the manufacturer decides to sell direct. If such protections were not in place, (so the story goes) entrepreneurs would be hesitant to start a dealership, the absence of which would have been a negative for everybody.
- ensignavenger 13y ago
  Of course, a strong franchise contract with the manufacturer would have fixed this problem just as well (probably better) as legislation. And it would have only applied to parties who agreed to the terms.
  - sliverstorm 13y ago
    Sure, there's a bunch of ways to do it. I'm not taking a position on the legislation, merely trying to answer my parent's question.
dagw 13y ago
Here's the Planet Money episode that explains the history of these laws and why they are so hard to get rid of: http://www.npr.org/blogs/money/2013/02/19/172402376/why-buying-a-car-never-changes http://www.npr.org/blogs/money/2013/02/19/172402376/why-buyi...

by songzme 13y ago

totalforge 13y ago

Middle men don't like confronting their own mortality. If Tesla succeeds, they can't sink their fangs into the revenue stream. If Tesla really succeeds over a longer period of time, the other car makers might start getting ideas.

songzme 13y ago
so how did it ever come to be where car manufacturers are required to sell through dealerships?
- jared314 13y ago
  Running a local car dealer takes a lot of capital investment to pay for inventory and trained personal. With the franchise law, the government is encouraging, and protecting, the local business's upfront investment. This creates revenue, employment, and consumer supply to a local area. If the manufacturers dictated the price, as apposed to suggesting it (MSRP), it could starve the dealers, eliminate consumer choice, and lower local government revenue. (Local, in this case, can be considered city, county, or state government)
- 30thElement 13y ago
  There's 2 reasons on top of the generic problems with vertical integration, at least that I know of. First, once an independent dealership opens, they're gonna forever be afraid that the manufacturer is going to cut off their supply and then open an official dealership next door. It screws up the value equation for opening a dealership in that the small family owned business takes all the risk so the giant mega corp can swoop in and take all the profits once they finally show up (at least that's how you pitch it to the voters). Second, dealerships make their money off of the maintenance as well as the sale. Allowing the manufacturer to dip into that maintenance revenue stream will create perverse incentives that hurt consumers. The first one doesn't really apply, as Tesla has the capital to start all of the dealerships they need and that's basically what they want; they don't want 3rd party dealerships popping up at all. The second one applies to Tesla, but I don't think it really matters. They are The Experts in electric cars right now, so any significant maintenance will probably just get shipped back to their factory anyway.

aray 13y ago

There are historical reasons why the existence of dealerships would have helped the consumer -- via more showrooms, real estate, distribution, etc -- but I'm of the opinion that those times are past. Things like the internet have mostly made those requirements irrelevant, and dealers are more than capable of reaching out to most of the consumer base now.

sliverstorm 13y ago

AT one time, showroom/service center combos were a very good thing for consumers. Consumers want to test drive many vehicles before they buy. They want to have a range of options on hand to chose from. After they buy, they want somewhere they can entrust their car to for repairs. In summary, the type of role the dealership fills was and possibly still is an important role in the automotive market. This is where dealerships came from. Manufacturers, especially when they were smaller, didn't want to deal with establishing such a presence in every town in America, so they left it to private business. This brings us to the existing franchise laws. I'm told the rationale goes like this; if a manufacturer were to suddenly decide to sell its own vehicles and cut out the middleman, said middleman would be completely and utterly screwed for obvious reasons. The laws, thus, are a form of guarantee for the prospective middleman. He knows his extremely capitol-intensive venture cannot be toppled two years later when the manufacturer decides to sell direct. If such protections were not in place, (so the story goes) entrepreneurs would be hesitant to start a dealership, the absence of which would have been a negative for everybody.

ensignavenger 13y ago
Of course, a strong franchise contract with the manufacturer would have fixed this problem just as well (probably better) as legislation. And it would have only applied to parties who agreed to the terms.
- sliverstorm 13y ago
  Sure, there's a bunch of ways to do it. I'm not taking a position on the legislation, merely trying to answer my parent's question.

dagw 13y ago

Here's the Planet Money episode that explains the history of these laws and why they are so hard to get rid of: http://www.npr.org/blogs/money/2013/02/19/172402376/why-buying-a-car-never-changes http://www.npr.org/blogs/money/2013/02/19/172402376/why-buyi...