5 ms·

Tesla Strikes Deal To Keep Dealerships In New York

135 points by houseofshards 13y ago

Oculus 13y ago
Can someone with more knowledge of the (outdated) franchise law explain why Tesla can't/hasn't created their own dealerships (that officially aren't Tesla owned), but sell only Teslas?
- sliverstorm 13y ago
  I believe the answer is, because they don't want to do that.
- dangrossman 13y ago
  Because, under the same state laws, that's illegal as well. "It shall be unlawful for any franchisor to ... acquire any interest in any motor vehicle dealer in this state ... or to use any subsidiary corporation, affiliated corporation, captive finance source or any other controlled corporation, partnership, association or person to accomplish what would otherwise be unlawful conduct under this article" -- NY Vehicle and Traffic Laws, Article 17A, Franchised Motor Vehicle Dealer Act, S 463 Unfair Business Practices by Franchisors There'd be little point to having the rest of the law on the books if it were so easy to work around. Note that "franchisor" as defined in that law includes all manufacturers, whether they sell franchises or not. IANAL.
  - deleted 13y ago
    [deleted]
- woodchuck64 13y ago
  Maybe they would prefer to kill dealerships (saving customers $2,225 average per new car according to a 2000 report). Lord knows, I've never had a good experience with a dealership, let 'em die! http://www.washingtonpost.com/opinions/charles-lane-tesla-takes-on-car-dealerships-in-a-fight-to-the-death/2014/03/12/2956a9f2-a9ff-11e3-8599-ce7295b6851c_story.html http://www.washingtonpost.com/opinions/charles-lane-tesla-ta...
  - sp332 13y ago
    But if manufacturers have no competition for dealerships (because they own them all), what would keep them from jacking up the prices?
    - michaelt 13y ago
      If Tesla want to increase the price of Tesla cars for end customers, why would they need a dealer monopoly?
    - dangrossman 13y ago
      Manufacturers set the prices they sell their vehicles to the dealerships for, don't they? Unless the dealerships are going to start taking a loss on every sale, they aren't providing any restraint on manufacturer pricing. What keeps Ford from jacking up its prices is the Nissan lot next door, the year older Ford on the used lot, and the regional rail station down the street.
      - bwilliams18 13y ago
        This American Life did a great story on car dealerships[0]. Basically, dealers have a number they have to hit every month, and they're basically incentivized to sell cars and be willing to take thousands of dollars loss to hit the number because if they get below the number they don't receive any bonuses, and the bonuses are the principal form of cashflow to both the dealers and salesmen. [0]http://www.thisamericanlife.org/radio-archives/episode/513/129-cars http://www.thisamericanlife.org/radio-archives/episode/513/1...
        revelation 13y ago
        Obviously, no matter what perverted incentive/bonus system you have in place, the essence of selling cars to a manufacturer and by extension to a dealership is to charge more than it cost you to make or acquire the car in the first place. Just because manufacturers can average it out across all dealerships doesn't make it less true, and obviously dealerships can never make a car cheaper, all things considered.
mattnibs 13y ago
How is requiring a car dealer to sell through a dealership beneficial to anyone besides the dealership lobby which spent millions of dollars in getting that law in place? This is why I freely support any company attempting to disrupt any industry that uses the US gov't to create laws limiting direct competition (Healthcare for example). Politicians who stand up for this kind of nonsense should be ashamed.
- flyinglizard 13y ago
  I imagine it's not just dealerships that oppose Tesla. It's nearly everyone involved in the automotive industry, from independent service shops to part suppliers to oil companies to the other American manufacturers.
  - Crito 13y ago
    Why would an independent service shop care if it is [local moderately wealthy businessman with contracts with wealthy corporation] or [wealthy corporation] who owns the dealership? Either way they have the Magnuson–Moss Warranty Act so either way car owners can choose to either take their car to an independent shop or to a dealer shop. Lingering concerns could be cleared up by lobbying for some Right to Repair laws: http://en.wikipedia.org/wiki/Right-to-repair_act http://en.wikipedia.org/wiki/Right-to-repair_act
    - sliverstorm 13y ago
      Perhaps Tesla is not playing nice with independent service shops. You might be allowed to get your Tesla serviced at an independent shop, but fat load of good that does you if Tesla won't release service manuals (for example) Or, if I am allowed to speculate even more wildly, dealerships have to profit on sale & maintenance because they make nothing on the car itself (as they buy them whole from Ford etc). So if a dealer-owned shop comes to town, it can run the shop on lower profit margins thanks to the profits of the parent company, making things harder for independent shops.
      - 13y ago
dangero 13y ago
Wow so this seems actually worse than outlawing Tesla because what they are doing is giving Tesla major privileges over any future competition. Seems very monopolistic.
- sliverstorm 13y ago
  Well, as is often the case, they got theirs. They cleared the hurdle, now barriers to entry help instead of hurt them.
  - deleted 13y ago
    [deleted]
    - sliverstorm 13y ago
      Depending on the circumstances, it could be called "DOT". It could be called "EPA". It could be called "CARB" (California Air Resources Board). There are a lot of actually-pretty-reasonable reasons cars are not allowed to be sold. (This is of course none of those, but you were being very general)
  - sentientmachine 13y ago
    With Communism, a person's job is determined by an external power. How is the dealer network telling Tesla that they can't sell their car in NY not an example of communism? Put down that microscope citizen. I've already told you, you are a cashier, cashiers don't use microscopes. Microscopes are for scientists. You can't be a scientist. Get back to your station. Don't make me taze you.
    - jrockway 13y ago
      "With Communism, people breathe air. Since people breathe air in New York, how is New York not Communist?"
    - Dylan16807 13y ago
      Tesla Motors isn't a person.
coreymgilmore 13y ago
These laws are crazy. They work for Tesla currently, but what about the future and future direct-to-customer sales models by other companies? When Tesla grows, they will need more than 5 dealerships in order to reach more of the population. When a new competitor tries to sell direct, these rules will make it impossible for them to compete on an even playing field with Tesla and therefore have to revert to the old dealership model. Win for Tesla, loss for free markets and competition.
rtfeldman 13y ago
Certainly no one should expect this status quo to last for long. The dealers will keep lobbying to kick Tesla out, and Tesla will keep lobbying to lift this restriction. In that light, this is an interesting long-term strategic move on Musk's part. It arms him with a "we've been selling in this state for X years with Y thousand satisfied customers, so how can this be so problematic that it needs restriction?" argument for his lobbying efforts a few years down the line.
- deleted 13y ago
  [deleted]
diakritikal 13y ago
As a bemused European looking at this situation. Did a new U.S. manufacturer, just agree to sell cars in mob town?
- sandstrom 13y ago
  It is interesting that the US -- a champion of Laissez-faire in many other areas -- is the only country in the world with such laws. [regardless of whether one likes the idea of Laissez-faire or not, the contrast is interesting]
Aqueous 13y ago
Just goes to show you - it's sometimes better to ask for forgiveness than permission. Imagine if Tesla hadn't opened stores in these locations - they would be indefinitely, unconditionally barred from doing so unless they had flouted the auto dealer rules and went forward with the stores regardless. Now they have a foothold. When you realize that the stakeholders (in this case, New York State Politicians) have a political interest in you flouting their rules then the rules just don't seem that rul-y anymore. It's also what's going to get their foot in Texas, as well. Elon Musk is one smart dude.
- andrewtbham 13y ago
  I agree. It's like this fred wilson blog post. The genie is out of the bottle. http://avc.com/2013/10/the-genie-and-the-bottle/ http://avc.com/2013/10/the-genie-and-the-bottle/
andrewtbham 13y ago
This is a great compromise for Tesla. The dealerships don't fear Tesla, they fear their manufacturers will start selling directly over the internet and cut them out of the loop. This should pacify their fears but still allow Tesla to operate. Long term, I suspect, this will be overturned, but for now it's a great compromise.

135 points by houseofshards 13y ago

Can someone with more knowledge of the (outdated) franchise law explain why Tesla can't/hasn't created their own dealerships (that officially aren't Tesla owned), but sell only Teslas?

sliverstorm 13y ago
I believe the answer is, because they don't want to do that.
dangrossman 13y ago
Because, under the same state laws, that's illegal as well. "It shall be unlawful for any franchisor to ... acquire any interest in any motor vehicle dealer in this state ... or to use any subsidiary corporation, affiliated corporation, captive finance source or any other controlled corporation, partnership, association or person to accomplish what would otherwise be unlawful conduct under this article" -- NY Vehicle and Traffic Laws, Article 17A, Franchised Motor Vehicle Dealer Act, S 463 Unfair Business Practices by Franchisors There'd be little point to having the rest of the law on the books if it were so easy to work around. Note that "franchisor" as defined in that law includes all manufacturers, whether they sell franchises or not. IANAL.
- deleted 13y ago
  [deleted]
woodchuck64 13y ago
Maybe they would prefer to kill dealerships (saving customers $2,225 average per new car according to a 2000 report). Lord knows, I've never had a good experience with a dealership, let 'em die! http://www.washingtonpost.com/opinions/charles-lane-tesla-takes-on-car-dealerships-in-a-fight-to-the-death/2014/03/12/2956a9f2-a9ff-11e3-8599-ce7295b6851c_story.html http://www.washingtonpost.com/opinions/charles-lane-tesla-ta...
- sp332 13y ago
  But if manufacturers have no competition for dealerships (because they own them all), what would keep them from jacking up the prices?
  - michaelt 13y ago
    If Tesla want to increase the price of Tesla cars for end customers, why would they need a dealer monopoly?
  - dangrossman 13y ago
    Manufacturers set the prices they sell their vehicles to the dealerships for, don't they? Unless the dealerships are going to start taking a loss on every sale, they aren't providing any restraint on manufacturer pricing. What keeps Ford from jacking up its prices is the Nissan lot next door, the year older Ford on the used lot, and the regional rail station down the street.
    - bwilliams18 13y ago
      This American Life did a great story on car dealerships[0]. Basically, dealers have a number they have to hit every month, and they're basically incentivized to sell cars and be willing to take thousands of dollars loss to hit the number because if they get below the number they don't receive any bonuses, and the bonuses are the principal form of cashflow to both the dealers and salesmen. [0]http://www.thisamericanlife.org/radio-archives/episode/513/129-cars http://www.thisamericanlife.org/radio-archives/episode/513/1...
      - revelation 13y ago
        Obviously, no matter what perverted incentive/bonus system you have in place, the essence of selling cars to a manufacturer and by extension to a dealership is to charge more than it cost you to make or acquire the car in the first place. Just because manufacturers can average it out across all dealerships doesn't make it less true, and obviously dealerships can never make a car cheaper, all things considered.

mattnibs 13y ago

How is requiring a car dealer to sell through a dealership beneficial to anyone besides the dealership lobby which spent millions of dollars in getting that law in place? This is why I freely support any company attempting to disrupt any industry that uses the US gov't to create laws limiting direct competition (Healthcare for example). Politicians who stand up for this kind of nonsense should be ashamed.

flyinglizard 13y ago
I imagine it's not just dealerships that oppose Tesla. It's nearly everyone involved in the automotive industry, from independent service shops to part suppliers to oil companies to the other American manufacturers.
- Crito 13y ago
  Why would an independent service shop care if it is [local moderately wealthy businessman with contracts with wealthy corporation] or [wealthy corporation] who owns the dealership? Either way they have the Magnuson–Moss Warranty Act so either way car owners can choose to either take their car to an independent shop or to a dealer shop. Lingering concerns could be cleared up by lobbying for some Right to Repair laws: http://en.wikipedia.org/wiki/Right-to-repair_act http://en.wikipedia.org/wiki/Right-to-repair_act
  - sliverstorm 13y ago
    Perhaps Tesla is not playing nice with independent service shops. You might be allowed to get your Tesla serviced at an independent shop, but fat load of good that does you if Tesla won't release service manuals (for example) Or, if I am allowed to speculate even more wildly, dealerships have to profit on sale & maintenance because they make nothing on the car itself (as they buy them whole from Ford etc). So if a dealer-owned shop comes to town, it can run the shop on lower profit margins thanks to the profits of the parent company, making things harder for independent shops.
    - 13y ago

dangero 13y ago

Wow so this seems actually worse than outlawing Tesla because what they are doing is giving Tesla major privileges over any future competition. Seems very monopolistic.

sliverstorm 13y ago
Well, as is often the case, they got theirs. They cleared the hurdle, now barriers to entry help instead of hurt them.
- deleted 13y ago
  [deleted]
  - sliverstorm 13y ago
    Depending on the circumstances, it could be called "DOT". It could be called "EPA". It could be called "CARB" (California Air Resources Board). There are a lot of actually-pretty-reasonable reasons cars are not allowed to be sold. (This is of course none of those, but you were being very general)
- sentientmachine 13y ago
  With Communism, a person's job is determined by an external power. How is the dealer network telling Tesla that they can't sell their car in NY not an example of communism? Put down that microscope citizen. I've already told you, you are a cashier, cashiers don't use microscopes. Microscopes are for scientists. You can't be a scientist. Get back to your station. Don't make me taze you.
  - jrockway 13y ago
    "With Communism, people breathe air. Since people breathe air in New York, how is New York not Communist?"
  - Dylan16807 13y ago
    Tesla Motors isn't a person.

coreymgilmore 13y ago

These laws are crazy. They work for Tesla currently, but what about the future and future direct-to-customer sales models by other companies? When Tesla grows, they will need more than 5 dealerships in order to reach more of the population. When a new competitor tries to sell direct, these rules will make it impossible for them to compete on an even playing field with Tesla and therefore have to revert to the old dealership model. Win for Tesla, loss for free markets and competition.

rtfeldman 13y ago

Certainly no one should expect this status quo to last for long. The dealers will keep lobbying to kick Tesla out, and Tesla will keep lobbying to lift this restriction. In that light, this is an interesting long-term strategic move on Musk's part. It arms him with a "we've been selling in this state for X years with Y thousand satisfied customers, so how can this be so problematic that it needs restriction?" argument for his lobbying efforts a few years down the line.

deleted 13y ago
[deleted]

diakritikal 13y ago

As a bemused European looking at this situation. Did a new U.S. manufacturer, just agree to sell cars in mob town?

sandstrom 13y ago
It is interesting that the US -- a champion of Laissez-faire in many other areas -- is the only country in the world with such laws. [regardless of whether one likes the idea of Laissez-faire or not, the contrast is interesting]

Aqueous 13y ago

Just goes to show you - it's sometimes better to ask for forgiveness than permission. Imagine if Tesla hadn't opened stores in these locations - they would be indefinitely, unconditionally barred from doing so unless they had flouted the auto dealer rules and went forward with the stores regardless. Now they have a foothold. When you realize that the stakeholders (in this case, New York State Politicians) have a political interest in you flouting their rules then the rules just don't seem that rul-y anymore. It's also what's going to get their foot in Texas, as well. Elon Musk is one smart dude.

andrewtbham 13y ago
I agree. It's like this fred wilson blog post. The genie is out of the bottle. http://avc.com/2013/10/the-genie-and-the-bottle/ http://avc.com/2013/10/the-genie-and-the-bottle/

andrewtbham 13y ago

This is a great compromise for Tesla. The dealerships don't fear Tesla, they fear their manufacturers will start selling directly over the internet and cut them out of the loop. This should pacify their fears but still allow Tesla to operate. Long term, I suspect, this will be overturned, but for now it's a great compromise.