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March, 19, 2014 Print Friendly

Blake: Tesla’s distribution system challenges the auto industry, and lawmakers

Blake: Tesla’s distribution system challenges the auto industry, and lawmakers

By Peter Blake

Until a couple of years ago it never occurred to me that a manufacturer would or could sell vehicles except through a dealer.

After all, only Johnny Cash could claim he picked up his custom Cadillac at the factory because “it’s cheaper that way.” Those of us who pay for our cars naturally go to dealers, who have a large stock from which we can choose, and who can arrange the financing or lease terms. They seem essential to the process.

Then I read about Wal-Mart and other chains wanting to sell cars directly, and Tesla Motors came along with a system requiring you to buy online direct from the manufacturer.

Dealers, of course, have long known about these threats to their business. They maintain a powerful lobbying effort in every state, making sure that the independent middleman can’t be eliminated.

They flexed their muscle most recently in New Jersey, where the state Motor Vehicle Commission didn’t wait for legislation before issuing an order prohibiting the sale of any car except through a dealer. It was aimed specifically at the all-electric Tesla and its hot-selling Model S.

Four of the commission’s seven voting members are appointed by fast-fading Gov. Chris Christie, who signed off on the deal.

That puts New Jersey in the same category as Texas, where a similar law makes customers go through extraordinary artificial hoops to buy a Tesla.

Colorado is only slightly more tolerant. In 2010, the legislature passed House Bill 1049, a dealer-lobbied measure which, among other things, limited auto manufacturers (read: Tesla) to the single sales outlet they had already established. It’s currently located in Park Meadows Mall.

In states like Texas and New Jersey (plus Arizona, Virginia and Maryland), you can still buy a Tesla but the lengthy process must be handled as an out-of-state transaction. In these states, Tesla maintains “galleries” where the car is on exhibit, but the attendants can’t take you on a test drive, help you with the transaction and financing or even quote you a price.

By the way, Tesla starts at $70,000 and you can easily push the price up over $100,000 by ordering options such as a larger battery, a glass roof and a rear-facing third seat. But “fuel” is cheap and maintenance unnecessary.

An old friend of mine who lives in Texas said he inspected a Tesla at a Houston “gallery.” What sold him was not the full model out front but the “topless” chassis in back. “I didn’t buy it to save the planet,” he said. “I bought it because it’s dramatically different. There’s nothing to check, nothing to maintain, no belts, no hoses, no coolant.” The chassis shows a flat battery pack under the floorboard, about the size and shape of your front door, and in the rear, two short cylinders side by side, each with the circumference of an exercise ball. One is the motor, the other the inverter, which converts direct to alternating current. That’s about it. There being no engine, Tesla has put what it calls a “frunk” in front as well as a trunk in the rear. .

My friend ordered his car and its options online. His car was delivered three weeks later, not to the “gallery” but to a nearby service center.

That’s another reason Tesla doesn’t need dealers. It doesn’t built your car until you order it, so no one has to order, store — and pay for — a large inventory of popular vehicles.

Elon Musk, the entrepreneur who runs Tesla (he warmed up by starting PayPal and SpaceX), has another reason to avoid dealerships: their “conflict of interest.” In a blog post after the New Jersey rule, he wrote that “dealers make most of their profit from service, but electric cars require much less service than gasoline cars. There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car.” Even software updates come over the air.

“I have made it a principle within Tesla that we should never attempt to make servicing a profit center,” he continued. “It does not seem right to me that companies try to make a profit off customers when their product breaks. Overcharging people for unneeded servicing. . . is rampant within the industry. . .”

Musk may lack humility, but he has a point.

You can’t blame dealers for being defensive. They may have spent millions for the rights, the property, the buildings and the vehicles. In early years they were often jacked around by manufacturers, which is why they sought legislative help.

But they’re not honest about the reason they hate direct selling by the manufacturer. Dealers argue they provide “consumer protection” through price competition. “If you believe this,” wrote Musk, “Gov. Christie has a bridge closure he wants to sell you. Unless they are referring to the mafia version of ‘protection,’ this is obviously untrue.”

But there’s no reason franchised dealers and company-owned stores can’t exist side by side. Many restaurant chains have both. The electric vehicle may take over the world someday, but not until 1) the range exceeds 200 miles, which is what Tesla offers now, and 2) you can count on finding fast superchargers in every town you pass through. People don’t want to plan a trip around their car’s needs.

So dealers will be needed for the internal combustion vehicle for a few decades to come. The courts can protect the contracts they have with manufacturers. And it’s possible some other electric car company will find dealers useful. States shouldn’t limit the way the market changes by moving to protect a single sales system. Colorado could start by liberalizing its law.

And here’s a tradeoff traditional dealers should like: Eliminate the tax credits awarded to electric car owners ($7,500 by the feds, $6,000 by Colorado). They only serve to jack up the price. Let electrics compete on a level playing field.

Longtime Rocky Mountain News political columnist Peter Blake now writes Thursdays for CompleteColorado.com. Contact him at pblake0705@comcast.net You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com

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