Navigant Research Blog

Dealers Fight Tesla Via Legislatures

Dave Hurst — June 2, 2013

Last year, I noted that traditional auto dealers are none too happy with Tesla Motors’ sales model.  To quote myself: “I wouldn’t be surprised if some states (particularly Texas) force changes to Tesla’s current store model.”  Turns out I got that wrong: North Carolina has proven to be the first state that is trying to change Tesla’s current model.

The bill in the North Carolina House of Representatives would make it illegal for manufacturers to sell directly to consumers.  Further, it would make it illegal for Tesla to even communicate with current and potential buyers via email (though if a North Carolinian wants to buy a charger from Tesla, I have no idea how the legislation plans to enforce that ban on communication).  The bill, supported by the North Carolina Automobile Dealers Association, applies to all auto manufacturers.

Of course, the claim of the senate is that the bill is designed to protect consumers by preventing unfair competition between dealers and manufacturers.  However, the problem with this bill and other state laws similar to it is that it doesn’t address the core issue here: Tesla has found a successful way to sell cars without using the franchise dealers ‑ and more importantly, consumers (of Tesla vehicles, at least) like it.

Bucking the Tide

The arguments put forth by some of the dealers associations for pushing back against the new sales model do have some merit, since a battle between a manufacturer and its own franchise dealers would indeed likely negatively affect customers (particularly older customers who have bought vehicles through dealers or a singular dealer for years or decades).  The North Carolina bill would certainly head-off that potential.  Tim Jackson of the Colorado Automobile Dealers Association provided to Green Car Reports three key reasons why franchised auto dealers are the best way to protect buyers:

  1. “Independent dealerships usually continue in business to provide service even if an auto company or brand shuts down the supply of new cars.”
  2. “The dealers feel – as Musk acknowledged in his letter – that Tesla could spend its money much more wisely than on building its own stores.”
  3. “All auto dealers will be hurt if Tesla fails.  If that were to happen, and consumers were left high and dry without a place to have their Tesla cars serviced, … it would do great damage to the good reputation of all auto dealers.”

Regardless of the dealer business structure, though, in the event of Tesla’s failure, owners would be left high and dry because of a lack of sister brands using similar parts and of significant vehicle history that would encourage the availability of aftermarket parts.  While those arguments may work for brands of GM or Toyota, Tesla owners would likely have the same problem in getting parts and service that CODA Automotive and THINK owners are likely experiencing, despite having purchased through franchised dealers.

What I said last year still holds true: legislators (and dealers) are essentially fighting a shift in how consumers purchase products, which apparently could include cars.  North Carolina and Texas may be on the front line of this fight, but don’t expect it to be limited to those two states.

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