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Capstone Paper on Tesla vs Texas Automobile Dealers Association

Discussion in 'Off Topic' started by romotodez, Jan 22, 2015.

  1. romotodez

    romotodez New Member

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    Hey everyone,

    I am new here, but for my capstone paper in my senior year at UT, I wanted to write a paper about the ongoing debate on if Tesla should have a dealership license here in Texas. I wanted to come to this forum where their were experts and supporters of Tesla to ask for some resources that I could cite.

    I know people are having a lot of trouble not only with sales, but also services. I am about to watch Elon Musk's interview at the Texas Transportation Forum to get some more information about this topic.

    Please, link some sources that you all may have that could help me out in my paper, especially things I would not find through my search. I am in the initial stages of this paper so really anything will help
     
  2. Jaff

    Jaff Active Member

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    I don't think Tesla is seeking a "dealership" license in Texas...I think they want the right to open up Tesla "stores" in Texas.

    We don't use the "D" word when speaking about Tesla's sales model...:wink:
     
  3. sgblank

    sgblank Member

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    romotodez
    background on the general subject of "rent seeking" here
     
  4. bollar

    bollar Disgruntled Member

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    The language Tesla supported in 2013 specifically would have allowed US EV manufacturers to have a Texas dealer license. Their decision to give the consumer a substantially better experience is a different issue.

    Normally I wouldn't bother commenting on a "D-Word" thread, but since the student is doing research, he needs to understand the distinction.
     
  5. roblab

    roblab Active Member

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    Finding links would be a Google job.

    As to ongoing debate, I would ask, "with whom?" There is no debate. The Texas Auto Dealers Assn. tells the Texas legislature that they want laws to protect the dealers. No debate.

    As to people having trouble "not only with sales, but also services", again, I ask, "what people?" The Auto Dealers? Those dealing with the Texas dealer network? Surely you do not mean Tesla. Only century old corporations have trouble separating service from profits. Like GM. Tesla says there should be no problems with sales, hence eliminate the outdated dealer franchise model. There should be no problem with service. Hence, get rid of outdated, inefficient internal combustion engine with hundreds of moving parts that wear out and need continual lubrication and maintenance.

    I hope you are out to actually learn something and not try to figure out why Texas Auto Dealers Assn. has any kind of a case.
     
  6. tonybelding

    tonybelding Active Member

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    Just to add a couple of thoughts here. . .

    The last time a bill was proposed to enable Tesla in Texas, it specified an exemption for companies that make only BEVs -- which effectively meant Tesla and only Tesla. I thought that was a mistake. These laws were created (supposedly) to protect established dealers from being undercut by their suppliers. It should be amended to do exactly that, to exempt any company that has no franchised dealerships. EVs shouldn't even be mentioned, IMO.

    As for Tesla service in Texas, their limitations are prescribed by law. According to my understanding (which is not first-hand), they can't deliver a car to you themselves, they have to get a third party to transport it. They can't provide any service for a specified time period (a couple of days) after you receive the car. They can perform warranty service at the service center, but they cannot *offer* it to you there, meaning you have to get on the phone with HQ in California to establish what needs to be done first. Outside of these weird restrictions, their level of provided service has garnered a lot of praise.
     
  7. jerry33

    jerry33 S85 - VIN:P05130 - 3/2/13

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    You pick the car up at your local service centre--no third party involved unless you live far from any service centre--then a car transport company delivers the car. I don't think that's very different from any other state. And yes, there's a central number where you call for service, but that can apply to any state as well. The main difference has to do with sales and what Tesla employees can and cannot say.
     
  8. Robert.Boston

    Robert.Boston Model S VIN P01536

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    You may find it helpful in your paper to have a section reviewing what happened in Massachusetts. While the MA law is differently worded than the TX law, there are some parallels.

    In short, MA delegates issuance of new car dealer licenses to the town/city. (In MA, as in most of New England, every square inch of the state is in a town/city; there's no unincorporated land. Ergo, every location a dealer might seek to build is in a town/city.) Tesla Motors set up a separate but wholly owned subsidiary to hold the dealer license, and the Natick town council, on advice of its legal counsel, accepted that this met the letter of the law. The Mass Auto Dealer Assoc. (MADA) challenged this decision in state courts. The lower court tossed out the case, ruling that MADA lacked standing because none of its members were Tesla franchisees who could be harmed. The Supreme Judicial Court upheld this ruling, leaving MADA with no further recourse without changing state law. They tried that, too, but that was repulsed, in part by Tesla owners testifying before the legislative committee, in part by press coverage.

    If you browse this forum you can pick up external links to flesh out the above outline:
    New Legal Bump in Massachusetts: State Supreme Court Hearing
    MA - anti-Tesla bill and pro-Tesla bill both dead for this session
    MA - legislative hearing on anti-Tesla bill scheduled in November - let's show up!
    Boston Globe weighs in - in favor of Tesla
    Tesla looks to sell cars at Natick Mall - Current situation not working
    Massachusetts - New bill proposed to prohibit direct sales
    Proposed MA Law to Clarify Auto Franchise Rules
    Automotive News: Tesla wins first round in Massachusetts dealers lawsuit
    Attorney says firm won’t sell its cars at Natick Mall
     
  9. Robert.Boston

    Robert.Boston Model S VIN P01536

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    As an economist trained in industrial organization and competition, this is an area I'm fairly passionate about, so you'll excuse my zealous partisanship on this issue in favor of promoting competition.

    One argument advanced by auto dealers is that they create competition. This is a bogus argument, except in the narrowest possible interpretation. The dealers would have you believe that they create choice for consumers. They do not; auto manufacturers create choice by creating different cars.

    All competition analysis begins by asking, "what is the relevant market?" In the case of the Model S, there are only a few logical options: either the Model S is its own market, or it competes against other near-luxury large sedans.

    If the Model S is its own market, then adding dealers doesn't make a difference in the choice set of consumers. Tesla is still a monopolist and can charge what it likes. The dealers are not in a position to force Tesla to change its pricing; all that will happen is that they will add their own margin on top of this. So, at best, the customer pays the same and the dealers extract some of the monopoly rent Tesla would earn from its engineering and production investments. At worst, customers pay more. The evidence compiled by the FTC conclusively shows that customers pay more.

    If the market is "near-luxury sedans," then once again, adding dealers doesn't change the choice set for consumers. Dealers don't make cars, and therefore don't create options. Moreover, Tesla's market share is well below FTC/DOJ guideline thresholds for having market power, so its pricing power is limited by the other options available to consumers.

    So, what is this competition of which the dealers speak? It's really only competition among themselves: which will charge the lowest markup over manufacturer's invoice. But note that direct-to-consumer approach creates correct incentives to sell efficiently: any dollars wasted in sales are lost profits to the auto manufacturer. So, no dealer can out-compete the manufacturer unless its costs are lower or it has some special ability to sell cars. As to cost, the largest costs of an auto dealer are building and land--which are competitively priced, so a local dealer is unlikely to get a better price than a national company--and capital for holding inventory. On that second point, it's not credible to suppose that a small local company can obtain working capital at a lower cost than a multinational, publicly traded corporation. Moreover, Tesla's business model minimizes capital tied up in inventory. Bottom line is that local dealers can't sell Teslas cheaper than Tesla can.

    You'll read a lot of other arguments about why auto dealers are important. I challenge you to start by writing a list of companies from whom you or your parents have bought directly in the past decade. Examples might be: Apple, Dell, Toll Brothers, Exxon, Levi Strauss, perhaps your favorite brewery or distillery, a furniture or mattress manufacturer, and so on. As you read the auto dealer's arguments, test whether they seem credible in you substitute in these companies, e.g. "Homes are a major purchase that people make rarely, so it's important that only licensed brokers be allowed to sell new homes rather than a builder like Toll Brothers."

    Likewise, make a list of companies that your are NOT allowed to buy from directly outside the auto sector. This will likely be a short list. Off the top of my head, I can think of the pharmaceutical companies, companies in embargoed countries like Cuba, and companies trying to sell you illegal goods. For each, explain the public policy rationale for the prohibition of direct sales, then see if that rationale is applicable to Tesla.

    Good luck!
     
  10. romotodez

    romotodez New Member

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    Where can I find information about what you mean stores? Because from what I have heard, it is about a dealership liscense, but Texas doesnt want to lose that tax money to California because Tesla doesn't want to franchise their dealerships

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    Thank you!!!

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    thanks!

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    Hey thanks for the reply. Yea I am a little confused on how they are trying to distinguish dealership, and whatever it is they are trying to do.

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    Well I am very new to this Tesla Texas deal with stores and everything like that. I am trying to learn more about it, but every issue has 2 sides. I am trying to see both Tesla's side on being able to open stores here where they can discuss prices, allow test-drives...etc. and who is opposing the bill that is allowing them to do that. And the other side, to me, seems to be the Texas Auto Dealers Assn. For the sake of my capstone paper atleast, I am trying to establish 2 opposing sides basically.

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    Of course I still need to continue to do my research, but from what I understand the first bill did not even reach the floor that Tesla tried to pass to Texas legislature. I figure it is because what you have explained.

    And yes the big reason Tesla is obviously frustrated about this is due to these limitations in Texas. An your right about services and delivering the car. Also they can not talk to you about prices at all in Texas stores or allow test drive.

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    Hey thank you! I figure I will need to speak about Tesla problems in other states as well in my paper.

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    Wow, will definitely be saving this post for reference. I need to do more research before I can contribute anything to a conversation with you, but I appreciate the break down of the issue; buying directly from a manufacturer or a dealer. I will use that connection with other industries as well. Thank you!
     
  11. TexasEV

    TexasEV Active Member

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    Motor vehicle sales taxes have nothing to do with it. They are paid to Texas either way. Now when someone orders online there is no tax paid to CA because the car is shipped out of state. The purchaser pays the tax when registering the car in Texas. If Teslas were sold in Texas the tax would be included in the price of the sale and paid to Texas. It wouldn't matter if the store was owned by Tesla or if there was an independent dealership. Think about it-- when you buy something at the Apple Store at Barton Creek Mall or the Domain, you're paying Texas sales tax on the purchase, right? Same as if you bought that same Apple product at Best Buy (an Apple "dealer"). A car is no different.
     

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