Tom Kosel
Professor Emeritus, Notre Dame
Here is my letter to Senator Broden (my Indiana district):
As a Tesla Model S owner and longtime WVPE supporter, I beg you to include something tonight or tomorrow morning about the Indiana Senate committee meeting TOMORROW MORNING Feb. 25th concerning HB1254, which seeks to change Indiana law to prevent Tesla Motors from continuing its dealer license beyond the end of 2017. I am forwarding Tesla’s email to Indiana Tesla owners separately. My email to Indiana senator John Broden follows. I know it is very late for you to digest the information, but I hope you can still say something on-air. The USA Today article published this afternoon and referenced in my letter below is informative.
Thanks, and my appreciation to WVPE.
Dear Senator Broden:
I purchased a Tesla Model S last August at the Tesla showroom in Indianapolis. I sincerely hope you will oppose HB1254 at tomorrow’s meeting of the Commerce and Technology committee.
Chairman Buck stated at last week’s meeting that the bill is not about Tesla; but since Tesla is the only car manufacturer selling direct to consumers in Indiana, the bill has a direct immediate effect only on Tesla.
Senators who questioned Tesla representative Chen at the last meeting seemed unable or unwilling to grasp the fact that in order to make a profit, franchise dealerships need to sell in greater volume than is possible for Tesla at this time. In the early days of the auto business, companies sold direct to consumers, until with the advent of assembly line production sales volume became too great to make sense for the manufacturers to have enough outlets, which led to the franchise dealer system. If Tesla achieves its goal of high-volume sales with its new less expensive Model 3 ($35,000), it may well move to a franchise dealer model. At present, volume is too low for an independent franchise dealer to profit.
Franchise dealers also need to mark up the price of a car. Unless Tesla were to reduce their own profit (which is unlikely since they are currently in startup/expansion mode, spending more than they take in in order to bring out new models and fund R&D), a prospective buyer would have to pay more at an Indiana franchise than in neighboring Illinois or Ohio, where Tesla sells direct. I’d expect this to put pressure on the bottom line of a franchise dealer! Please ask supporters of the bill if they really believe a Tesla franchise would be profitable with low sales volume and adjacent states selling direct for less.
A USA Today article posted just a couple of hours ago (
http://www.usatoday.com/story/money/...iana/80860620/)
quotes a GM spokesperson as saying existing law discriminates against GM, Ford etc. by prohibiting them from selling direct because they have franchise dealers. From what Sen. Buck said, I understood that this is to prevent them from competing against their own franchise dealers.
Does GM suggest that it would like to be able to sell direct? Please ask them at the meeting. The big companies created the franchises to avoid having to create a huge direct-dealer network. Do they regret this, or just claim that it is unfair because they don’t want to compete? Is it a coincidence that the Tesla Model 3 will be a challenge to the Chevy Bolt?
A 2009 paper by the US Dept. of Justice analyzed the effects of the franchise dealer model:
http://www.justice.gov/atr/economic-...les-car-buyers
The paper describes a GM experiment with direct sales of the Chevrolet Celta in Brazil; I don’t know if it is still current. The paper quotes a Goldman Sachs estimate that consumers pay about 8.6% more due to the franchise dealer model. Is this in the interests of Indiana consumers?
In view of Tesla’s current low volume, couldn’t the bill permit them a 10 or 5 year extension? After all, the state allowed them to set up business. How fair is it to change the rules on them? And how fair is it to allow the big established companies force Tesla out of the state in order to ensure their monopoly of the Indiana market?