Strategies to Support Tesla's Direct Auto Sales Model

[DJ Frustration]

I think Tesla is going about fighting those opposed to the direct auto sales model in the wrong way. I realize why Tesla does it (limited budget, belief that better products/ideas win the marketplace, reluctance to buy off lawmakers like other industries do), but it seems to be a reactive and losing strategy highly dependent on legislatures doing the right thing for the good of society. Over the past three years, various state legislatures and governors have demonstrated that something else is necessary to win this fight.

I'd love to see some brainstorming from the very intelligent people on this forum about how Tesla could take a better and somewhat pro-active approach to these state by state fights and what those methods should be.

All these battles have the same playbook:
State Dealer lobbies pop up, spread around cash to legislators and rile up their 10,000 to 50,000 in-state employees and owners. They scare these people and the media into believing that Tesla is trying to play by different rules and eventually they'll lose their jobs because of it. If the dealers go out of business, then the little league teams will lose their sponsors, etc. etc. They successfully use the trickle down effects of dealers going out of business to win hearts and minds.

Then Tesla gets wind of pending legislation, whips up its supporters into reactive action. We write letters, we call our representatives and sometimes show up at hearings. Since our supporters are much less in quantity and do not contribute to their campaigns like the dealers, legislators side with the dealers. These dealers live and employ hundreds and sometimes thousands of people in their districts. When you weigh the all politics is local aspect against Tesla, who is lead by an "eccentric billionare" with "weird electric vehicle technology" (their quotes, not mine) and scarce presence in their district, can you blame the legislators for siding with the dealers? The resulting outcome is that these anti-Tesla bills advance and everyone on our side shakes their head in amazement that the legislators didn't see things from our perspective.

This has to change. So, how would you change Tesla's reactive strategy?

 

[bonnie]

I wouldn't assume Tesla's strategy is reactive.

 

[omarsultan]

I think its good to understand the opposition as a first step. Do I really thing GM sees Tesla as an existential threat? Unlikely. Beyond the tail-tweaking that CEOs like to do to each other, the market is big enough that both the Model 3 and the Bolt can hit their target numbers with room to spare for the odd LEAF and i3. If anything the premium brands (BMW, MB, etc) should be the ones taking up arms, since they are inherently a lower volume business and where Tesla has made the biggest inroads.

I think the bigger threat is that Tesla validates a business model that is an existential threat. Something like Chery, BYD, et al selling through a Costco is an existential threat is you are a Chevy dealer. If you are going to successfully engage your local government representative, you need to recognize there is some validity to that viewpoint. If the entire narrative is around protecting Tesla, we run the risk of coming of as self-absorbed 1%ers missing the big picture.

 

[Zarwin]

Cross posting here as it is directly related and this might be the best thread to discuss. While this was thought out as more reactionary, the proactive aspects can take advantage of the same reference model.

---------------------
Now that the Indiana issue is tabled, I thought it might be a good time to look back and see how this process could be better organized. Looking back through the hundreds of posts across three different threads it's hard to find things and keep a handle on current status (not that current status matters at the moment). I've always been a big fan of a very simple single point of reference that can be accessed with an extremely easy to remember verbal label. As in, something you could convey from one person to another verbally and have them remember without any need to reference multiple long links. Also a big fan of multiple owners to update content.


Over the last couple of hours, while I should have been working, I've instead been drinking cheap wine (hey it's Friday) and throwing something together. DSM=Direct Sales Model

TeslaDSM.org

So to keep with the simple model, any state has [state-abbreviation.TeslaDSM.org] as the address with the main TelsaDSM.org as basically a table of states that are in some way challenging or being challenged on the direct sales model and general references to combat this. Each state is just a google doc, nothing more. A simple google doc that multiple people can be authors of and update simultaneously. In this case Indiana is:


IN.TeslaDSM.org


I just threw some content in there from the thread and my own doings as a very basic example. No specific format would need to be followed from state to state and different people could "own" or manage the overall format and content. The whole idea is to have a single point of reference that multiple people could update to keep everyone on the same page.

Thoughts?

Edit: changed TeslaFTW to TeslaDSM (Direct Sales Model)

 

[DJ Frustration]

I wouldn't assume Tesla's strategy is reactive.

Maybe they're pulling levers behind the scenes, but from the general public who isn't in the know, the strategy seems consistently reactive. I'd love to be proven wrong though.

 

[jbcarioca]

Regardless of the Supreme Court makeup the state statutes restricting sales processes by manufacturers operating nationwide can be accurately construed as restraint of trade. The Interstate Commerce Act of 1887 does not necessarily apply, but it is quite arguable that it should. The Sherman Anti-Trust Act of 1890 might even be argued to apply, with the definition of "monopoly" being a special interest. However, the Dormant Commerce Clause (here's the quite nice wiki: Dormant Commerce Clause - Wikipedia, the free encyclopedia) might be the best major point, especially given Justice Kennedy's past opinions.

The Tesla application in Michigan probably is intended to toss the matter into the federal Court system. Given the current court I'll stick my neck out an suggest there would probably be something like a 5:3 or even maybe 8:0 decision in Tesla favor depending on how the case is made.

Among other things the 10th largest US dealer group (Larry Miller, based in Utah) sold more cars in 2015 than did Tesla, and did so through ownership of dealers in seven states over 20 brands.
The 150 largest groups sold 22% of cars in the US. Car dealers are big business, not mom-and-pop as they were when these state statutes were made. Now the smallest of the top 150 has over
$200,000,000 in annual sales. Laws protecting large corporations from competition are inherently in restraint of trade by excluding competitors and preventing consumers, including coprtate and government consumers, from choosing their own preferred purchase method, and acting to subsidize a government-mandated distribution choice in restraint of free interstate commerce without any plausible benefit to anyone other than the large corporations that now are protected from open competition.

Tesla should be, and, I think, is, preparing for these and other arguments. It only takes Michigan to stick to their stealth-of-night regulations to help make a federal case stick against them. Governor Snyder's histrionics are documented and will help the Tesla case.

Maybe I am too optimistic but I do think this is a good bet for Tesla.

 

[Nomad]

It's great to see so many members of the community are having the same thoughts. Bonnie has been rebutting specific GM talking points throughout the whole ordeal in Indiana with HB1254. DJ Frustration and Zarwin, I applaud you for thinking big about the existing and future threats to the direct sales model. Yesterday, I had similar thoughts about a community backed effort. I created a Google Doc with the intention of it being a collaborative hub for taking control of the narrative and dispelling GM and the automobile dealers association's misleading claims.

DJ Frustration, I think you and I are in agreement regarding reactive/defense/narrative—semantics aside. Here is my opening statement to the Google Doc, followed my in-document comment clarification.

Synopsis: This document will serve as a hub for information supporting the right of a vehicle manufacturer to sell directly to consumers. The goal is to control the narrative* by providing accurate history of the law, logical arguments, economic figures, and studies regarding consumer protection. With this factual information, we will be able to refute, point-by-point, the various misleading claims presented by opponents of consumer choice. This information will be condensed into palmcard and digital image for distribution via canvassing and social media.

re:controlling the narrative

This is critical to the mission. Senate Committee meetings demonstrated that key members accepted GM's narrative prima facie. Over half of the committee was focused figuring out how to help Tesla comply with HB 1254 w/ Amd 3, rather than questioning whether the new law was even necessary. With that in mind, it is key for us to totally change the narrative. In short, we have to put GM on the defensive.

For those that would like to join in on the document, you can request access here: Manufacturer Direct Sales Research. I'd like to keep it relatively private now, so as to avoid tipping our hand to the opponents of consumer choice.

 

[bhzmark]

Does anyone know where to find the best collection of the specific statues in each states that prohibits or hinders direct sales? What exactly is the language that prohibits the mfr from using an affiliate as the state licensed dealer for each state?

 

[bonnie]

I think it's great that owners are willing to get involved. While GM and NADA have very deep pockets to pay teams of lawyers and make donations to various campaigns, Tesla has owner passion. That owner passion literally scares the bejeezus out of politicians. Voters who are owners making a fuss draws media attention. And it's the last thing they want.

Tesla will welcome bringing that passion to the table in the different states where they have battles ahead. Right now the key states to think about (in this order) are Connecticut, Michigan, and Utah.

Connecticut has a bill supported by the Senate Majority leader, Bob Duff, with the very strong support of the Connecticut Auto Dealers and GM. That is hot. If you all want to help, make up a list of legislators with contact info and get it out to not only Tesla owners, but EV owners. Pack session hearings.

So while we want to charge in and wave flags, remember that this is Tesla's business and we follow their lead. They do have a strategy, they do have relationships built within the various states. Utah vs. Michigan is a good example. I wouldn't say there is anything 'well meaning' about Michigan's restrictions on Tesla. But Utah has kind of stumbled into a a bad bill that, if passed, will unnecessarily restrict Tesla sales. Utah is a place where making sure individual legislators are contacted by their voters, test drives given by local Utah residents, friendly phone calls, etc. will be very helpful. Michigan is going to take a lot more.

But if you come on strong in Utah, you could alienate and torpedo Tesla's efforts to date. I'm sure that's no one's intention here. But we do need to always keep in mind that we need to follow their lead. Make sense? I know to some that it looks like a reactionary strategy, but just because we don't see the sausage being made, doesn't mean it isn't happening.

Right now I'd make sure that in each of these states we are organized with someone local holding contact info, that the legislators are known, that letters supporting electric vehicles are being written, and that more than Tesla owners are involved. (It was great in Tennessee when other EV owners joined in, made a powerful statement.)

I also love the idea of building a rebuttal document. So helpful for a number of reasons. I'm currently in the process of pulling the transcript from the Indiana hearing, so I'll make that available. There will be plenty of material there . (I started taking notes and couldn't keep up!)

- - - Updated - - -

For those that would like to join in on the document, you can request access here: Manufacturer Direct Sales Research. I'd like to keep it relatively private now, so as to avoid tipping our hand to the opponents of consumer choice.

Oh, they've already seen this thread. Hand is tipped. They monitor this stuff quite closely ...

 

[bhzmark]

Does anyone know where to find the best collection of the specific statues in each states that prohibits or hinders direct sales? What exactly is the language that prohibits the mfr from using an affiliate as the state licensed dealer for each state?

Not finding anything, here's a start: Direct Sales Laws - Tesla Motors Club - Enthusiasts & Owners Forum please add and update as you can.

 

[bhzmark]

Here's the latest in Tesla 10-K:

We may face regulatory limitations on our ability to sell vehicles directly which could materially and adversely affect our ability to sell our electricvehicles.We sell our vehicles from our Tesla stores as well as over the internet. We may not be able to sell our vehicles through this sales model in each state in the United States as some states have laws that may be interpreted to impose limitations on this sales model, including laws that prohibit manufacturers from sellingvehicles directly to consumers without the use of an independent dealership or without a physical presence in the state. In certain states in which we are not able toobtain dealer licenses, we have worked with state regulators to open galleries, which are not full retail locations.The application of these state laws to our operations continues to be difficult to predict. Laws in some states have limited our ability to obtain dealer licensesfrom state motor vehicle regulators and may continue to do so.In addition, decisions by regulators permitting us to sell vehicles may be subject to challenges as to whether such decisions comply with applicable statemotor vehicle industry laws. For example, vehicle dealer associations in New York, Ohio, Georgia and Massachusetts have filed lawsuits to revoke dealer licensesissued to us. These lawsuits have been dismissed, and in one court decision, the Supreme Court of Massachusetts held that state franchise laws like the one inMassachusetts do not restrict a manufacturer, like Tesla, that does not use franchised dealers from selling its vehicles directly to consumers. Such results havereinforced our continuing belief that state laws were not designed to prevent our distribution model. A similar lawsuit has been filed in Missouri. Possibleadditional challenges in other states, if successful, could restrict or prohibit our ability to sell our vehicles to residents in such states. In some states, there have alsobeen regulatory and legislative efforts by vehicle dealer associations to propose bills and regulations that, if enacted, would prevent us from obtaining dealerlicenses in their states given our current sales model. Other states, such as New Jersey, New York, Ohio and Pennsylvania, have passed legislation that clarifies ourability to operate, but at the same time limits the number of dealer licenses we can obtain or stores that we can operate.


Automobile Manufacturer and Dealer RegulationState laws regulate the manufacture, distribution, and sale of automobiles, and generally require motor vehicle manufacturers and dealers to be licensed inorder to sell vehicles directly to consumers in the state. As we open additional Tesla stores and service centers, we secure dealer licenses (or their equivalent) andengage in sales activities to sell our vehicles directly to consumers. A few states, such as Texas and Michigan, do not permit automobile manufacturers to belicensed as dealers or to act in the capacity of a dealer, or otherwise restrict a manufacturer’s ability to deliver or service vehicles. To sell vehicles to residents ofstates where we are not licensed as a dealer, we generally conduct the sale out of the state via the internet, phone or mail. In such states, we have opened “galleries”that serve an educational purpose and are not retail locations.As we expand our retail footprint in the United States, some automobile dealer trade associations have both challenged the legality of our operations in courtand used administrative and legislative processes to attempt to prohibit or limit our ability to operate existing stores or expand to new locations. Although we havethus far prevailed in every lawsuit brought by dealer associations, we expect that the dealer associations will continue to mount challenges to our business model. Inaddition, we expect the dealer associations to actively lobby state licensing agencies and legislators to interpret existing laws or enact new laws in ways notfavorable to Tesla’s ownership and operation of its own retail and service locations.While we have analyzed the principal laws in the US, EU, China, Japan, UK, and Australia relating to our distribution model and believe we comply withsuch laws, we have not performed a complete analysis of all jurisdictions in which we may sell vehicles. Accordingly, there may be laws in certain jurisdictionsthat may restrict our sales and service operations.

 

[neroden]

So, how would you change Tesla's reactive strategy?

First of all, if I were at Tesla, I would make overtures to the independent repair shops. There really is no legitimate case whatsoever for franchised dealers, but we have found that there *is* a case for a diversity of repair shops. Tesla is having very clear difficulty expanding the number of "certified" body shops enough *and* expanding the number of service centers enough. Opening up parts access and manuals, offering "certification" to any independent (non-dealer) repair shop which is willing to do the hard work to get certified (no exclusivity)... I think this would (a) make customers happier, (b) neuter the sole-source service complaints, (c) get a group of local employers, who sponsor Little League teams and so forth, on Tesla's side.

Separating the independent repair shops from the dealers gives Tesla a local counterweight.

 

[Peter_M]

It's only one aspect of this, but service manuals are available for a subscription fee: Welcome | Tesla Service.

 

[bhzmark]

This is to support the direct sales model. Feel free to start another thread re support independent repair shops or whatever.

 

[Zwalderon]

I realize I'm preaching to the choir, but..
I was at a website where commenters were bashing Tesla's direct sales model.
I wrote:

If I gave you a great deal for this car, will you buy it today?
Never mind how much you want to pay, how much can you afford per month?
Can we have your keys to check your car for trade-in? (now you can't leave)
This is what you can pay? Let me check with my manager. (2 hrs later, still can't leave)And on and on it goes. Finally, after being at the dealership for half the day, you are exhausted, emotionally spun, and generally outmaneuvered by a professional team trained to take you for every possible penny.And they wonder why we want to skip the dealership experience.
I want a choice on how and from whom I buy a car.
Please leave Tesla alone.

Amazingly, the tone of the comment section changed and became much more supportive.

 

[jbcarioca]

First of all, if I were at Tesla, I would make overtures to the independent repair shops. There really is no legitimate case whatsoever for franchised dealers, but we have found that there *is* a case for a diversity of repair shops. Tesla is having very clear difficulty expanding the number of "certified" body shops enough *and* expanding the number of service centers enough. Opening up parts access and manuals, offering "certification" to any independent (non-dealer) repair shop which is willing to do the hard work to get certified (no exclusivity)... I think this would (a) make customers happier, (b) neuter the sole-source service complaints, (c) get a group of local employers, who sponsor Little League teams and so forth, on Tesla's side.

Separating the independent repair shops from the dealers gives Tesla a local counterweight.

This could be a quite good idea, especially were it to include supportive car dealer groups. Mike Jackson of Autonation is one such example. Were such services allowed they also might help the secondary market and could firm the basis for limited franchising, as Elon has intimated may happen sometime as volume grows. Having explicit support from one or two of the giant dealer groups with demonstrated local political clout nearly everywhere could overcome the GM arguments, based almost entirely on GM's long-standing medium sized dealers.

this subject cannot really be addressed with sound bites, even though the political pitch will be. However, it is crucial to recognize that several auto manufacturers will want Tesla to win (off line we could discuss a couple of those), and the top three US dealer groups are entirely different than any of those below about 200th or so. If the hints from Elon are indicative it is time for a comprehensive effort to generate dealer support.

I kniw now that sounds impossible. I do not believe that it is.

The smart dealers know that the sooner they support Tesla in Direct Sales and Service the sooner Tesla will grow enough to need outside servicing, first, followed quickly by sales. Beyond that keep,in mind that after model ≡ Tesla will begin to need in-store inventory. Then, for sales accounting and balance sheet management they'll need other capital off-balance sheet, holding the inventory.

FWIW, several global manufacturers from Mercedes Benz with Studebaker to Toyota with Jim Moran have ended choosing dealer distribution rather that exclusive stores. US automakers that have owned their own stores include Ford and GM, neither of which were successful. Properly presented, as Mike Jackson knows at Autonation, letting Any car manufacturer to own their own stores really does not threaten good dealers.

Now, please have at me for my radical ideas...

link to LA Times article on Mike Jackson about Tesla distribution:
Why AutoNation CEO Jackson calls dealer fight with Tesla hypocritical - LA Times

 

[neroden]

I just figure having independent repair shops on Tesla's side would provide "local business" political counterweight to the dealers' associations which always claim to represent "local business", and "local business" is their most persuasive argument when they're at the state legislature. (You'll notice that in California where Tesla is perceived as the "local business", the dealer's association has made no progress in their attacks at all.)

The Tesla-approved body shops probably are already in this category, so why not expand it.

 

[bhzmark]

I don't see repair shops having an effect on the politicians who may be considering whether to restrict Tesla direct sales to artificially support ice dealer sales.

 

[bonnie]

The whole 'dealerships provide jobs to the local community' argument falls apart when poked.

Tesla stores/service centers also provide jobs to the local community. And dealerships don't go out of business just because Tesla is allowed to operate. The jobs are intact. I don't see dealerships shuttered here in California or in any other states where Tesla operates lawfully.

 

[jbcarioca]

Of course any responsible Conservative position anywhere would favor any manufacturers of anything to sell in the manner they wish to, with restrictions only for public health issues (e.g. Prescriptions for drugs, hazardous materials such as gasoline). Any rational analysis shows AutoNation survives nicely ( $19bn annual sales) as do many small local single outlet dealers. The local employment numbers by store type tend to show minimal differences, according to research I recall from almost twenty years ago. I doubt it has changed much.

It seems to me the arguments that can help in this case are rarely factual. If they were both Michigan and New Jersey, among others, would not have made their restrictions without public hearings or even public disclosure.

Because of the raw political content I argue that two different paths are required:

1) court action, which will be supported by the FTC, and which probably is the Tesla motivation for the Michigan application. It is probable that a favorable Federal Appeals Court ruling would not be overturned by the present Supreme Court. Of course this path is fraught with hazards.
2) Make common cause with others hearing common perspective who are adept political players, like AutoNation, among others.

Because the anti-free sales forces are mostly NADA and GM, there could be quite a few seemingly improbable alliances.

Ted Olson is spectacularly good at finding ways to pursue both of these paths and he's already on the job.