Why doesn't Tesla start its own non-profit dealership to sell in states that disallow direct selling

[Tiger]

Why doesn't Tesla start its own non-profit dealership (sufficiently independent to comply with the laws and local origin and all-that) to sell in states that disallow direct selling?

Laws forbid manufacturer from owning a dealership/service center, but they could start an independent foundation or company or something, there must be a way to play by the rules but avoid marking up the price unnecessarily for the consumer.

There must be a legal way around it.

Thanks.

 

[Tiger]

BTW, related posts:
- Can an exclusive Tesla dealer survive?
- Breaking News: Pro-Tesla Motors bill dies in Texas House (Austin Business Journal)

 

[azred]

Why doesn't Tesla start its own non-profit dealership (sufficiently independent to comply with the laws and local origin and all-that) to sell in states that disallow direct selling?

Laws forbid manufacturer from owning a dealership/service center, but they could start an independent foundation or company or something, there must be a way to play by the rules but avoid marking up the price unnecessarily for the consumer.

There must be a legal way around it.

Thanks.

I see you are in Estonia. Unfortunately -- at least for for this situation -- each U.S. state has unique motor vehicle laws. You can be sure Tesla is using every possible option to circumvent prohibitions but the challenges differ by state. Making matters worse, auto dealers are working overtime to sponsor new legislation with new roadblocks in some states.

 

[Tiger]

You can be sure Tesla is using every possible option to circumvent prohibitions but the challenges differ by state.

I hope it's not just some falcon-wing-doors (FWD) kind of obsession that they try to get legislation changed. Just incorporate a local pass-through dealership and get over with it. And perhaps also allow other dealerships to take part also, there shouldn't be any harm in that so long as staff has required training.

 

[wdolson]

The problem is arcane laws in some US states and very strong opposition from car dealerships who both make millions and only exist because of the laws. Back in the 1920s or 1930s, car makers were playing games selling cars directly to customers. Because communications were not as good as they are now, they would sell cars at very different price points in different markets based on what they could get away with. Consumers might go to a company owned dealership in the next town, but they wouldn't know what the car is selling for at the company owned dealership on the other end of the state or in the next state. As long as they kept the price fixed in a region, everyone paid the same price and people in some regions got screwed.

Many states passed dealership laws that said that locally owned dealerships were the only businesses that could sell new cars. This made the dealership owner in your town and in the next town competitors to sell the same model car and helped push prices down.

However the internet has made all that obsolete. I can find out what cars are selling for 3000 miles from here if I want at any time. But now in many parts of the US, local car dealerships are the largest businesses in town and the owners are the wealthiest people in town. They have a lot of political clout with the local state legislators.

The car manufacturers have also found they like the system because if they over produce a car that doesn't sell well, they can push the risk off onto the dealerships.

I recently saw an interview with two of the founders of Tesla (neither work for Tesla anymore) and they said when they were getting the roadster ready for roll out they learned a lot about these arcane state laws. Each state's laws are different, but some states have very draconian laws about selling cars through dealerships that say if the company ever sells cars through a dealership even once, it is a crime to ever sell cars directly in that state. I believe some state laws state that if a manufacturer has ever sold through a dealership anywhere, it's a crime to sell direct.

This is the reason Tesla has held firm about never selling through dealerships.

The laws will be changed eventually. I believe what will happen is if the Model 3 is a popular hit, it will trigger a massive disruption in the automotive business. Consumers will start demanding EVs, but because of limits in battery production, there will be a shortage. People will drive their old ICE longer waiting in line for an EV, or will buy a cheap, used ICE while waiting. More people than ever before will lease new cars if they don't want to go used to keep their options open when the EV they want becomes available.

This will cause a crisis in the traditional car market and send the manufacturers into a frenzy. A lot of new battery factories will be built, and a lot of country's governments will help, but in the US, the government will be reluctant to "bail out" the car industry again and the US car makers will become much weaker. Dealers too will become much weaker as their profits dry up.

At the same time Tesla will be growing fast and the public will be demanding Tesla be able to sell in their state. Legislators will begin to give in and the laws will be changed.

In the meantime Tesla has to jump through a lot of hoops to sell cars in some states. People can buy Teslas in these states and Tesla has service centers in most of these states. The states make is a nuisance, but it isn't impossible.

 

[bhzmark]

Why doesn't Tesla start its own non-profit dealership (sufficiently independent to comply with the laws and local origin and all-that) to sell in states that disallow direct selling?

Laws forbid manufacturer from owning a dealership/service center, but they could start an independent foundation or company or something, there must be a way to play by the rules but avoid marking up the price unnecessarily for the consumer.

There must be a legal way around it.

Thanks.

Very interesting idea. I'm surprised somebody else also thought of it. I looked into this but the rules on controlling the dealership (at least in the couple states that I looked into) mean that the dealer would have to be so independent from Tesla that it would really be too risky for them to do this.

And even starting down this path would just be too much of a concession to the idea of independent dealers which of course is just a horrible concept.

But good thoughts.

I was also thinking about how they could somehow just sell it through Nordstrom or Amazon or both.

 

[Jtrader]

Tesla could just partner with anyone (say another one of Elon's cousins) to open a 3rd party franchise dealership to sell Tesla's exclusively and be done with it. The dealership would buy the cars wholesale from Tesla and sell them at regular price. The difference between the wholesale and the retail price would be the cost to operate the location.

 

[bhzmark]

Tesla could just partner with anyone (say another one of Elon's cousins) to open a 3rd party franchise dealership to sell Tesla's exclusively and be done with it. The dealership would buy the cars wholesale from Tesla and sell them at regular price. The difference between the wholesale and the retail price would be the cost to operate the location.

i agree the concept is just to be sufficiently independent -- and being affiliated by means of a family relationship, or a friend would be ok. but the added concept of a nonprofit (not tax exempt, but just not having any equity owners for whom to have a duty to derive a profit) would be an attractive concept to add to the point that the dealership doesn't need to make a profit from the sales or service.

I'd love to crowd source a solution to get around the state rules. Starting with Texas and Michigan.

Some of the laws are collected here: Direct Sales Laws

Maybe Space X can start a car dealership business in Texas and Michigan. Although being under common ownership and CEO control with EM might test the "indirectly control" relationship. But usually sibling companies aren't thought to control one another, even indirectly, merely because they are under common minority ownership and officer control.

 

[jbcarioca]

Tesla could just partner with anyone (say another one of Elon's cousins) to open a 3rd party franchise dealership to sell Tesla's exclusively and be done with it. The dealership would buy the cars wholesale from Tesla and sell them at regular price. The difference between the wholesale and the retail price would be the cost to operate the location.

It is not that simple, because of the individual State laws that have draconian precedents and conflicting legal adjudications. This will reach the US Supreme Court sometime in the not-too-distant future. It will be fascinating to see how it will fare there.

FWIW, most car dealers, even the gigantic corporate ones like AutoNation and CarMax, are devout Republicans.
Unfettered deregulation of interstate commerce is also a devoted Republican issue.
"State's Rights" is yet another devoted Republican issue.

The State restrictions of motor vehicle sales, distribution and service are wildly arcane and profoundly illogical one from another. The prediction of whether the US Supreme Court will eventually decide this on broad or narrow terms is fraught, but I am confident they'll accept the first major case that comes, which might be Michigan. The Michigan "midnight word change" is pretty attractive as a target, but they need to get places like Texas, New York, Virginia, Louisiana etc included also. There are threads about this. My guess is that Tesla is now seeing this as urgent, but appeal processes are never rapid and the initial Federal decision is yet to be made, so the appeal is probably many months away.

In the meantime, Tesla needs to get Model 3 and Model Y out to all these States.

 

[bhzmark]

It is not that simple, because of the individual State laws that have draconian precedents and conflicting legal adjudications. This will reach the US Supreme Court sometime in the not-too-distant future. It will be fascinating to see how it will fare there.

FWIW, most car dealers, even the gigantic corporate ones like AutoNation and CarMax, are devout Republicans.
Unfettered deregulation of interstate commerce is also a devoted Republican issue.
"State's Rights" is yet another devoted Republican issue.

The State restrictions of motor vehicle sales, distribution and service are wildly arcane and profoundly illogical one from another. The prediction of whether the US Supreme Court will eventually decide this on broad or narrow terms is fraught, but I am confident they'll accept the first major case that comes, which might be Michigan. The Michigan "midnight word change" is pretty attractive as a target, but they need to get places like Texas, New York, Virginia, Louisiana etc included also. There are threads about this. My guess is that Tesla is now seeing this as urgent, but appeal processes are never rapid and the initial Federal decision is yet to be made, so the appeal is probably many months away.

In the meantime, Tesla needs to get Model 3 and Model Y out to all these States.

As you can see from the wikipost, most of the backwards stupid anti-free market states just have a rule that car mfr can't control or operate a car dealership. That's all. Not too complicated or arcane.

a manufacturer or distributor may not directly or indirectly; (1) own an interest in a franchised or nonfranchised dealer or dealership;(2) operate or control a franchised or nonfranchised dealer or dealership; or (3) act in the capacity of a franchised or nonfranchised dealer. (Tex. Occ. Code Ann. § 2301.476)
"A motor vehicle shall not be advertised for sale in any manner that creates the impression that it is being offered for sale by the manufacturer or distributor of the vehicle. An advertisement shall not contain terms such as “factory sale,” “fleet prices,” “wholesale prices,” “factory approved,” “factory sponsored,” “manufacturer sale,” use a manufacturer's name or abbreviation in any manner calculated or likely to create an impression that the vehicle is being offered for sale by the manufacturer or distributor, or use any other similar terms which indicate sales other than retail sales from the dealer" (43 Tex. Admin. Code § 215.261).

A manufacturer shall not do any of the following: . . . (h) Directly or indirectly own, operate, or control a new motor vehicle dealer, including, but not limited to, a new motor vehicle dealer engaged primarily in performing warranty repair services on motor vehicles under the manufacturer's warranty, or a used motor vehicle dealer. Mich. Comp. Laws Ann. § 445.1574

 

[number12]

I would "open" a tesla dealership. Follow direct orders. Hire whoever they want. Front the money. All in exchange for BE profit and a P100D loaner (or the latest and greatest at the time).

Let me know Tesla.

 

[182RG]

Tesla could just partner with anyone (say another one of Elon's cousins) to open a 3rd party franchise dealership to sell Tesla's exclusively and be done with it.

If this worked as well as Rive running Solar City, then.......no.

 

[bhzmark]

I would "open" a tesla dealership. Follow direct orders. Hire whoever they want. Front the money. All in exchange for BE profit and a P100D loaner (or the latest and greatest at the time).

Let me know Tesla.

How about a Tesla owner co-op: Texas - Co-opLaw.org

CONSUMER COOPERATIVES
Consumer cooperatives, also called purchasing cooperatives, are a vehicle for individuals or business owners to team up to purchase products together.

 

[Xenoilphobe]

Why doesn't Tesla start its own non-profit dealership (sufficiently independent to comply with the laws and local origin and all-that) to sell in states that disallow direct selling?

Laws forbid manufacturer from owning a dealership/service center, but they could start an independent foundation or company or something, there must be a way to play by the rules but avoid marking up the price unnecessarily for the consumer.

There must be a legal way around it.

Thanks.

I see you are in Estonia. Unfortunately -- at least for for this situation -- each U.S. state has unique motor vehicle laws. You can be sure Tesla is using every possible option to circumvent prohibitions but the challenges differ by state. Making matters worse, auto dealers are working overtime to sponsor new legislation with new roadblocks in some states.

We allowed our organized crime organizations to legalize their automotive distribution racketeering activities which is somewhat similar to Estonia's Obtshak crime organisation (drugs) which is now in the real estate business in Estonia.

 

[jbcarioca]

As you can see from the wikipost, most of the backwards stupid anti-free market states just have a rule that car mfr can't control or operate a car dealership. That's all. Not too complicated or arcane...

With all due respect, Wikipedia does not deal well with actual legal administration. For instance, how about defining "control" as it applies to the relevant Texas statute. There is so much more. This, as is the case for most such statutes also has some legal history and precedent. Unless you are an expert in franchise law in the relevant States you cannot really see things the way they will be adjudicated. I am not either, but I have dealt with this specific issue when dealing with foreclosure proceeding on behalf of dealer floor plan and facilities finance.

I have seen enough of these issues in Michigan and Texas, specifically, to understand that they do not have simplistic answers. I regret that it is so for it should not be. For reference, most of these laws are in place because of the time during the 1940's and 1950's when manufacturers, GM and Ford, mostly, rode roughshod over dealers, so States acted to protect little dealers against big powerful manufacturers. It isn't that way any more, but the dealers are now powerful with lots of money from NADA and State level dealer organizations, contributing to all the right candidates.
Please, look beyond the simple text of the Wiki and look at the State by State political realities. That turns this into a hugely complex and difficult question.

That is why Tesla filed suit in Michigan, that is why this will wind it's way slowly to the US Supreme Court.

 

[bhzmark]

With all due respect

I give you no respect because you didn't even bother to click on the link.

I linked not to Wikipedia but to the wikipost feature in this forum that collects the actual statutory texts of actual state laws that restrict mfr direct sales. The statutes simply say what they say. it's there for people who can read English to read and yes sometimes additional case law will be needed to interpret ambiguities in the statutes but that is what happens with the application of law all the time. this is not arcane. this is straightforward compliance with the law. Lawyers who are comfortable advising their clients what to do or not do will understand. Other lawyers who fret and say " well on the one hand or on the other hand" may be confused by this.

It's obviously confusing for you so you certainly don't need to trouble yourself with it anymore.

If you want to start a thread where handwringing ninnies can fret over the complexity of franchise law (which isn't even directly relevant) or the constitutional and other federal issues in the Michigan case go ahead.

This thread is about creative ideas to technically comply with the stupid laws that limit mfr direct sales while not having to go through the traditional dealers.

 

[jbcarioca]

I give you no respect because you didn't even bother to click on the link...
This thread is about creative ideas to technically comply with the stupid laws that limit mfr sales while not having to go through the traditional dealer.

I did click, but since I already have all the relevant data including legislative histories and legal challenges it added little.
Your disdain of my comment is unmistakable.
After three decades fighting such rules, sometimes successfully sometimes not, I do understand why Tesla is following the approach they are now. The various methods to work around the regulations are well-known to Tesla.

As far back as 1990 my firm was retained by a major auto manufacturer to find solutions. Over the next decade we worked on behalf of a number of them.

Of course reading the superficial State by State laws make workarounds seem plausible. Sadly, franchise rules themselves preclude the kind of agreements that would permit effective quality and pricing controls that are part of the Tesla standards.

Anyway, you do not need to give me respect. This is a public forum, so posts are freely made and need not reflect actual commercial, legislative and regulatory realities.

 

[EinSV]

As you can see from the wikipost, most of the backwards stupid anti-free market states just have a rule that car mfr can't control or operate a car dealership. That's all. Not too complicated or arcane.

a manufacturer or distributor may not directly or indirectly; (1) own an interest in a franchised or nonfranchised dealer or dealership;(2) operate or control a franchised or nonfranchised dealer or dealership; or (3) act in the capacity of a franchised or nonfranchised dealer. (Tex. Occ. Code Ann. § 2301.476)
"A motor vehicle shall not be advertised for sale in any manner that creates the impression that it is being offered for sale by the manufacturer or distributor of the vehicle. An advertisement shall not contain terms such as “factory sale,” “fleet prices,” “wholesale prices,” “factory approved,” “factory sponsored,” “manufacturer sale,” use a manufacturer's name or abbreviation in any manner calculated or likely to create an impression that the vehicle is being offered for sale by the manufacturer or distributor, or use any other similar terms which indicate sales other than retail sales from the dealer" (43 Tex. Admin. Code § 215.261).

A manufacturer shall not do any of the following: . . . (h) Directly or indirectly own, operate, or control a new motor vehicle dealer, including, but not limited to, a new motor vehicle dealer engaged primarily in performing warranty repair services on motor vehicles under the manufacturer's warranty, or a used motor vehicle dealer. Mich. Comp. Laws Ann. § 445.1574

I haven't researched the issue, but if that's the only applicable language, then Elon could start "the Boring Car Dealership Company."
It would not be controlled by Tesla the Company so it would not appear to be covered by the language above.

But there would be all sorts of conflict of interest issues that people would probably complain endlessly about and it would be clunky to manage. The states could also try to amend their laws to try to cover this scenario.

Better to sue the b******s and get it sorted out.

 

[bhzmark]

I did click, but since I already have all the relevant data including legislative histories and legal challenges it added little.
Your disdain of my comment is unmistakable.
After three decades fighting such rules, sometimes successfully sometimes not, I do understand why Tesla is following the approach they are now. The various methods to work around the regulations are well-known to Tesla.

As far back as 1990 my firm was retained by a major auto manufacturer to find solutions. Over the next decade we worked on behalf of a number of them.

Of course reading the superficial State by State laws make workarounds seem plausible. Sadly, franchise rules themselves preclude the kind of agreements that would permit effective quality and pricing controls that are part of the Tesla standards.

Anyway, you do not need to give me respect. This is a public forum, so posts are freely made and need not reflect actual commercial, legislative and regulatory realities.

Fighting words edited out and I now say thanks for later writing something specific and relevant instead of general thread crapping.

 

[jbcarioca]

How about a Tesla owner co-op: Texas - Co-opLaw.org

CONSUMER COOPERATIVES
Consumer cooperatives, also called purchasing cooperatives, are a vehicle for individuals or business owners to team up to purchase products together.

That can work for buyers, but they still must buy out-of-State or through registered Texas dealers. The Texas Co-op Law is pretty broad, and through credit union formation can also make pretty attractive financing too. The trick will always end out being holding inventory, buying or selling vehicles directly by the Co-op. Globally these devices are pretty popular, sometimes are the largest financial institutions in a country (e.g Desjardins in Quebec, Credit Agricole in France) and often manage to own and control distribution that is prohibited to non Co-operative forms. The Texas populist tradition have made these used for a wide variety of community purposes. Oddly, they could pretty easily provide a Texas-wide EV charging network, among other entertaining possibilities.

It's really tricky to establish single manufacturer relationships using this mechanism, but not impossible. That is most commonly done through the 'common bond' provisions in credit unions, but all co-operative forms everywhere work on that basis. Question: how to completely eliminate any otherwise applicable auto dealer statutes. So far that last factor has held this one back, exacterbated by the cooperative control rules.

Good thinking!