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

[Uncle Paul]

Tesla has their path.
They are the fiesty new kid on the block, and are making waves.
Plan A is to establish a official showroom in each state that will allow it.
Plan B is to sell through the internet or nearby states to make ordering legal and efficient.
Since they have little political power established, it might take a while getting approved in every state.
When significant numbers of customers are forced to go outside their state, and the states themselves loose millions of dollars of taxes from their policies, the doors will open, and Tesla will be welcomed in, and the current obstructive dealership political pressure groups will be told to pound sand.

People have learned to dispise the traditional dealership model, where the sales team does everything possible to extract every dollar they can from their car buyers. The do not treat everyone the same, tend to discriminate against poor, female and minority buyers that need transportation, but can be charged higher interest rates, worthless add on services (undercoating, paint treatment, cheap alarms etc.

Tesla will untimately win this battle, but the struggle will be significant.

The current system is very corrupt, and it will take a while for it to be cleaned up.

 

[bhzmark]

I'm talking about financially/operationally independent, not just in governance. If Tesla operates it just like Tesla owned locations in terms of financing the operation, just having different owners or governance may not necessarily meet a test of independence.

I'm talking about just independent in whatever way it takes to satisfy the statute. That is the issue. That language uses control which typically means governance control. For example you control your wholly owned, or majority owned subsidiary because you can remove and replace a majority of the board. But McDonald's (and GM etc.) can't control its franchisees -- it can just exercise its contract rights in the agreements usually just related to how they use IP and how they sell product etc. They can even loan or guarantee loans or otherwise help the franchise finance its inventory.

 

[stopcrazypp]

I'm talking about just independent in whatever way it takes to satisfy the statute. That is the issue. That language uses control which typically means governance control. For example you control your wholly owned, or majority owned subsidiary because you can remove and replace a majority of the board. But McDonald's (and GM etc.) can't control its franchisees -- it can just exercise its contract rights in the agreements usually just related to how they use IP and how they sell product etc. They can even loan or guarantee loans or otherwise help the franchise finance its inventory.

Well here's the language in Michigan's law, it's not talking only about ownership or control, but also operation (directly or indirectly).
"445.1574 Prohibited conduct by manufacturer.
Sec. 14.
(1) 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. ..."
Michigan Legislature - Section 445.1574

Also relevant:
"(s) Impose unreasonable standards of performance on a new motor vehicle dealer or require, attempt to require, coerce, or attempt to coerce a new motor vehicle dealer to adhere to performance standards that are not applied uniformly to other similarly situated new motor vehicle dealers.
...
(v) Establish a performance standard or program for measuring new motor vehicle dealer performance that may have a material impact on a new motor vehicle dealer that is not fair, reasonable, and equitable. For purposes of this subdivision, all of the following apply if a manufacturer does not provide a complete program description explaining the performance standard or program details to a new motor vehicle dealer on or before the beginning of the program:"

I'll put it more specifically: how are they going to set the invoice price/incentive/assistance in a way that ensures the organization does not have a chance of profiting, without violating the law?

 

[bhzmark]

how are they going to set the invoice price/incentive/assistance in a way that ensures the organization does not have a chance of profiting, without violating the law?

The same way ICE car mfrs do it: with franchise agreements. Saturn had fixed price franchisees.

And if it is structured as an entity with no equity owners for whom to seek a profit, the co-op/nonprofit dealer has no incentive to seek a profit.

Just charge enough to cover expenses and pay reasonable compensation (including chargebacks to the mfr for warranty work) -- the same as current Tesla locations.

 

[stopcrazypp]

The same way ICE car mfrs do it: with franchise agreements. Saturn had fixed price franchisees.

And if it is structured as an entity with no equity owners for whom to seek a profit, the co-op/nonprofit dealer has no incentive to seek a profit.

Just charge enough to cover expenses and pay reasonable compensation (including chargebacks to the mfr for warranty work) -- the same as current Tesla locations.

No, the franchise agreement only ensures the dealer sells a car for a given price, it does not ensure there is no room for profit.

Expenses will fluctuate and it's not reasonable for Tesla to adjust invoice/incentive prices that fluctuates based on the cost of running the dealer (dealership groups can reasonably claim that this is a sign of the manufacturer indirectly operating the dealer, and also that it violates the law that prohibits unreasonable performance standards). The way Tesla currently runs things does not require invoicing individual cars, rather Tesla just pays out whatever expenses occur. That won't be possible under the franchise system.

I'm imagining a scenario that once Tesla begins to do this, the dealership groups will have a protected class sign up for a Tesla dealership and Tesla will have a tough time explaining why they would deny that person over whoever they chose as a figurehead. I presume the non-profit part is to dissuade dealerships from applying (or after they do, it makes it not profitable to run and they give up).

 

[NeverFollow]

The current system is very corrupt, and it will take a while for it to be cleaned up.

I'm a little bit out of the blue about the fundamental need for some states
to request or not to have any kind of dealership model for any business?

- Don't the idea of dealership would be to protect customers from monopolistic situation?
Any (authorized) dealer could sale or repair products from company A and / or company B.
So a customer could shop around. The cellular phone market is a good example.

- I can see for example that there are airplane manufacturers and specialized transport companies.
I wonder if an airplane manufacturer could have its own fleet and could sale flight tickets.
A travel agency can sale flight tickets from any transport company.
And a transport company can sale its own flight tickets directly, and even tickets
from other transport companies (but I think mostly in the case of connecting flights)

- I can see situations to avoid conflict of interest or preserving integrity.
For example, there are some organization delivering some certifications.
The entities making products should be independent from and the one validating those products.

- Some companies would also prefer having their own distribution, as they would prefer not mixing
their own products with other one, such as Ikea, Apple, or now Tesla.

- But some companies have their own brand mixed with other products (example of CVS own products.)

- And some companies have specialized stores while their products could be find elsewhere
(example of Apple sold by Best Buy)

Basically, I just wonder why not letting a "Laissez-faire" (lit. 'let do') approach without any
government intervention or control and letting free competition prevail?

 

[stopcrazypp]

I'm a little bit out of the blue about the fundamental need for some states
to request or not to have any kind of dealership model for any business?

- Don't the idea of dealership would be to protect customers from monopolistic situation?
Any (authorized) dealer could sale or repair products from company A and / or company B.
So a customer could shop around. The cellular phone market is a good example.

- I can see for example that there are airplane manufacturers and specialized transport companies.
I wonder if an airplane manufacturer could have its own fleet and could sale flight tickets.
A travel agency can sale flight tickets from any transport company.
And a transport company can sale its own flight tickets directly, and even tickets
from other transport companies (but I think mostly in the case of connecting flights)

- I can see situations to avoid conflict of interest or preserving integrity.
For example, there are some organization delivering some certifications.
The entities making products should be independent from and the one validating those products.

- Some companies would also prefer having their own distribution, as they would prefer not mixing
their own products with other one, such as Ikea, Apple, or now Tesla.

- But some companies have their own brand mixed with other products (example of CVS own products.)

- And some companies have specialized stores while their products could be find elsewhere
(example of Apple sold by Best Buy)

Basically, I just wonder why not letting a "Laissez-faire" (lit. 'let do') approach without any
government intervention or control and letting free competition prevail?

The original laws were written with reasonable intentions. Back then, franchise dealerships made sense for manufacturers because they didn't want to invest in the distribution network. The laws were designed to protect these dealerships from a manufacturer suddenly coming in and opening a store nearby and killing the existing dealerships (after they have invested so much money to promote the brand).
However, it evolved into the current situation where in some states, there is a blanket ban on manufacturer owned stores, regardless of if there are existing dealerships to protect. This is the result of long running dealership lobbying.

 

[bhzmark]

Ok. You win. We aren't creative, smart, or imaginative enough to workaround the rather mundane issues you describe. So never mind.

Texas and Utah and CT just have to amend their laws . No other way. Not even worth trying to work around them with some clever structure. Nothing to see here move along and lobby your state legislators.

Seriously the main point of this isn't to create a long term solution but just a short term one (esp in time for some model 3 sales in quantity) and also create another front in the war against the dealers. Maybe it works in some states, maybe not in others. Anything that shows the dealers we will buy from anyone but them.

No, the franchise agreement only ensures the dealer sells a car for a given price, it does not ensure there is no room for profit.

Expenses will fluctuate and it's not reasonable for Tesla to adjust invoice/incentive prices that fluctuates based on the cost of running the dealer (dealership groups can reasonably claim that this is a sign of the manufacturer indirectly operating the dealer, and also that it violates the law that prohibits unreasonable performance standards). The way Tesla currently runs things does not require invoicing individual cars, rather Tesla just pays out whatever expenses occur. That won't be possible under the franchise system.

I'm imagining a scenario that once Tesla begins to do this, the dealership groups will have a protected class sign up for a Tesla dealership and Tesla will have a tough time explaining why they would deny that person over whoever they chose as a figurehead. I presume the non-profit part is to dissuade dealerships from applying (or after they do, it makes it not profitable to run and they give up).

 

[stopcrazypp]

Ok. You win. We aren't creative, smart, or imaginative enough to workaround the rather mundane issues you describe. So never mind.

Texas and Utah and CT just have to amend their laws . No other way. Not even worth trying to work around them with some clever structure. Nothing to see here move along and lobby your state legislators.

Seriously the main point of this isn't to create a long term solution but just a short term one (esp in time for some model 3 sales in quantity) and also create another front in the war against the dealers. Maybe it works in some states, maybe not in others. Anything that shows the dealers we will buy from anyone but them.

Look, I've seen this idea suggested a ton of times, very easy to handwave, but then doesn't hold up to scrutiny when examining details. Fundamentally, it's just an attempt to let Tesla indirectly operate a dealership. You can 100% be sure the dealer groups will nitpick all the mundane details I mentioned (and likely more, as I just came up with that with a quick google, while dealer groups operate day to day and are more familiar with the laws).

Also, they will lobby to add "clarifications" (as they have successfully done already in the past) that will shut down something like this in a second. And the difference is, in this scheme, it'll be justified, because Tesla really is trying to circumvent the spirit of the law (in states where complete bans on direct sales are clear). This is different from previous cases where the dealerships were the one against the spirit of the law (they argued for banning of direct sales, when the law only prohibited that for manufacturers with existing dealers, leading to losses when they brought the issue to court).

As for this being a temporary solution, it's a very poor one, as it kills a big part of Tesla's strategy. There are a couple of states where Tesla clearly won only because they didn't have a single franchise dealership in the state. Trying to get states with bans to allow direct sales by manufacturers without existing dealerships is already hard; trying to do that for manufacturers with existing dealers is going to be even harder (dealership groups would fight even harder, since that would directly affect them).
Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism

A better temporary solution is to support groups that make out of state purchases easier, or to provide better information on how to do them (for example if someone orders in a state with a ban, the site or rep should let the buyer know all the steps to completing the transaction and make it as easy as possible).

 

[bhzmark]

Fundamentally, it's just an attempt to let Tesla indirectly operate a dealership

Yes, that's the whole point! To do it in a way that technically complies with the law but doesn't submit to crappy dealers.

Dealers certainly have no monpololy on clever lawyers. Indeed their lawyers are losing in many states. Virginia recently.

The attitude of resignation isn't something that leads constructive creative solutions. And I still haven't seen any persuasive argument against it backed up with legal citations or analysis that it won't work legally. I'm quite sure it could be implemented to meet prohibition on ownership and control.

The best criticism is that even to design it to work legally it would be too much of a concession to give up the principle of insisting on only mfr owned and controlled sales locations.

Maybe, maybe not. It's too bad potential buyers in Texas and Utah and CT don't have a better solution than going out of state.

I know of no "support groups" that make out-of-state purchases easier or even what that would look like.

 

[rainman50]

Is it possible that , in Michigan anyway, to put a Tesla service center on an Native American reservation since they don't have to abide by the states rules? Maybe this was brought up before but I have not seen it anywhere.

 

[S-2000 Roadster]

I think it's cute that owners and fans are offering to run a dealership for Tesla Motors. However, don't you think Tesla would already be asking for volunteers if this would work? I mean, I get all kinds of incentives to help Tesla out: $1,000 or more for encouraging someone to buy a Tesla through my personal URL; two-day loaners of a P90D while my Roadster 2.5 is being serviced (and I know that they know I spent two days giving test drives to everyone willing); and anything else they can think of.

Tesla Motors is well aware of their loyal and influential customers. They would certainly reach out to us if there were any potential solution to this dealership problem that involved volunteers from among our ranks. I'm not saying it's a bad idea, I'm just suggesting that Tesla has already considered these options at length.

 

[timk225]

I enjoy seeing scumbag franchised car dealerships squirm at the thought of Tesla leading the way at destroying their business model of ripping people off. Teslas's direct sales model is good.

However, having said that, IF Tesla were ever to open things up to dealership francises in the states that require it, it should be with restrictions such as these:

1. The person who wants a franchise must pay a huge fee, say $25 million, up front, to Tesla, for their franchise. Nonrefundable.
2. The dealership can only buy and sell Tesla cars, no other makes or models allowed to be bought or sold, EVER. Tesla HQ would evaluate and set the price on any gas engined cars being brought in to trade in on a Tesla. Not the dealer.
3. The prices on the Tesla website are the dealerships prices, no ifs, ands, or buts. People can order a car online or buy at the dealership, same price, no extra fees of any kind.
4. Any salesmen or mechanics must attend Tesla training, at their own cost. A high cost. And IF they pass, they can work in the dealership.
5. And if the dealer says he can't make any money like this? Too bad, so sad. Not our problem.

With restrictions such as these, no businessman would be crazy enough to get a Tesla franchise. So there won't be any. But Tesla can then say to the dealership associations "What? What? We have franchises available for purchase, so we can now sell in the currently restricted states. Not our fault no potential franchisors will agree to our terms".

 

[bhzmark]

Interesting. I love the outside the box thinking. Buy a Tesla with your casino winnings on the reservation.

Is it possible that , in Michigan anyway, to put a Tesla service center on an Native American reservation since they don't have to abide by the states rules? Maybe this was brought up before but I have not seen it anywhere.

 

[timk225]

Yes, I like that Native American land thing. If it's cool with them, then Tesla can circumvent everything the dealerships and their bribed politicians are trying to do.

 

[Bobfitz1]

Yes, that's the whole point! To do it in a way that technically complies with the law but doesn't submit to crappy dealers.
Dealers certainly have no monpololy on clever lawyers. Indeed their lawyers are losing in many states. Virginia recently.
The attitude of resignation isn't something that leads constructive creative solutions. And I still haven't seen any persuasive argument against it backed up with legal citations or analysis that it won't work legally. I'm quite sure it could be implemented to meet prohibition on ownership and control.
Maybe, maybe not. It's too bad potential buyers in Texas and Utah and CT don't have a better solution than going out of state.
I know of no "support groups" that make out-of-state purchases easier or even what that would look like.

I'd suggest another alternative to breaking car deanship associations sway over state legislatures.
There is nothing to prevent Tesla owner associations for campaigning to educate voters in their state about why their legislators are acting on behalf of car dealers rather than freedom of people to buy Teslas in their state the same as the vast majority. As you've said, the public already hate car dealers and the maintenance prices they charge. It should be possible to get enough new pushback on the politicians to reverse the restrictive laws.

 

[bhzmark]

This isn't about a way to sway legislators. It's about finding a way to sell cars in states where the law will not be changed in time for model 3 sales at volume.

And these options aren't mutually exclusive. Lobbying efforts can proceed along with compliant sales through co-ops or nonprofits until the law is changed (or struck down by courts).

I'd suggest another alternative to breaking car deanship associations sway over state legislatures.
There is nothing to prevent Tesla owner associations for campaigning to educate voters in their state about why their legislators are acting on behalf of car dealers rather than freedom of people to buy Teslas in their state the same as the vast majority. As you've said, the public already hate car dealers and the maintenance prices they charge. It should be possible to get enough new pushback on the politicians to reverse the restrictive laws.

 

[bhzmark]

Is it possible that , in Michigan anyway, to put a Tesla service center on an Native American reservation since they don't have to abide by the states rules? Maybe this was brought up before but I have not seen it anywhere.

Good idea!!!

Tesla builds 1st store on tribal land, dodges state car laws

Tesla has sidestepped car dealership laws by setting up shop on Native American land for the first time.

apnews.com

 

[wdolson]

This thread was dormant for a long time. In some places tribal land is near enough to cities to be useful, but in other places it isn't. I haven't been to New Mexico, but I know there is a lot of tribal land there.

In Washington there is a reservation within the Seattle metro area (near Auburn). It was the place to get cheap fireworks on 4th of July when we lived near there. They also built one of the first tribal casinos on the res. I never went in, but knew someone who was a blackjack dealer there.