Tesla in trouble over its stores

[Fairportfan]

Tesla’s company-owned stores create controversy

Shopping at the mall is a much more pleasant experience than schlepping to a car dealer, which is why Tesla Motors decided to sell its electric cars exclusively through Apple Store-like retailers in America’s consumer temples. Now, Tesla is under fire because the company-owned stores violate certain state franchise laws, Automotive News reports.

In some states, including Tesla’s home state of California, manufacturer ownership of dealers is restricted or outright illegal. That’s why nearly every car dealer in the United States is an independently owned franchise that buys its merchandise from the factory.

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[Julie]

So can someone tell me why states have laws that prevent (or restrict) manufacturers from owning dealers? I would imagine that such an arrangement could potentially reduce vehicle prices (since you're losing a middle-man who has his own profit margin concerns) which is certainly good for the consumer. For there to be laws in place like this, I feel like there must be some sort of "valid" reason.

As for Tesla's mall store concept...I actually like it. Shame I can't afford one of their cars.

[Dave]

So can someone tell me why states have laws that prevent (or restrict) manufacturers from owning dealers? I would imagine that such an arrangement could potentially reduce vehicle prices (since you're losing a middle-man who has his own profit margin concerns) which is certainly good for the consumer. For there to be laws in place like this, I feel like there must be some sort of "valid" reason.

My guess... laws like this were probably put into place as a result of monopolistic or anticompetetive business practices by the manufacturers, at some time in the past.

If a car manufacturer owns dealerships, it can "choke out" competing dealerships in some areas by limiting the supply of popular models to the competition, giving its own dealerships preferential supplies and better delivery... and then raise prices once the competing dealerships have closed. In a case like this, the "middleman profit" doesn't go away... instead, it just adds to the manufacturer's profit, and even increases once there is no competition among dealers.

I'll betcha this is exactly what took place, years ago. A lot of U.S. antitrust law was put into place in order to break up huge monopolistic industry "trusts" that froze out their competition and dominated specific industries. These sorts of "vertical monopolies", where the suppliers of commodities also controlled the distribution and retail channels for their products, were one target of the antitrust laws.

The vertical-monopoly prohibitions (e.g. barring manufacturer-owned dealerships) gives the manufacturers an incentive to treat all dealers fairly, and increases competition between dealerships.

[Julie]

My guess... laws like this were probably put into place as a result of monopolistic or anticompetetive business practices by the manufacturers, at some time in the past.

If a car manufacturer owns dealerships, it can "choke out" competing dealerships in some areas by limiting the supply of popular models to the competition, giving its own dealerships preferential supplies and better delivery... and then raise prices once the competing dealerships have closed. In a case like this, the "middleman profit" doesn't go away... instead, it just adds to the manufacturer's profit, and even increases once there is no competition among dealers.

I'll betcha this is exactly what took place, years ago. A lot of U.S. antitrust law was put into place in order to break up huge monopolistic industry "trusts" that froze out their competition and dominated specific industries. These sorts of "vertical monopolies", where the suppliers of commodities also controlled the distribution and retail channels for their products, were one target of the antitrust laws.

The vertical-monopoly prohibitions (e.g. barring manufacturer-owned dealerships) gives the manufacturers an incentive to treat all dealers fairly, and increases competition between dealerships.

Ahhh! That makes sense. I hadn't thought about how the manufacturers might abuse their power (goes to show I will never make a great super-villain). Maybe what needs to happen is that the laws be adjusted to protect the dealerships while still allowing the manufacturers to own their own dealers...something that prevents preferential treatment with regards to delivery and available inventory...

[ShneekeyTheLost]

Shades of Tucker all over again... down to the same reason to be shut down.

It isn't true, of course, or they would've been shut down years ago when they started it up. They seem to have had no problem since the first Roadsters rolled out, why is it suddenly a problem now?

Then again, if Tesla is shut down, maybe Honda or Toyoda can snap up their R&D crew and actually produce a relevant amount of decent electric cars at a reasonable price. One of the main reasons Tesla cars cost so much is that they only have one small plant, and subcontract a major part of the vehicle's production, which increases costs and keeps them from being able to leverage economics of scale. Being able to produce it 'in house' and leveraging the economics of scale, you could probably see something like the Model S or Model Z for something like 30k or less, quite competitive pricing for other luxury sedans or minivans (well, technically the Model Z is more of a Station Wagon than a Minivan, since it's on a car chassis rather than truck, but same concept of 'fitting a bunch o' crap in here')

[Fairportfan]

Yep - same reason that there are movie theatres here and there named "Fox" or "Paramount" ... but not owned by the studios,

Full vertical integration that leads to vertical monopolies, is Considered a Bad Thing in the US.

[Yamara]

Too tired to google on the iPad, but I would not be surprised if this dates back even farther, since much of the dealership culture and practice is plainly descended from horse trading.

[Dave]

Ahhh! That makes sense. I hadn't thought about how the manufacturers might abuse their power (goes to show I will never make a great super-villain).

You may need to practice your "Mwa ha ha!" in front of the mirror more often... and perhaps figure out a substitute for the twirling of the ends of a well-waxed moustache?

Maybe what needs to happen is that the laws be adjusted to protect the dealerships while still allowing the manufacturers to own their own dealers...something that prevents preferential treatment with regards to delivery and available inventory...

Probably could be done, in principle, but I suspect it would be very tricky to manage. Preventing preferential treatment would either require constant monitoring and oversight (read "big expensive invasive bureaucracy") or would require inserting some sort of "independently-operated distribution management" company in between the manufacturer and all the dealers (read "expensive middleman"). With either there would still be lots of room for claims of unfair treatment by the independents, lawsuits, political disagreements over the costs and benefits, etc.

The current approach ("just say no") is probably less expensive / less inefficient / less trouble, I would guess, and thus a better deal in the end for consumers.

If you know exactly what car you want, and know what the wholesale (manufacturer-to-dealer) price is (there are online sources for this info), and make a clear written offer to the dealer at the right time, it's often possible to buy a car for only a couple of hundred dollars over the wholesale price. Walk in, hand them a check, do the paperwork, drive it off the lot. There's not a lot of overhead expense left, to eliminate by the (theoretical) removal of a middleman.

[NOTDilbert]

Ahhh! That makes sense. I hadn't thought about how the manufacturers might abuse their power (goes to show I will never make a great super-villain).

You may need to practice your "Mwa ha ha!" in front of the mirror more often... and perhaps figure out a substitute for the twirling of the ends of a well-waxed moustache?

I suggest hand-wringing while Bwa-ha-ha!-ing; Also, choose the right supervillaness costume, and no one will care WHAT you twirl.

(I have minion experience if you ever consider hiring)

[shadowinthelight]

Some years ago while being interviewed (not sure but I think by Conan O'brian) John Lithgow gave his tips for delivering a good evil laugh. Exhale so that your lungs are mostly empty. Then push from the gut to use that last bit of air for the laugh. It really changes the tone.

[Julie]

Ahhh! That makes sense. I hadn't thought about how the manufacturers might abuse their power (goes to show I will never make a great super-villain).

You may need to practice your "Mwa ha ha!" in front of the mirror more often... and perhaps figure out a substitute for the twirling of the ends of a well-waxed moustache?

I suggest hand-wringing while Bwa-ha-ha!-ing; Also, choose the right supervillaness costume, and no one will care WHAT you twirl.

(I have minion experience if you ever consider hiring)

Some years ago while being interviewed (not sure but I think by Conan O'brian) John Lithgow gave his tips for delivering a good evil laugh. Exhale so that your lungs are mostly empty. Then push from the gut to use that last bit of air for the laugh. It really changes the tone.

I'll definitely keep all of these tips/minion offers in mind. I may have a chance at supreme evilness after all.

If you know exactly what car you want, and know what the wholesale (manufacturer-to-dealer) price is (there are online sources for this info), and make a clear written offer to the dealer at the right time, it's often possible to buy a car for only a couple of hundred dollars over the wholesale price. Walk in, hand them a check, do the paperwork, drive it off the lot. There's not a lot of overhead expense left, to eliminate by the (theoretical) removal of a middleman.

The hard part for me has always been knowing exactly what car I want...and then doing the research before buying (since I tend to want to buy after a really good test drive apparently). Maybe that's half the reason I tend to shop used...and shop at Carmax where I don't have to try and play the haggle game...and where I can browse different vehiculars...and get a lower price for a gently used car... Maybe...

[TheSkulker]

Then again, if Tesla is shut down, maybe Honda or Toyota can snap up their R&D crew and actually produce a relevant amount of decent electric cars at a reasonable price.

There were no restraining orders or other impediments preventing Honda or Toyota from developing cars like Tesla's. Only the lack of the genius, innovation and foresight of Elon Musk. If we had to depend on the big car companies for the engine and batteries that Musk designed/applied we would still be waiting 10 years from now.

I fail to concur with your faith in the behemoths. They certainly are not innovators until pushed against a wall. Even the modern manufacturing paradigms were resisted tooth and nail. That is why the Fremont plant failed even after they spent millions trying to learn from the Japanese. The old culture was just not changeable - from managers on down.

For example, IIRC, Elon was the first to use the lithium-ion in an automotive application. He basically took stock batteries and repackaged them for his vehicles. You don't get much bigger "economies of scale" than the millions upon millions of LI batteries made for electronics.

[Fairportfan]

They certainly are not innovators until pushed against a wall.

You're saying Honda is not an innovator? (Since the only manufacturers mentioned by name in the comment you were replying to were Hinda and Toyota, you must be.)

Ha. Ha Ha. Hahaha. Hahahahahahahaha!

[TheSkulker]

They certainly are not innovators until pushed against a wall.

You're saying Honda is not an innovator? (Since the only manufacturers mentioned by name in the comment you were replying to were Hinda and Toyota, you must be.)

Well, yeah ... but give me a break. I was really thinking Detroit even though I had written Japan.
Ths idea that a real innovator should play dead and turn his innovations over to "ecconomies of scale" pushed my buttons. However, I have no doubt that even Japan can't keep up with the pace, freedom and willingness to push boundaries as Tesla. One skilled person with a vision is much more nimble than a committee.

What was it - about ten years ago Toyota or Honda built an all electric car, leased them for a couple of years and then took them all back and destroyed every last one of them. That doesn't exemplify innovation.

But, OTOH, in another ten or twenty years the big industry will be robots. Honda and Japan will leave us in the dust.

[Fairportfan]

What was it - about ten years ago Toyota or Honda built an all electric car, leased them for a couple of years and then took them all back and destroyed every last one of them. That doesn't exemplify innovation.

That was GM.

[Fairportfan]

And, as i recall (though possibly incorrectly), the main reason behind the recall and destruction was that they knew how impractical they were in the long run, and didn't want to find themselves eating big warranty expenses.

[TheSkulker]

What was it - about ten years ago Toyota or Honda built an all electric car, leased them for a couple of years and then took them all back and destroyed every last one of them. That doesn't exemplify innovation.

That was GM.

Are you trying to prove that I am getting senile? Can't I stay in Egypt? Daaymm!

[Fairportfan]

What was it - about ten years ago Toyota or Honda built an all electric car, leased them for a couple of years and then took them all back and destroyed every last one of them. That doesn't exemplify innovation.

That was GM.

Are you trying to prove that I am getting senile? Can't I stay in Egypt? Daaymm!

Nope - i just happened to remember.
We had a BIG discussion about a documentary about the issue in a USENET forum...