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Auto Dealers and Tesla


Robert Menard,  Certified Purchasing Professional, Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager

We have discussed electric cars in several posts.  We have also discussed the online course, How to $ave Thousands Buying a New or Used Car so it was with great interest that I relished two contrasting stories on Tesla’s effort to sell directly to customers, rather than through dealership networks.  

James L, Gattuso from the Roe Institute for Economic Policy a unit of the conservative Heritage Foundation argued for allowing Tesla to sell its electric cars directly to consumers, bypassing dealers.  Defending the status quo was Jonathan Collegio of the National Automobile Dealers Association (NADA). 

Tesla cannot sell its electric cars directly to consumers in 48 states because of laws requiring franchised dealerships.  Since it has never had franchised dealerships, Tesla provides galleries, similar to show rooms, around the country, but the actual sale is conducted online.  For all other automobile manufactures, online transactions of new vehicles must be accomplished through a dealer, although the online agent may try to conceal this fact.  Tesla is the target of lawsuits from dealer organizations in several states which insist that Tesla must follow the franchise model. 

Besides a cost savings argument by eliminating he middleman, Tesla contends that its electric cars are so different from traditional auto sales the dealerships will not have the expertise or incentive.  Well, that argument needs work.  Gattuso points out that direct-to-the-consumer sales are common in most all other industries such as computers.  The free market argument is that dealerships are not required and that dealerships protect themselves, not the public. 

The dealers have their say 

NADA’s Collegio strikes the defensive posture one would expect of an industry spokesperson.  He begins with the contention that the 16.4 million new cars and truck that will be sold this year are best purchased through dealers.  But where is the proof?  He cites local independent dealers but makes no mention of mega dealers who own many individual dealerships or of Auto Nation  and CarMax.

A straw man argument is made of the number of jobs, averaging $52,500 per year, local taxes paid, and service to communities provided by auto dealerships.  Is the conclusion that eliminating dealerships eliminates job?  This is not addressed, nor is the economic reality that productivity may reduce jobs but drastically reduces prices. 

A matter of choice 

Why not let the consumer decide?  The NADA claims to be protecting the consumer even though its mission is to advance the interest of its dealer members.  Suppose that customers had the right to choose between using a dealer or a manufacturer.  Some, if not most of the buying public would rather avoid the dealership experience which can be about as pleasant as a colonoscopy.   

Many other manufacturers from electronics to home furnishings sell directly to the customer.  This is known as the business–to-consumer (B2C) model. 

I want everyone to have a choice.

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