Forum Center: Tesla and the retail automobile industry
Tesla Motors is a California company that produces luxury electric cars. The company has been around for about 10 years and is headed by South African engineer and entrepreneur and PayPal co-founder, Elon Musk. Tesla cars are limited-production and marketed toward affluent buyers. They are known for quality, performance and high safety ratings. In fact, the Tesla Model S won the Car of the Year Award in 2012 from Motor Trend, a venerable auto industry magazine.
It is also quite popular. The Model S has been increasingly purchased by owners of other car brands such as Toyota, Mercedes Benz and BMW. Toyota Prius buyers have been some of the first in line to buy a Tesla, and reports say about 25 percent of Tesla owners had a Toyota vehicle at the time of their Tesla purchase. Tesla even has plans to produce more “affordable” cars in the near future.
Tesla cars are also notable because the company sells them direct to the public without the function of dealerships. Instead, consumers can shop online or at retail outlets, like they would for a pair of shoes, to learn more about the cars and schedule test-drives. This business model, however, has placed Tesla Motors at odds with auto dealerships and state regulators.
Earlier this month the New Jersey Motor Vehicle Commission (NJMVC), backed by Governor Chris Christie, placed a ban on the sale of Teslas in the state unless they do so through a dealership. Tesla had earlier received licenses from the NJMVC to sell directly to consumers, but the NJMVC reversed its position. New Jersey and other states have regulations stating new car sales must flow through a dealership. Most of those laws have been on the books since the 1930s, but the rise of Tesla Motors has challenged that system.
Opponents of Tesla’s direct sales model say the laws are in place, have been in place and clearly detail the requirement of dealerships in sales of new vehicles. They also argue dealerships providing sales and service are a completely different business from manufacturing, and the direct sales approach wipes out the vital economic contributions of that industry. Opponents further say dealerships are advocates for consumers, especially when dealing with warranties, and they serve to protect buyers from potential ethical lapses from manufacturers. In essence, they say it is the established system and it works well.
Tesla’s direct sales supporters counter this may be the worst of politics and what it accomplishes when decision makers are essentially business partners with a particular industry. In this case, it is the dealerships. They say this is an example of politicians standing in the way of free-market principles and competition, and legislative bodies, like the NJMVC, are making decisions consumers should be making. Tesla supporters are also angry because they claim the Christie administration promised “public discussion” before any new decisions would be made.
New Jersey is not the only state with a ban. Arizona, Texas, Maryland and Virginia have refused the direct-sales model. Even here in Ohio, legislation is on the table in favor of franchise dealers, and dealers and their advocates say they have the best system for getting cars to the market, all while protecting consumers with a standard process. Tesla keeps fighting, though, and supporters say they offer the future – and with it, consumers get free-market choices and top-quality products without dealer hassles.
Reach DCP forum moderator Alex Culpepper at AlexCulpepper@DaytonCityPaper.com
Debate Forum Question of the Week:
New Jersey, and a few other states, now have laws banning the direct-to-consumer sale of Tesla vehicles, leaving the company the choice to open dealerships or attempt to change current legislation. Should government be involved in deciding how cars should be sold to the public, or should consumers make that choice?
Debate Left: If you build a better mousetrap, we’ll try to stop you
Year after year, we listen to the Republicans grouse about too much government interference in the free market system with the tired old refrain, “the markets will take care of themselves” and keep things in balance. Obviously though, when that might allow an upstart to compete – or even out-compete – the biggest players, we are suddenly only a “limited free market” system that must be regulated and controlled.
Our capitalist system is based on competition. So, in what universe is it suddenly wrong to allow a company to compete? And who says every company has to compete in the same way? The “free” in free market should serve as some kind of hint the myriad ideas and sellers out there are neither expected nor required to compete in lock step with each other, but are instead free to innovate, to imagine and to find a better way. Cars existed for decades before dealerships sprang up and eventually set up rules for themselves. They exist to protect the big guys – the manufacturers and the franchisees – not to serve us.
When the oil and gas companies, agribusiness enterprises, pharmaceutical and chemical industries want something, they get it because of the unsavory connection between big money and big government favors. They’re doing it again. Since the private and forward-thinking enterprise that is Tesla has begun to threaten the status quo by giving consumers what they want with greener and superior technology, the manufacturers and dealers in the car industry have united to strong-arm states to prevent Tesla from selling their cars. So far, five states have caved to the pressure, despite public demand. Could it be any more obvious we, the public, are nothing more than a source of obscene profits for soul-eating corporations that continue to feast while the majority of U.S. citizens have to scramble for crumbs?
The reasons given for Tesla being denied the right to sell to us directly are ludicrous, despite trying mightily to sound as though the car industry has only our own best interests at heart. When they say dealerships are needed since they are the ones who can go to bat for us when we have car issues, we can practically hear the sound of millions of heads uniformly snapping around in disbelief! We are also told we need dealerships to provide financing and service to the car buyer. Bull honky. We don’t need a dealership in order to get financing or service. Both are readily available elsewhere.
What this is really all about is the fact car manufacturers and dealerships are intent on trying to hold onto their monopoly, protected by outdated laws put on the books after powerful car dealers’ lobbies stuck their hands into the pockets of state politicians. Probably the only thing people hate more than visits to the dentist is a trip to a car dealership, where we can kiss hours, if not days, goodbye as we go through a predictable but outrageous dance, usually laced with game-playing and dishonesty, to simply buy a car.
Tesla, in contrast, works to service the customer by eliminating the frustration of car buying. They set up stores that allow people to come in and see the vehicles, and even test drive them. If they want to buy one, they order one online in a simple and efficient procedure.
Now is the time to make ourselves heard. Now is the time to call or write or lobby our own state senators and representatives, and tell them they are not elected by dealerships, but by us, and we will be keeping tabs on whether they support our desire to have Tesla available to us in our state without impediments. Will they listen to us? Or will they instead yield to the car industry at our expense?
Marianne Stanley is an attorney, college professor and former journalist who believes many of our nation’s ills could be cured if our children were taught critical thinking skills beginning at the elementary level and continuing through middle and high school. She can be reached at MarianneStanley@DaytonCityPaper.com.
Debate Right: There are no free markets
By Dave Landon
California-based automaker Tesla recently began selling its electric cars directly from two Ohio storefronts. This development doesn’t sit well with the 830 new-car franchise dealers across the Buckeye State.
For years, Ohio law has distinguished between the roles of automotive manufacturers and auto dealers. Manufacturers could not directly sell their product. Dealerships must be privately owned. That’s why there is no GM store or Toyota store in Ohio. There have been rules in place for years, which prevent auto manufacturers from owning and operating auto dealerships. With the stroke of a pen at the Ohio BMV, those rules are out the window.
Dealership representatives argue the consumer is the beneficiary of the current arrangement, as the dealership serves as an advocate for the consumer. Dealerships want return customers and go to bat for the consumer when issues arise over the functioning of a new vehicle. The Tesla business model defies those rules by directly selling its product to customers from their storefront outlets. Five states including Arizona, Texas, Maryland, New Jersey and Virginia have refused the direct-sales model. Ohio is now considering legislation which would ban the direct sale by Tesla to consumers.
In Ohio, the 830 new-car dealers employ over 50,000 people in Ohio with a payroll that exceeds $2 billion. That’s 50,000 Ohio families benefiting from this industry. In addition, these dealerships have collected well over $1 billion annually in sales tax on behalf of the state. They also pay a considerable amount of real estate, CAT and other business-related taxes. A healthy auto industry benefits all Ohioans through the tax dollars they pay. The recent variance by the Ohio Bureau of Motor Vehicles granting a license to Tesla to sell at retail locations without contracting with an independent dealer opens the door for all manufacturers to follow the same path.
The rules under which the dealerships operate were created years ago by the Ohio legislature. Based on those rules, dealerships have invested millions of dollars in their businesses. Now, the business model is turned on its head, not by a change by the Ohio legislature, but by a faceless bureaucrat at the BMV who, by granting to Tesla the license to sell its vehicles, has changed the rules of how these businesses can operate.
It’s not the first time faceless government bureaucrats have affected the health of the auto industry. During the GM bailout, there was the arbitrary picking of winners and losers by the Obama administration when the government determined which dealerships would remain open and which would be closed. In what alternative universe can the government change rules mid-stream and close down a viable, legally established, functioning business? Obviously, the answer is here in the crony-capitalism world of Barack Obama.
So, our question for the forum debate this week is whether government is interfering with the free market place when it involves itself in issues such as those states which are blocking Tesla from direct sales. Here’s a news flash: the free market doesn’t exist. Please don’t insult our collective intelligence by arguing that restricting manufacturers of cars from directly selling those vehicles will cause a chasm in the free market. Every market has some rules and boundaries that restrict freedom of choice. Our American enterprise system looks free only because we are so conditioned to accept its underlying regulations, prohibitions and restrictions we fail to see them. Our only hope is we can minimize the interference of government in our economic markets. As much as I strongly object to the government’s over-involvement in regulating business, once a regulation is in place and businesses have adapted their business models to comply with those regulations – sometimes at the cost of hundreds of thousands of dollars – the worst possible scenario is for a non-elected bureaucrat to change the rules businesses live under by bureaucratic fiat. That’s what has happened here in the Tesla direct sales situation. The change has the possibility to affect the health of an important component of the auto industry in Ohio and other states.
David H. Landon is the former Chairman of the Montgomery County Republican Party Central Committee. He can be reached at DaveLandon@DaytonCityPaper.com.