Tesla Challenging Dealer Franchise Laws, and Winning


The American dealer franchise system might be on its last tank of fuel.

Since the advent of the mass production of cars, their sales have been filtered through a system of dealerships not affiliated with the carmakers. By acting as the middleman between the factory and the consumer, the dealer is free to negotiate and attempt to maximize profits. The downside for consumers, of course, is that uneducated people can be taken advantage of and charged more than necessary. The upside is that car buyers have local sales people and reliable service.

Tesla wants to change things up by selling directly to consumers in a retail model that could, and probably will, revolutionize how we buy cars.

There’s a complicated chain of events happening that could force states to amend their dealer franchise laws. Currently, not only are factory direct car sales frowned upon, they are illegal in most states. Funny how the lure of economic development can change things.

Earlier this year, Tesla announced plans for a $1.6 billion “gigafactory” to build batteries that will power future generations of electric automobiles. Four states were mentioned as candidates for the factory, including Texas and Arizona; states that have fiercely fought Tesla’s right to sell direct to consumers.

Interesting development, to be sure! Tesla is now leveraging the potential factory to negotiate for changes to the dealer laws, and it’s already working. Politicians know they won’t have a chance at landing the factory if their state doesn’t allow direct sales.

Not coincidently, Arizona lawmakers have introduced a bill to allow Tesla, and other electric carmakers, to bypass dealers and sell directly to consumers. Bill sponsor Warren Peterson said,

We wanted to send a message that Arizona is open for business.

What they’re really doing is sending a message that money is more important than the dealer laws and setting a precedent that other states will notice. With Texas lawmakers considering a similar bill, we might begin to see the fall of dealer franchise laws as we know them.

We probably won’t be buying Fords direct from Dearborn anytime soon, but if Tesla manages to get some laws changed, other automakers might begin to consider the possibilities.

Should carmakers be allowed to sell directly to consumers?


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