All the company wants to do is change the world with electric cars and sell them in a way that hasn’t been done since the turn of the 20th century.
Turns out some people in the auto industry aren’t big fans of change and are working really hard to try and keep things the way they’ve been for the last hundred years.
The latest example just went down in Michigan, where Tesla’s attempt to sell cars directly to customers has been blocked by the state’s government.
Tesla has become infamous for bypassing the traditional franchise-dealer model when selling its cars and has chosen to sell directly to the public from company-owned showrooms. That business model has proven exceptionally successful even though some states don’t allow Tesla to sell cars.
Tesla’s Michigan dealership license was denied because the state says selling cars directly to customers is illegal. That’s a fairly recent development. In 2014, state legislators, with encouragement from state auto-dealer groups, quietly changed the language of the franchise law to prohibit automakers from selling cars directly to customers.
That change surely happened with Tesla in mind.
In February of this year, a bill was introduced to allow Tesla, and other automakers, to sell directly to consumers, but so far, no one has taken action on it. Tesla does have the right to appeal the Michigan decision, and will likely end up in court to attempt to settle the matter in the company’s favor.
Dealer franchise laws have been in effect for many decades, but there’s growing controversy over their relevance in today’s marketplace. The NADA says,
In the end, automobiles are sold through franchised dealers because that business model is a good deal for everyone. Consumers are given extra protection in the marketplace, local communities benefit when local businesses compete to sell and service great products, and manufacturers get to invest their capital into designing, engineering and marketing great products in lieu of low-margin retailing. For these and other reasons, state legislatures have passed laws that promote the buying, selling and servicing of cars through local franchised dealers.
An article at the American Bar Association says,
In a conflict between political influence and free market forces, established auto dealership interest groups have thus far been able to sharply restrict Tesla’s ability to market its products directly to consumers. The auto dealership associations have, to date, been able to convince state legislators to protect their franchisee constituents from direct-to-consumer sales by automakers. Only time will tell whether Tesla can overcome this hurdle to market, and whether it will become the next direct distribution success story (like Amazon) or another casualty of market inefficiencies and entrenched special interests.
Car dealers play a vital role in the sales and service of vehicles, and that isn’t likely to change even if Tesla succeeds in selling cars directly to consumers all across the United States.
Should Tesla be allowed to sell its vehicles directly to consumers in all states, or would you rather purchase from a dealer?