By on June 18, 2014

Tesla Roadster and Model S

Tesla is one step closer to resuming direct sales of its electric vehicles in New Jersey after the N.J. Assembly passes a bill that would allow it and other ZEV manufacturers to bypass the independent franchise system in selling electric vehicles.

Automotive News reports the bill comes after the state’s Motor Vehicle Commission banned the automaker from using its business model within the state earlier this year. Once passed in the N.J. Senate and signed by Governor Chris Christie, Tesla and any other ZEV manufacturer who sold direct to the public prior to January 1, 2014 could now return to business in full.

Meanwhile, New York Governor Andrew Cuomo signed similar legislation that had already been approved, allowing Tesla to continue direct sales in its five stores. However, no other manufacturer is allowed to use the EV automaker’s business model for their own, and Tesla’s stores must be transferred to an independent dealer should things change for it. Cuomo said the bill would ensure “that both sides will thrive to be able to grow the market for cutting edge zero emission vehicles.”

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24 Comments on “NJ Assembly, NY Governor Pass Direct Auto Sales Legislation...”


  • avatar

    I see nothing wrong with TESLA’s business model.

    I do think that most dealers would discriminate against TESLA in order to move less-expensive I.C.E vehicles.

    I first met the Fisker Karma at a local Jaguar dealership when I was shopping for a Jaguar X JL.

    The Karma paled in every single comparison to the Jaguar -especially in price and practicality.

    The salesmen made no effort whatsoever to sell the Karma.

  • avatar
    hreardon

    Ohio passed similar legislation very recently. Thank goodness, too.

    The dealership network is scared witless about the floodgates being opened and I think at this point it is only a matter of time before the manufacturers really start pushing to relax the franchise protection laws.

    Here’s the funny thing – I suspect, without much evidence mind you, that retail prices on automobiles are lower thanks largely to competition between dealerships. In a world where manufacturer-run stores dominate you are likely to see that competition evaporate and purchasing at MSRP become much more common.

    A not-entirely comparable example is Apple. When the first Apple Stores opened about ten years ago there was a massive outcry from local retailers. In a short period of time a great number of those retailers who were Apple-specific went belly up as buyers flocked to the Apple Stores. Why? Better retail experience, period.

    So, while you could save a few bucks at the local Apple shop, or even get them to throw in some freebies with a new purchase – the Apple Stores are straight MSRP, al day, every day.

    Now I’m not directly comparing the purchase of a $299 iPhone or $1495 Macbook to a $25,000 car, but the lesson, I’m sure, has not been lost on the automakers who see a great way to eliminate the middle man and gain better control over their brand image.

    The big question will be: will people still demand discounts from the manufacturer run stores, or will they be willing to take the sticker price and be happy with it in compensation for a greater retail and service environment?

    • 0 avatar
      jmo

      I’m not sure what you mean? I bought my car and e-mailed the guy – “How about invoice minus the $1000 in factory cash back.” “Ok.” he said.

      I helped a friend buy a Subaru and I said, “Invoice?” He said, “OK.”

      I’d assume we move toward just putting the invoice price on the sticker and get rid of the fiction that you’re getting a deal.

      Then again, the Apple Store guy was hired to be the CEO of JC Penny and got fired. His theory was the American public wasn’t so stupid that they could double the prices and put everything on sale 50% off and they’d think they were getting a deal. Turns out the public is exactly that stupid.

      • 0 avatar
        Vulpine

        The question there arises as to whether you’re getting the REAL invoice, or an inflated one created for just that purpose. Back when I was in auto sales, I saw as much as 80% markup on certain vehicles between the real invoice and the ‘display’ invoice with another 20% or more on the actual sticker price. Not stating any brands, but it had to do with SUVs that had a balcony.

    • 0 avatar
      Auto Motive

      I said from the get go that Tesla could have won a federal court case from the Dealers block in keeping them from selling direct. Henry Ford took the Dealers Association to court in a fight to sell his model T and as history has it he won. I would prefer to buy directly from the mfg. since it would lower the msrp (no haggling required) and you could be in and out of a mfg showroom in less than an hour. This would be a dream come true.

      • 0 avatar

        Henry Ford never sued a “Dealers Association”. It was Ford who was sued in 1903 by the Association of Licensed Automotive Manufacturers, ALAM, the cartel of automakers that had licensed George Selden’s general patent on the automobile. When he started Ford Motor Company, Henry Ford had applied for a license but ALAM turned him down because they didn’t like his plan to ultimately build a low priced car for the masses. Ford ignored them and went ahead with making the Models A and C. In 1906, Ford introduced the Model N, his first really big success, selling over 7,000 units. The Model N and it’s derivative Model S made the Model T possible.

        Ford litigated with the Selden cartel until 1911, when the patent was overturned. Of course, by then it was moot as the Model T was a huge success. Ford sold almost 70,000 Model Ts in 1911, a figure that would more than double the following year.

        It’s possible that franchise laws were written in response to Ford’s behavior. After his stockholders sued him in 1916 for not paying out dividends as Henry hoarded cash to build the Rouge Complex, I’ve seen it reported that Ford would essentially force dealers to take whatever he shipped them so he could use that revenue to buy out his stockholders.

    • 0 avatar
      Vulpine

      “will people still demand discounts from the manufacturer run stores, or will they be willing to take the sticker price and be happy with it in compensation for a greater retail and service environment?”

      If you add to this a better-built product, then yes, they would. I think you’d also see the MSRP drop somewhat as they no longer would have a middleman in the picture. You wouldn’t get the discounts, but you also could have a lower up-front price by anywhere from 10%-40%, depending on type of vehicle.

      • 0 avatar
        hreardon

        Vulpine -

        Well, that’s a big assumption there. Were I the manufacturer there’s no way in hell I would lower my MSRP if I went to a manufacturer owned distribution model. I’d keep the price the same as it is today and pocket the difference.

        Regardless of the middleman, the only reason to go to a manufacturer led model is to gain better control of your brand and the customer experience. If anything the costs for the manufacturer increase because you’ve now taken on a massive increase in headcount, real estate, taxes, etc.

        Apple’s stated reason for going into direct competition with their retail channel was because they thought they could do it better than third parties and they wanted to better control the customer experience. Prices, if anything, have increased, not declined. I suspect we would see the same thing with automakers.

        • 0 avatar
          Vulpine

          An illogical argument when you consider that almost no vehicle is actually sold at MSRP–unless it’s a very high demand vehicle. Pickup trucks, probably the most popular single type of vehicle, sell for thousands off of MSRP on average and with factory incentives can add up to over $10,000 off of the so-called retail price. Now, imagine if the middleman weren’t in the picture and that MSRP was really $5,000 lower in the case of trucks with the added factory “rebates” to boost sales?

          You are right, prices have gone up and they’re going to continue going up–but the stereotypical new car dealership doesn’t help matters by demanding their pound of flesh from both manufacturer AND the consumer. Why are those franchise dealership laws in place now? To keep the manufacturer from undercutting them and driving them out of business. Nearly everything wrong with the automotive industry today has a cause that originated in the dealership. Option packages instead of A la Carte? Easier to place an order with only three or four packages instead of dozens of separate options. Limited number of color options? Because dealerships only ordered limited colors, knowing others are “less popular”. We call certain colors “most popular” today simply because we have no choice in the matter. Look back into the ’60s and ’70s to realize we once had a veritable rainbow of color options; now we’re stuck with red, black, white and two or three shades of grey/silver. Blue is finally starting to show up again, but green? The oh-so-hated brown? I personally like both of those colors, though the majority of the cars I’ve purchased have been a nice burgundy (very dark red). I’d like a nice, metallic chocolate brown. I’d like a nice forest green. How about teal, or a sky blue, or russet? How about some variety to let people express themselves without having to pay a third party to re-paint their brand-new car?

          No, the dealerships are NOT protecting the consumer, they’re protecting themselves and using the consumer as an excuse.

          Oh, and maybe you should try an Apple computer sometime. On the average they’re more reliable and their customer service–even or especially for repairs–is exemplary. Their prices have NOT gone up any more than PC prices and you get a lot more for your dollar through the intangibles that go far beyond the product itself. Third party repair shops frequently abused Apple’s customers–especially on warranty support. Apple-authorized shops where I live used to demand a non-refundable deposit just to diagnose a warranty repair–against Apple’s own written policy and legal statements in the contracts. Apple was RIGHT in opening its own shops in metropolitan areas, because their customers were being abused by unscrupulous operators. Yes, I agree it also hurt their truly legitimate independent dealers, but even their reputation was getting hurt by the bad ones.

          • 0 avatar
            hreardon

            Vulpine,

            I must not have explained myself well enough: If manufacturers open their own stores, inevitably they are going to start revoking franchises and begin to control the market themselves. More to the point, should the automakers duplicate the Apple experience, consumers will walk away from the traditional franchises on their own.

            Once they do that, competition (for that brand) begins to disappear. At that point, when you’ve got three brand showrooms all owned by the factory you’re going to pay what the factory wants. Of course market forces will come to play here brand vs. brand, but I guarantee that transaction prices will increase.

            I agree that dealerships add little to nothing to the customer experience and I’d gladly see the model disappear, but I do not think transaction prices for most brands will decline, especially premium brands. That said, the factory owned model will probably work best in the premium space where customers place a higher value on the dealership experience and are more price elastic.

            Don’t disagree on any point you made about Apple retail, especially considering as I played a (very minor) roll in the early planning stages for Apple retail in December 2000/January 2001.

    • 0 avatar
      ihatetrees

      I don’t KNOW if independent dealers are better, worse, or the same than manufacturer direct sales. And short of a large state repealing its indy dealer mandate laws and allowing a market test, KNOWING what is the best dealer/sales model is not know-able.

      If such a mythical state, let’s call it Hayekansas, were open to all forms of OEM selling and dealers, there may well be a mix of local and OEM selling. What works in a city/suburb of 500K may not work in a large county with 3K residents. Again, there’s no WAY to know what is the best model.

      That said, given the Soprano grade protection racket that many states’ give their car dealers, it’s hardly surprising that consumers’ car buying experience is often frustratingly degenerate.

    • 0 avatar
      Pch101

      “I suspect, without much evidence mind you, that retail prices on automobiles are lower thanks largely to competition between dealerships.”

      You would expect them to be, as dealers have to compete against each other. This is Econ 101, and those who don’t understand this are simply clueless about basic economic concepts.

      That being said, what complicates this is the nature of the dealer model, which seeks to identify the weakest customers and exploit them. Economic theory would tell us that a direct sales model will result in higher prices, but there may very well be individual customers (those who are easy marks) who do end up paying more to a dealership generally because the dealer is more likely to go for the jugular. One would expect the OEM to care more about its brand and to act accordingly, although you never know…

      • 0 avatar
        hreardon

        Pch101 -

        Exactly. The primary reason for automakers to go to the factory-owned route is to better control the brand experience. I don’t find most dealerships to be that much of a burden, and that may be because I know what I want and what I’m willing to pay, so my trips to the dealership is usually a very quick affair. In fact, rarely do I step foot into a dealership without having negotiated the deal via email prior.

        Remember, another reason factories like the dealership model is that it allows them to offload inventory on someone else’s books. IIRC, as soon as the car is tagged with a sticker listing the purchasing dealership, that car gets invoiced. Now it’s the dealership’s inventory headache, not the manufacturer.

        • 0 avatar
          ihatetrees

          Pch101 -

          You’re CERTAIN (its Econ 101! – anyone who doesn’t drink your kool-aid is “clueless”) that consumers benefit from state prohibition against direct from manufacturer selling? Really?

          One benefit in favor of direct OEM selling could be a nationwide price-point marketing: “Camry LE are $20K for the month of May!” But good luck with that with the G waiting in the wings to go Pauli Walnuts on any such manufacturer.

          Economics is not settled quantum mechanics where the math always agrees with experiments to 5 decimal places. Unlike you, I don’t KNOW the best car retail model. It is not know-ABLE.
          But to assume that state-legislative pipe heads DO KNOW??? That is the height of arrogance.

          • 0 avatar
            Pch101

            “You’re CERTAIN (its Econ 101! – anyone who doesn’t drink your kool-aid is “clueless”) that consumers benefit from state prohibition against direct from manufacturer selling?”

            If you want to exclude yourself from the clueless category, then you should begin by understanding what I said.

            I didn’t comment on regulations that bar OEMs from selling cars. What I said was is that competition among dealers should reduce prices. What that suggests is that a retail monopoly would lead to higher prices.

          • 0 avatar

            RE: “I don’t KNOW the best car retail model. It is not know-ABLE.”

            Actually, it is. Put up your own money and you can find out. You can do things exactly your way and succeed or fail on the results.

            It is NOT state franchise law preventing OEMs from owning their own sales points. It IS the franchise agreements auto OEMs entered into with their dealers to gain access to the dealers capital and local expertise and experience. Franchise law only clarifies the framework if there is any issues of interpretation in the franchise agreements. Don’t think the OEMs don’t have high priced lawyers writing those things up. Its a pretty adversarial relationship between dealers and their OEM ESPECIALLY now that dealers typically represent more than one OEM.

            The system how it exists was NOT created by dealers. It was created by the OEMs. And the Federal Trade Commission likes consumers to have the right to shop without having to worry about price fixing. Yes, some have to pay more so some can pay less. That’s just the facts of life. Will you be one to get a better than average deal? OR will you be one to pay more so some can pay less. IF you don’t like the setup, lobby the FTC to allow dealers to fix prices so everyone can pay the same. that’ll make consumers happy, right?

    • 0 avatar

      The dealership network is NOT scared witless. It isn’t state franchise laws standing between OEMs and direct sales. It is the OEM franchise agreements with its dealers,unassailable under contract law, as well as common sense. What OEM in its right mind wants to sell direct? Hasn’t that been tried enough?

      But Hey! If they want to have another go at it, I’d love to watch it unfold as I watched the Ford Collection unfold and then unwind.

  • avatar
    Fred

    It’s now getting other manufacturer’s attention as they want in on this deal as well.

  • avatar
    wsn

    Franchise protection should only apply to makers who already have a franchise network in place.

    The very fact that this is even an issue for a clean start such as Telsa shows there is something wrong with the US of A. Too much protection and too little progress. Too socialist and not capitalist enough.

  • avatar
    TrailerTrash

    I still do not know how this will work..other than keep Tesla alive as a ridiculously small company and allow it to go on as a scam stock.
    There can only be a small amount of people willing to pay a lot of money for a car that cannot be serviced easily and locally. That at is unless everybody keeps buying into it simply as a city electric car.
    I guess as a city car you don’t have to worry about a break down along Hwy 75 outside Knoxville, TN.
    Everybody else does.
    So, unless I am totally missing the so-called business plan along with the consumer plan…this is nothing more than enabling.

    • 0 avatar
      ElSnuggles

      Cannot be serviced easily? Have you seen the parts that make up a Tesla?

      Cars are stupidly simple when you remove the complications that a combustion engine brings.

    • 0 avatar
      Vulpine

      First I would have to question what type of breakdown you’re talking about. Secondly, Tesla would not only have the car picked up, but they would deliver you a loaner–apparently this is usually an 85kWh model–to use while yours is being repaired, then bring your own vehicle back to you and pick up the loaner. And if it’s under warranty, they do it all on their own dime. The nearest shop? Just a little over 100 miles away–100 miles you DON’T have to drive.

      By no means is this a “scam”. So you must be, “missing the so-called business plan along with the consumer plan”.

      • 0 avatar
        TrailerTrash

        Any break down that prevents you from moving. So cool to think another will be delivered and you get a loaner…but in reality you are traveling. You got stuff and in a hurry. You need to move along.
        Failed brakes. Failed stearing. Failed motor(s). Broken anything that prevents further travel…that is what I am talking about. Getting your car repaired and back on the trail is what I am talking about.
        Every other promise listed here is just that…words. Its snake oil salesman/peddler talk. In my opinion, this on a large scare is just nuts and only elite can use it.
        Real world families and trave,ers cannot.
        To think otherwise is delusionary.

        • 0 avatar
          Vulpine

          It’s quite obvious you don’t understand how Tesla operates. Everything you say is a “promise” from Tesla is fact. Just ask any Tesla owner, like Alan Dean Foster, the author, who owns a 65kWh Model S in Phoenix, Arizona. Just because the car is pricy now doesn’t mean it will remain pricey. Tesla has already announced a $35-$40K model coming out in ’17 and a pickup truck around ’20.

          Not snake oil, reality.


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