Tesla Factory Stores Under Fire From Dealer Groups

by Derek Kreindler

Published: October 8th, 2012

tesla factory stores under fire from dealer groups

Tesla’s sales model, with factory-run outlets selling directly to customers, is coming under fire while dealer groups such as NADA are citing the apparent illegality of factory-owned sales outlets.

Dealers are worried that Tesla’s method, which allows for online reservations of vehicles in addition to the shopping mall showrooms, will marginalize their way of selling vehicles. This fear was articulated by Bob O’Koniweski, executive VP of the Massachusetts State Automobile Dealers Association, who told Automotive News

“If a manufacturer sees that Tesla is successful with this kind of business model, who’s to say they don’t break out their own EV product lines and create a separate system that bypasses dealers?…It’s extremely problematic.”

Tesla has apparently bypassed existing dealer franchise laws by offering online reservations if sales cannot be conducted on site. Dealers have asked four states to conduct investigations into the legality of Tesla’s sales model. Meanwhile, the chairman of NADA issued this rather ominous statement

“Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sales increase, NADA is confident it will re-examine its business model…Other companies such as Daewoo did. All companies should be complying with existing laws in the same way dealers are required to.”

Tesla has denied that it is trying to reboot the existing sales model, with George Blankenship, their VP of Sales, telling AN “That’s the last thing on our agenda.”

#Dealership #NADA #Sales #Tesla

Derek Kreindler

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12 of 166 comments

Krhodes1 on Oct 09, 2012

I think a point is very much being lost here, particularly by PCH101 - it is not that franchises or direct sales are any better, it is that the states have passed laws MANDATING how it must be done. Let the market decide. I look at it this way - ALL competition is ultimately healthy. I can buy an Apple laptop directly from Apple over the Internet. Or I can buy one from Apple in their own retail store. Or I can buy one from Best Buy. Or I can buy one from some other Internet Apple Reseller. Or a local VAR. All have their plusses and minuses. Best Buy might be offering no interest no payments for 36 months. Apple might be having a sale. Or maybe I just really want to talk to the geniuses. Or maybe I am buying a package deal of a whole office full of them with installation and support of custom software from a VAR. Each sales channel has its place, Apple would be FAR worse off if they only had ONE way of selling computers. I think the auto industry would be well served by a similar model. Buy direct if you want. Or buy from the local franchised Ford store if you need it TODAY. Or from CarMax. Whatever. No one method is going to replace all the rest. But the competition keeps EVERYONE on their toes.

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- Pch101 on Oct 09, 2012
  
  "Let the market decide." That's a nice cliche, but it doesn't mean anything. A franchise agreement is between the franchisor and franchisee. If those parties wish to include elements of exclusivity, then they are free to do that. If you want to open up a Baskin Robbins or Taco Bell franchise, you don't just get to hang their logos on a pickup truck and sell stuff from the bed. You have to have a contract. If the franchisee of a KFC store has an agreement with the franchisor that nobody else can open another KFC within a mile of his store, then that's his deal and it isn't any of your business. If you don't like that arrangement for whatever reason, then your choice as a consumer is to take your fried chicken business elsewhere.
  
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- Leeboo1211 on Oct 09, 2012
  
  While we are on the topic of Apple, this is an excerpt from Autoblog on the same story: "Tesla says the way that its stores are run are unique to each location. According to George Blankenship, Tesla's VP of sales, "If we can't be a dealer in a mall, we won't do reservations on-site. We tell people where to go on our website to make a reservation." Blankenship is the former Apple retail guru and the mind behind the Apple Stores – an experience Tesla hopes to recreate in its own sales network." So apparently they ARE using Apple as a model, as far as the retail experience. Remember when all the experts in the IT industry panned the Apple stores, and predicted they would close within 2 years? Well, as of August 2012 they have 393 worldwide (according to Wikipedia). That obviously doesn't mean they won't still use all the other channels available to them to sell their products(Bestbuy etc...), but if I want a corporate standardized quality Apple experience I know where to go, even if it may be slightly more expensive. Which is not usually the case, price parity on most Apple products is pretty even wherever you go. And yes, I find the Apple store a truly pleasurable retail experience. Nobody trying to "assist" me with "expert advice" and push a sale on me. I just wish I had a similar option when it comes to automobiles: price transparency, quality guarantee of both retail experience and product. In the end I wish I had the freedom, the choice, to make my purchase from the channel I want, even if I have to drive 3 states to get there, and not have that possibility blocked by some law that enforces the status quo more than anything else. Here's to hoping Tesla reinvents the automobile retail business, even if its only in their tiny little niche.
  
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- Pch101 on Oct 09, 2012
  
  @leeboo1211 "Here’s to hoping Tesla reinvents the automobile retail business." A company that sells almost no product is not going to reinvent the sales model. Tesla is probably grooming itself for an acquisition. They need to get some larger car company to buy them (presumably for the energy CAFE credits) before they run out of money.
  
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- El scotto on Oct 09, 2012
  
  @Pch101 Have Ford buy Tesla and call them Lincolns, many problems solved.
  
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- Daveainchina on Oct 09, 2012
  
  @Pch101 It's fine if you want to make an agreement about exclusivity, but why is it mandated by state law? What possible reason should it be mandated by law? If you write a contract that way fine, then as a manufacturer you're probably an idiot but hey it's your choice. But to be required to write it that way by law? That again is just plain stupid. It stifles competition and innovation and ultimately we as the consumer lose.
  
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- Pch101 on Oct 09, 2012
  
  @Pch101 "What possible reason should it be mandated by law?" Dealers of the 1930s wanted to be protected from the GM-Ford corporate duopoly, and the power that Detroit had to capriciously shut them down. Again, if you shelled out gobs of money to start a dealer franchise, then you'd want to be protected, too.
  
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- Mr Nosy on Oct 10, 2012
  
  @leeboo1211 The iPhone,which if I'm not mistaken is now over 40% of Apple's product sales,is a product that is traded in every 17-23 months.Comparing a mobile electrical device with a two-year(Or three if you're,gasp, unhip.)lifespan to that of a product expected to last many more years before the scrap-heap,is truly one of Apple's greatest achievements.
  
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Eric 0 on Oct 09, 2012

"but if I want a corporate standardized quality Apple experience I know where to go, even if it may be slightly more expensive. Which is not usually the case, price parity on most Apple products is pretty even wherever you go." In fact, universal price parity is one of Apple's greatest achievements. They ruthlessly enforce it to the point that an Apple product costs exactly the same, to the penny, no matter where you buy it. This predictability in pricing is one of the most significant value adds that comes from either cutting out the middle man, or making him your bitch. A customer does not have to search around to look for the best price. There is only one. They don't have to worry that the price will drop suddenly as part of some promotion. It won't. This predictability removes any anxiety over whether the price the customer is paying is the right one. Car companies have tried for decades to establish "no haggle pricing" because customers prefer it. They never succeed for long, because unlike Apple or Rolex, they can't pull a dealers license without literally going to federal court. I predict Tesla will see a lot of success if they can keep their pricing absolutely consistent and predictable.

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- Daveainchina on Oct 09, 2012
  
  yay and yet another reason for these laws to be overturned. I cannot see how anyone can defend the laws governing this. It's about being forced and not being given a choice and in general with the exception of utilities (which is an altogether different animal) choice is what makes everyone better.
  
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Mr Nosy on Oct 10, 2012

What can I add that hasn't already been said? To begin with,my experience has shown that you'll find products cheaper elsewhere than from the manufacturer of said product. As for Apple,besides their computers,it's a telecommunication device/surrogate love object that differs from cars in that they're usually replaced every 18-24 months.Tesla is not really a bellwether for the rest of the car industry,only for those who cash out their facebook stock(Quickly,before news gets out that tweeners consider it passe.). I realize some people will need to replace a car more urgently than others,requiring car lots for immediate purchase and test drives.However,I still foresee some change in the dealership v. manufacturer sales mix, based primarily on land use issues for urban areas.Drive-in movies are gone here in So Cal(Land ain't cheap,and the planet ain't gettin' bigger.). Additionally,why wouldn't manufacturers want in on a cash cow/downturn hedge that makes a car dealership profitable-service,repair,and resale? Traditional dealers can survive by taking a lesson from Saturn.Not the car,don't be retarded,but their buying and service experience.I rented cars to a Saturn dealership.My God,they took ass-kissing to a whole 'nother level-I called it "theralingus". I've personally never needed such fawning treatment,as I have friends,am loved by my mother,and wasn't raised by wolves. As for Ayn Rand,that old hackster eventually proved that even she was incapable in living up to her own cold,soulless,and barren ideals.

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Mickeypups on Oct 10, 2012

I have a question... I have to wonder why any independent franchisee would want to sell Teslas.. First, volume is, and is likely to stay very low for quite some time (a result of the time it will take to ramp up production and demand is low). Secondly, I was under the impression dealers made very little from the sale of new cars, and really floated their entire business on vehicle service... what sort of long term service is a Tesla going to need, and will its service needs/costs be enough to provide requisite revenue for a dealer?

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