It’s been a long time coming, but Tesla Motors can now legally sell its vehicles in the state of New Jersey. Gov. Chris Christie has signed a law that would allow Tesla to avoid contracting with dealerships and instead sell directly to consumers. Christie had previously banned direct-to-consumer car sales in the state but after doing so, he promised that he wouldn’t block it if the issue was put to a vote and passed.
While the new law was written with Tesla in mind, it applies to all zero-emissions auto manufacturers. Allowing an electric car manufacturer like Tesla to circumvent the independent dealership model cuts down on costs, which is important for any new company, but it also means that Tesla can maintain control of its product and brand identity. By owning and maintaining its own dealerships, Tesla can make sure that the customer experience is on brand, as well as quickly make changes as it sees fit.
With Tesla sales already legal in New York, New Jersey residents were able to easily skirt the ban, but what makes this legislation so important is that New Jersey is the first state to reverse a prior ruling that banned Tesla sales. With direct-to-consumer sales now legal in New Jersey, it could start a trend in other states. That would be convenient for consumers and great for Tesla, but traditional car dealers are strongly against it.
Currently, automakers like Ford and Toyota are required to sell their vehicles to dealerships that are owned and operated by a third party. Those dealerships are then responsible for selling those vehicles to consumers. While manufacturers suggest a retail price, the dealership is the one that ultimately decides what to charge individual customers.
Proponents of the dealership model say that it helps consumers by forcing competition between dealerships, allowing you to negotiate the price on your car, and encouraging better service. Independent dealerships are also local businesses that create jobs for the community. The problem though is that what dealerships tout as a benefit, a lot of customers see as a hassle. People don’t like not knowing what a fair price is on a new car, and they hate the haggling process.
Part of the appeal of Tesla, on the other hand, is that everybody pays the same price. If you want to pay cash for a base, 60 kWh Model S, you know that it’s going to cost you $73,070 before federal and state incentives. You also know that your friend paid the same price when he bought one. So many factors go into determining what someone pays at a traditional dealership, it’s possible for one person to pay drastically more than another without even knowing it. Was his credit really a problem, or was it his race? Was that the best price that they could do, or was that the best price they were willing to do for her? As convoluted as the pricing structure has gotten, there’s really no way to know.
Local dealerships certainly create jobs though. They’re often major employers in their area, but that doesn’t mean that a Tesla store won’t also create jobs. Elon Musk would probably love to staff his stores with robots, but until that technology takes a major step forward, he’s forced to use humans to sell his cars. While a Tesla store may look and run differently than a traditional dealership, it still creates jobs and employs people. Allowing Tesla to own and operate its stores certainly isn’t going to destroy any local economies.
If you listen to dealership associations like the Texas Automobile Dealership Association though, you’d think that Elon Musk is a liberal monster who’s trying to get rich off of government handouts and take advantage of hard working Americans. Just look at the website TexasFreeMarket.com where they claim that, “Tesla would … prefer a special set of rules for just their company – putting profits over Texans, and Texas communities.” The site then goes on to say, “When Texas franchised dealers make a profit, that capital is reinvested right here in Texas. Tesla’s profits will be exported to California leaving NOTHING for Texas.”
While Tesla did receive federal loans that it later paid back, most of the rhetoric from anti-Tesla dealers rings hollow. As much as dealers complain about the free market being violated by Tesla wanting special privileges from the state government, the laws that created the dealership model are already a violation of a truly free market. After all, manufacturers like Ford and General Motors are limited to only being allowed to sell their products to certified dealers, and dealership associations are lobbying heavily to keep it that way. How many other industries don’t allow businesses to sell their product directly to consumers if they want? Few, if any at all.
It’s disappointing that dealerships are so misleading about the threat that Tesla poses to the American people, but it’s understandable that they’re scared. Allowing zero-emissions companies like Tesla to sell directly to consumers opens the door to allow regular manufacturers to circumvent dealers as well. They’re terrified that they’re going to lose money and potentially even lose their businesses. They believe that direct sales for Tesla must be stopped because if it isn’t, dealerships run a major risk of eventually being cut out of the action altogether.
Unfortunately for third-party dealerships, times change, and businesses have to adapt. The fact that people rank buying a car as one of life’s least enjoyable activities shows that something has to change. Dealerships haven’t adapted to meet buyers’ changing desires, and allowing direct car sales may be what it takes to force them to. Nobody is calling for the elimination of all dealerships, but maybe it’s time to let Elon Musk bust up their monopoly a little bit.
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