The Buckeye Stops Here: Tesla Motors' Battle With Ohio Auto Dealers Association

One more win for Tesla Motors against yet another Auto Dealer Association:

"Yesterday, a House committee declined to take up a one-paragraph amendment pushed by the Ohio Auto Dealers Association that would have blocked Tesla’s business model by prohibiting an automaker from owning an auto dealership. Dealers wanted to stick the amendment into a noncontroversial bill that would require drivers to move over when approaching a road-maintenance vehicle. But with Tesla representatives pushing hard, the committee passed the bill yesterday without amendments." 

The Columbus Dispatch

It is understandable for automotive dealerships to be extremely fearful that their industry may one day be rendered obsolete by Tesla’s sales model. It is also understandable that auto-dealerships would like to get their hands on some of the money passing from consumers to Tesla. The question is whether auto-dealerships are entitled to remain in business or share in Tesla’s profits. This is what a legislator who would act to preclude Tesla sales via the company’s current sales model should ask. Of course the answer is no, and there is no other honest question or argument to the contrary. 

Public welfare and tradition of a middleman between the consumer and manufacturer has been articulated as front-runner reasons to limit or preclude direct manufacturer-to-consumer sales of Tesla vehicles.

The public welfare argument is truly disingenuous if not entirely without merit. History has shown that auto dealerships are not very concerned with the public welfare. In fact, dealerships have often been in hot water for bait and switch tactics, knowingly reselling substandard vehicles, hiding true cost of vehicles via financing, overcharging for vehicle service and more. Even worse, such practices seem to be the norm rather than a ‘few-bad-apples’ situation. I am not suggesting that manufacturers care more for the public welfare than auto dealerships, only that auto dealerships do not really care about the public welfare (though a trademark argument may suggest manufacturers have more reason to care). 

Encompassed in the public welfare argument is that dealerships through competing with themselves help to keep vehicle prices down, and so provide a benefit to the public. This makes little sense with regard to new vehicles. Consumers often wage war with salesmen to purchase new vehicles at “invoice price,” the cost that an automotive dealer would pay a manufacturer if they were to purchase a single vehicle from the manufacturer. Without the middleman, a consumer could seemingly skip the battle and just pay the invoice price to the manufacturer directly, if not a lesser price. Tesla’s current sales model provides for no invoice pricing, the price is simply the price. 

The ‘history of the manufacturer-distributor-retailer-consumer model’ as a reason to limit direct sale of Tesla vehicles to consumers is a ridiculous argument. As Jiddu Krishnamurti said, “tradition becomes our security, and when the mind is secure it is in decay.” Tradition in and of itself is rarely a good reason to continue a practice where there could be a better way. Years ago it made sense to have a dealership network or distribution channels for various consumer goods, as this was how people shopped. That is, consumers went to stores to purchase goods prior to mass Internet shopping and Cyber Mondays. In store shopping for many retail goods is fast becoming obsolete, and many auto-dealerships themselves take advantage of the Internet to sell their stock. As such it would seem that even auto-dealers have realized that the old shopping paradigm of walking into a showroom and being offered the “spot special” has an expiration date.

Mark Twain was correct: “the less there is to justify a traditional custom, the harder it is to get rid of it.”  However, there may still be a justification for automotive dealerships. Even if consumers change the way they shop, it does not mean that no one will need automotive dealerships. The irony is that the manufacturers themselves need the automotive dealership or “middleman” model. The dealerships, not regular consumers are manufacturer’s’ customers. Manufacturers rely on bulk sales to dealerships to stay afloat. They may not be able to sustain their business by selling vehicles to individual consumers. Bulk dealership sales have been their business for quite sometime and this entrenched model will likely be around for a while.  This means that a consumer will probably need to go to a car dealership to purchase a new vehicle, if they wish to do so anytime in the near future and that vehicle is not a Tesla.

As such, the legitimacy given to automotive dealerships’ gripes over Tesla direct sales by legislators and the like is disturbing but not surprising.