
Car Dealers Sue Tesla, Citing State Franchise Laws - joshuahedlund
http://www.npr.org/2012/11/09/164736569/car-dealers-sue-tesla-citing-state-franchise-laws
======
NathanKP
That is ridiculous. A car is a product like any other product that can be
sold. Apple sells phones and MacBooks directly to the public. Outlet malls
have clothing manufacturers selling directly to the public. The car
dealerships is an outdated model and this is a sign that they are desperate.
They are just suing because once the Tesla stores prove to be more efficient
other car manufacturers will follow suit.

~~~
Osmium
I have to admit, as an outsider, I can't fathom how a law like this even
exists _especially_ in a place like America.

~~~
redwood
America has anti-trust laws. Companies are not supposed to be allowed to wield
undue market power (e.g. be able to set the price of their type of product).
Now this is obviously complex. But basically a lot of anti-trust battles led
to the de-verticalization of numerous businesses: from film studios which
owned theaters, to Standard Oil which owed oil, railroads, refineries,
distribution centers, etc.

The idea is to make sure there is market efficiency, e.g. competition, in
price throughout, so the consumer doesn't get screwed.

Now the idea of a franchise law like this one is done in a similar vain: it
appears to ensure better competition for big car makers to bring their goods
to consumers.

The problem is this law is written from a perspective of a couple major car
companies that dominate the market.

There has always been an argument that a small player cannot be considered to
wield market power, and that thus they should be allowed to be vertical. Apple
for a long time avoided any anti-trust issues (while Microsoft didn't) even
though it was very much vertical, by being small! Tesla presumably will use
the same argument.

Bottom line there are two sides to laws like these: on the one hand, in
Tesla's case, they seem anti-competitive. On the other hand they are made to
bring about a _kind_ of competition. Clearly the courts will need to resolve
this...

~~~
glabifrons
Apple is anything but small... they passed Exxon earlier in the year as the
world's most valuable company. They ship more computers than nearly any other
company (save maybe HP). So when do they start being big enough to be affected
by this law?

I also find it interesting that you also compared them to Microsoft, since
Microsoft is now opening retail stores.

~~~
slykat
A monopoly is usually a company which has price making power (on the whole
industry) and has established barriers to entry that prevent competitors from
entering the market.

The key reason Apple isn't considered a monopoly is that even though they are
huge, they don't' have a monopolistic position in their products. For
smartphones they have a market share of ~20% worldwide and in the PC market
the hold ~5%. Even on the country level, the numbers never get to a level
where people would usually scream monopoly.

You could argue that they probably have monopolistic market share on the
tablet market but most wouldn't consider that an industry in itself (yet) and
they haven't exhibited the characteristics of a monopoly: price setting for
the industry and an inability for new players to enter the market. It's
actually possible to not be considered a monopoly even with a huge market
share if you can prove you don't control the industry.

Apple's normal business model allows them to thrive without being a high
volume business; their per device profit margin greatly exceed any competitor,
so they can still be hugely profitable with low market share.

------
mrkmcknz
Every now and then we see old laws being used by _dying_ industries take a
plunge at stopping innovation. Uber & Air B'n'B are two others that come to
mind.

The bigger problem for the _dying_ industries is that they're taking on
companies that at their core solve problems and disrupt. As opposed to being
pathetic and continuing to prolonge the inevitable, they should focus their
efforts on product development/sales channels. Or maybe even become a little
innovative themselves.

~~~
gpcz
Its easy to say that at the macro scale, but what are you suggesting car
dealerships do on the micro scale? Learn how to build their own cars and sell
them in defiance of the current laws on the contingency that the judge rules
in Tesla's favor?

~~~
reinhardt
No, go out of business and look for a real job.

~~~
gpcz
If the only choice for dealerships in the classic phrase "innovate or die" is
to die, why even say that the dealership industry needs to innovate?

~~~
ihsw
The alternative is to 'bail them out' -- either through strong and enforced-
by-guns legislation in their favor, or the monetary kind to 'create jobs.'

I'm fairly certain we're all sick of private-industry and government colluding
together in the name of state-sponsored profit. No industry deserves a
guaranteed profit margin.

~~~
gpcz
I agree that no industry deserves a guaranteed profit margin. I just think
that if one believes an industry needs to die, then talking of innovation is
really just a tease.

------
protomyth
It is basically the same type of law that kept studios from owning movie
theaters. Separating producers from local sales was a big thing. We can say it
is a crap law but there were some very real worries and reasons that lead to
it in many industries. Expect if the law is overturned that all the
manufactures will replace local dealers with their own showrooms. This isn't
about stopping innovation, it's about accumulated history.

~~~
mrkmcknz
Maybe I'm too naive to see why manufactures having their own showrooms would
be such a problem?

~~~
rubyrescue
Imagine that Ford only allows maintenance at company owned stores, because
they don't sell replacement parts to dealers, then they charge $500 for a fan
belt, etc.

~~~
grannyg00se
Except that if I knew that was their way of business I would simply avoid
buying their products.

Isn't this a case where the free market actually would account for that
scenario? It's not like they have a car monopoly.

~~~
rubyrescue
agreed. i'm just describing the ostensible reason for the law...

------
archildress
"Tesla is choosing to ignore the law and then is choosing to play outside that
system."

Is there a statement more indicative of the fear of innovation in archaic
industries?

Let's hope that laws like this begin to vanish and clear the way for
innovation.

If they don't, I'm sure Mr. Musk will find a workaround. They could
essentially setup their retailing operation as a separate legal entity and
work around this.

And that's what big auto needs to understand - legal ploys to stop progress
will only be met with more legal maneuvers. How about cessation of belly
aching and movement toward a change in the product and retail model?

~~~
delinka
"Separate legal entity" isn't quite enough. It also can't be owned by the
manufacturer.

~~~
wilsaj
Would a parent corporation that owns both the manufacturer and a separate
distributor work?

~~~
Rexxar
I think it would already have been done by auto makers if it was legal.

------
dade_
The NPR story doesn't seem correct, at least according to my understanding
that Tesla show room locations do not sell cars, only provide information
about them. A car dealership is a business/location that sells cars, and
Elon's argument is that a Telsa store does not sell cars and is therefore not
a dealership. Sounds like defensible logic against the franchise lobby-law to
me, but according to the NPR story a Tesla store sold a car. The law is
ridiculous, but it is still the law.

According to the story: Mark Seegar claimed, "he walked past Tesla Motors'
Bellevue, Wash., showroom. It's one of a handful of Tesla's company-owned
stores. Within five minutes, he'd put down a deposit for an electric car that
costs more than $50,000."

Tesla's site: "As it is, our Product Specialists could not sell you a car
today under any circumstances, as Model S is already sold out several months
in advance and there is no inventory on site. All they can do is get you to
consider placing a reservation." [http://www.teslamotors.com/blog/tesla-
approach-distributing-...](http://www.teslamotors.com/blog/tesla-approach-
distributing-and-servicing-cars)

~~~
mmariani
> ...Tesla show room locations do not sell cars, only provide information
> about them.

Now how much would you bet that this argument will win this case for Tesla?

~~~
njharman
Depends if jury believes putting down deposit is "buying" or not.

~~~
thaumaturgy
Tesla has an online reservation system (<https://www.teslamotors.com/own>).
From [http://automotivedigest.com/2012/10/dealers-annoyed-with-
tes...](http://automotivedigest.com/2012/10/dealers-annoyed-with-tesla-motors-
showrooms-and-service-centers/) :

> _Tesla’s stores are a bit dif­fer­ent – essen­tially show­rooms to gain
> con­sumer inter­est and edu­ca­tion. For those impressed and want­ing to
> buy, they’re directed to a com­puter to make their deposit and place their
> order._

Tesla here is clearly navigating on purpose through a gray area in which the
customer is technically not buying anything from the show room.

~~~
njharman
gray areas are what make epic court cases. If it was cut and dried one side or
the other would settle.

------
djokkataja
From the Massachusetts law:

(c) It shall be deemed a violation of subsection (a) of section 3 for a
manufacturer, distributor or franchisor representative:

...

(10) to own or operate, either directly or indirectly through any subsidiary,
parent company or firm, a motor vehicle dealership located in the commonwealth
of the same line make as any of the vehicles manufactured, assembled or
distributed by the manufacturer or distributor.

[http://www.malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/...](http://www.malegislature.gov/Laws/GeneralLaws/PartI/TitleXV/Chapter93B/Section4)

~~~
dietrichepp
<http://www.teslamotors.com/natick>

> The Gallery does not sell cars, but serves as a place to educate visitors
> about our groundbreaking electric vehicles.

The website does not say this about Tesla's other locations.

~~~
protomyth
Can they order the car on premises (even if it is a computer with a web
browser in the studio)?

~~~
droithomme
I can go to McDonalds and order an Apple computer by calling 1-800-MY-APPLE. I
can also do so by using McDonald's wireless. If I don't have a computer or
phone I can go to the library and use theirs.

Is McDonalds a Apple dealer because I can order an Apple from inside the
restaurant? Is the city library an Apple dealer?

If the argument is true that this location, which does not accept money or
purchases, and which does not deliver cars, is a car dealership, only because
some people are using the internet to place deposits on cars with a company in
another state, then the library and McDonalds are Apple dealers.

And furthermore, since I can also access <http://carsdirect.com> from the
library and McDonalds, then under this principle, the library and McDonalds
are both car dealers as well.

~~~
protomyth
Look, you can throw up all the theoretical scenarios that don't relate to the
specific laws all you want, but it does not change this:

does a car manufacture have a place displaying their car in which the car can
be ordered.

Apple is not party to any of the car franchise laws (there are no computer
franchise laws) and McDonalds doesn't make cars. We are talking about a case
relating to actual laws.

~~~
protomyth
yep - down vote the truth when it doesn't fit with your desires

------
manaskarekar
This just sounds like desperate clawing of a doomed business model to me.

~~~
datalus
It certainly is, quote from the article:

"Let's say consumers really liked buying from a factory store. That would put
dealers in a tough spot because they've been saying for years that the
franchise system is actually good for customers," [Jeremy Anwyl] says.

I think he hit the nail on the head. I would say the franchise system is only
good for the franchise owners, not the customers.

~~~
cloverich
Has anyone ever had a _good_ experience at a car dealership?

I remember getting my first car when I was 16. I was so excited, I drove the
thing home and didn't realize the car mats weren't in it. I called the next
day: "Sorry sir, Car mats don't come with used Vehicles. We do sell them
though ($350!!!)"

The thought of car dealerships going out of business and being replaced by a
better business model feels nearly too good to be true. Here's hoping its not!

~~~
burke
The Volkswagen dealership I've dealt with was not too horrible (though this is
also in Canada, where car dealerships in general have a marginally less awful
repuation). I think it's a you-get-what-you-pay-for kind of situation, in that
if you're not buying a used Sunfire or something, the dealer is less likely to
have to screw you over to make a buck.

~~~
glabifrons
I must disagree.

A coworker had problems with his Mercedes SUV, opposite end of the spectrum
from a used Sunfire. He had it checked out and came back to the office in a
very sour mood. I asked to look at the quote - they planned to replace the
plugs, wires, and coils (V8) for $3,600! I looked at it closer and saw a very
common game being played. They used the numbers "from the book" for the hours
required for each replaced component as if you would replace each component
individually and added them all up. In reality, if you're replacing the plugs,
you're _already_ pulling the wires, so it adds no time to the work at all
(maybe a few seconds per wire). There's not much to add for the coils if
you're replacing the wires either.

After much prodding, I managed to get him to get a quote at a non-dealer shop
and when he showed the guy his quote, he pointed out the exact same cons that
I did. End result, he saved 2/3 of the dealer's quote.

I could tell you other (bait & switch, rudeness, etc.) stories about BMW and
Audi dealers, including a coworker's experience _trying_ to buy a brand new
one.

------
OafTobark
These bullshit laws need to be updated. Its no different than someone making
anything and then being unable to sell it themselves.

------
jzd131
This law is sure to go away. The fact is that the future of car sales is the
internet.

Here is an excerpt from my blog: "According to a Polk and Autotrader.com
study, 70% of new and used car buyers use the internet while shopping for
their vehicle, with 58% of all buyers listing the internet as the most
influential element in their car buying process. But the online car buying
process doesn’t stop there. In fact, eBay Motors has sold 4.62 million
passenger vehicles solely online since its inception."

See the post here:<http://salemove.com/buying-a-car-on-the-internet/>

------
nickesh_23
What a dumb law. I wish I had a dollar for everytime the government tried to
stop progress to protect big, archaic businesses (über, sidecar, lyft, Airbnb,
you're with me on this one). Anyone smell corruption brewing?

Think about it. How can a government own a car company then legislate against
other car companies? I know it's federal gov buying and local gov ruling in
this example, but it's a slippery slope nonetheless. It would be like mark
Cuban becoming the commissioner of the NBA while still the owner of the mavs.
Anyone here think that would end well?

~~~
jasonlotito
By big, archaic businesses you are talking about local car dealerships, right?

~~~
mrdodge
Car dealerships are big business, many of the big new car dealerships are
owned by Fortune 500s like Sonic Automotive and Penske Automotive Group.

------
vladoh
I think such laws are about to go away after big players like BMW start
selling their cars directly to customers online:

[http://www.bloomberg.com/news/2012-07-24/bmw-bets-mouse-
clic...](http://www.bloomberg.com/news/2012-07-24/bmw-bets-mouse-click-to-
win-48-500-electric-model-buyers.html)

------
bjornsing
As a Swede I'm always amazed to hear about this type of US laws. I know Sweden
represents socialism to Americans, but when it comes to this kind of
intervention in the market it's much less accepted here than in the US.

------
adrianonantua
"First they ignore you, then they laugh at you, then they fight you, then you
win.". Looks like victory is pretty close.

------
beedogs
Did the horse-and-buggy dealers sue the automobile industry when it was
starting to threaten them, too?

~~~
rhplus
In the UK, the Locomotive Acts[1] restricted speed and weight of autos and
imposed signaling rules (cars had to be preceded by a walker with a red flag!)
and required yielding to horses. Arguably, these laws hindered early
automobile development and public acceptance and helped the development of
railways and trams.

I'm not sure about the US, but by the early 20th century the American auto
industry was on the offensive, setting up shell companies[2] to buy up and
dismantle inner-city trolley lines.

[1] <http://en.wikipedia.org/wiki/Locomotive_Act>

[2]
[http://en.wikipedia.org/wiki/Great_American_Streetcar_Scanda...](http://en.wikipedia.org/wiki/Great_American_Streetcar_Scandal)

------
nhangen
I love it. Tackling both the electric car and dealership problem at the same
time. This is what disruption looks like.

------
larrywright
Car sales has always struck me as an industry that was ripe for disruption.
Why do we still need car salesmen?

~~~
nlh
Same reason we need any type of human salespeople -- sometimes people don't
want to do all the research & comparisons by themselves and its nice to have
someone guide you in the right direction.

Now - that being said - I don't disagree with the sentiment here. The
traditional car sales model sucks and I think is ripe for disruption. But
don't necessarily throw the baby out with bath water ;)

For example - I bought an espresso machine for a friend the other day. I
called one of the better retailers out there and spoke to a super-helpful
saleswoman who talked me through the various options, gave me differences
between models, what's worth paying for and what's not, and based on my
personal preferences, helped me pick the right one. It was a totally pleasant
experience.

But what made it particularly excellent was that she wasn't (to my knowledge)
pushing one particular brand/model. She had at her disposal about 20 different
brands and guided me to the "best fit" based on my needs.

Maybe that's an opportunity for car dealers in the future -- maybe
manufacturers sell directly and we get independent "car sales consultants" who
don't work for a particular brand....?

~~~
larrywright
After reading this, I think what I really object to is the sales _process_.
The whole act of wheeling and dealing and never really feeling like you got
the best deal.

------
deepGem
I'm curious to know what other consumer products are sold through dealerships
(In the continental US). Why would any law make it mandatory for a
manufacturer to sell their items through a dealership. Just curious.

------
scott_meade
"FREE Butterball Turkey Certificate with every test drive!"

I got this ad in the mail today from a local Jeep dealer. Dealers clearly have
no clue. Could you ever imagine Tesla thinking up such a dumb promotion?

------
ed_blackburn
How can such a law be anything but bad for an economy?

~~~
esurc
The rationale I've heard is that consumers benefit from having a local service
location for the brand. Based on that logic, the state limits the franchises
to avoid "ruinous competition" (not my phrase) that would threaten that
consumer benefit.

The first time I heard the phrase "ruinous competition" used this way, I
nearly jumped out of my chair.

But this is why the OP mentions the challenge that Tesla will have in
providing local repair service. If it can crack that problem, it may open the
door to manufacturer shops of other car models as well.

~~~
shawn-butler
These laws came into existence to protect dealers from predatory actions taken
by manufacturers against the public interest. They have their roots in the
Great Depression era when Henry Ford dumped inventory on dealers with "offers
they couldn't refuse."

There is a huge imbalance of power in this relationship. Since their creation
the statutes have been captured by special interest just like every other
regulation.

------
larrywright
I think it's a sure sign you're on to something when the incumbent businesses
try to use outdated laws to stop you.

------
huhtenberg
Any bets on how this is going to play out?

