I'm not opposed to what Musk is trying to do but how or why are auto dealers a monopoly? Those direct sales laws were originally created to preserve small business.
I thought he did a good job explaining why those laws were put in place and why they're not needed to be applied here. Even if you don't agree it's a monopoly, clearly in this case the law is not being applied as it should be.
Don't forget that Musk is completely biased here, and his representation of the history of those laws are likely to be tainted by that bias. I don't know the full history of why these laws were put into place, but I wouldn't trust Musk to tell me the full story when he's clearly trying to paint a very specific picture.
I was impressed by the fact that he bothered to offer an explanation of why the law was introduced and what purpose it served; it makes for a more compelling argument than some cookie-cutter rant about Big Evil Corporations wrapping their rent-seeking tentacles around the government.
I suspect it's the same general mechanism as even the most liberal of recent US presidents strangely doing the bidding of the military-industrial complex. (Obama and Carter.)
Well, most dealerships are probably used car dealerships that almost certainly qualify as small businesses. Of course, that has little to do with our current conversation. I'm just feeling extra pedantic today.
Some quick stats on the size of this particular "small" auto dealer company:
Trailing 12-month revenue: $8.9B
Trailing 12-month gross profit: $1.29B
CEO Pay: $2.5mm (for comparison, this is higher than the cash comp of the CEOs of GM and Microsoft)
I'm not sure this business needs regulatory protection from the likes of Tesla.
This Planet Money episode[1] gives a interesting of the history of autodealers, with some additional info regarding the latest twists that had come up due the fiscal crisis too.
That's a fairly one-sided view on the situation. Just some random points:
* Saturn tried the "no-haggle" new car buying experience. People generally liked this, though Saturn doesn't exist anymore.
* "closing a dealer is hard". Dealers have to pay for the land they own. The cars on their lot tend to be bought with money from the bank (a bank really owns the cars). The dealers just have to pay insurance/interest on the cars. The longer a car is on the lot, the more insurance and interest the dealer has to pay. If a dealer isn't selling cars to pay the bills, they will shutdown.
* Dealership "look". My knowledge is only from Texas.... Some brands, like Lexus and Cadillac set some very strict looks for the dealership. Specific signage, layout, etc... A manufacturer can set standards the dealer must live up to. Also, if a dealership ranks below a certain score on their customer surveys, the manufacturer can close them down.
* Pricing... yes, a middle man increases the cost of something. But that middle man can help explain features, is there to help deal with problems, and as they tend to be more locally rooted than an auto-maker, will try (hopefully) try harder to please their customers. Why do we have to pay real-estate agents so much? Good agents really help a buyer, same could (hopefully) be said for a car sales person.
* (edit addition) Why are sales people jerks? This will heavily depend on the dealership you are dealing with. Management of a dealership does a lot to shape the experience for their customers. A few things: sales people are paid a % of the money they hold over the cost of the car, so they are financially incentivized to keep the car price high. A car that has been on a lot for a long time has incentives added to it for a sales person. Sales people get bonuses based on number of cars sold. Sales people sometimes get bonuses based on their customer surveys (or are required to keep a certain average or be fired). Dealers are allocated new shipments of cars based on past sales, so a lot of dealers want to sell as many cars as possible (if they are trying to grow); dealers that don't care about growing will be less flexible about pricing.
Though, I agree that the car buying experience should adapt as information about cars is more easily accessible, it would require all of the states redoing the state auto franchise laws.
If a dealership middle man is providing so much value to the customer, why then does it need any legislative protection? Real estate agents are a bad example, as that industry is also dug in with legislative protections against more competitive business models.
NPR said it was due to Ford and other auto makers back in the 1920-1930 bullying dealerships. Ford threatened to cancel their business contracts with dealership if the dealerships didn't buy cars that they knew they couldn't sell. During that time, Ford kept their lines running at full capacity even though demand didn't warrant it. The states decided to step in and protect their local dealerships from the megacorp that was Ford and the other manufacturers of that time.
The auto makers of back then dug their own grave with their business practices.
Another argument I've heard is about sales tax. If an auto-maker could sell direct to customers, it could (possibly) be treated as interstate commerce and avoid directly collecting the sales tax. So it's in the state interest to keep dealerships around.
I understand the history, but in today's commerce environment the middle-men industries should provide their own value without legislative props, or they had better have a unique line of reasoning that is relevant to the modern world.
If you have a building or lot where people have to go to physically see the car (as Tesla does provide BTW), then it's difficult to imagine how sales tax would be avoided.
A large part of the MS anti-trust suit in the US was over the pressures they placed on OEMs. An example, BeOS was going to be licensed to Compaq. MS pressured them by threatening to raise the cost of OEM licensed copies of Windows, which would have severely eaten into the profit margin of an already narrow-marginned industry.
It's probably worth pointing out as well that some dealers are predominantly or exclusively "no haggle" even when it's not mandated by the manufacturer.
I'm generally sympathetic to the notion that auto manufacturers should be able to sell direct subject to whatever contractual promises they may have made to existing franchisees. That said I'm unconvinced that, from the consumer perspective, there's going to be a huge difference between a luxury brand car dealership network such as those that exist for BMW and Mercedes and Tesla-owned and operated locations that do things like: service, helping to arrange financing, take trade-ins, showroom, offer test drives, etc. Sounds a lot like a dealer to me. As you note, it's really a false dichotomy between manufacturer-operated network on the one hand and an uncontrolled Wild West of franchises on the other.
Saturn went away because of GM's restructuring after 2008. It's hardly apparent that there's a conneciton between their "no-haggle" buying experience and their eventual dissolution.
Saturn tried the "no-haggle" new car buying experience. People generally liked this, though Saturn doesn't exist anymore.
That's mostly due to internal politics at GM when they were going bankrupt. Even though Saturn was one of the divisions making a profit, they got the axe.
Once again, internal company politics being a terrible proxy for rational decision making.
My first reaction upon reading your comment was that there was no way you read the article before commenting. Basically, what you say is directly and effectively addressed in the article. I was going to give you the benefit of the doubt though until I saw that the article was posted 23 minutes ago. Your comment was posted 21 minutes ago.
Oligopoly more than monopoly. But if there is a single dealer lobby group then it's a collusive oligopoly (cartel) which will be able to wield monopolistic power.
The monopoly is that only dealers are allowed to sell cars. Whatever the original intent, they seem not only unnecessary but quite anti-American (most definitions) now.
