Tesla challenges independent dealer network
 | Tim Jackson is CEO of the Colorado Automobile Dealers Association. |
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Tesla has opened "showrooms" around the country to market its sleek electric cars. As reported in the Oct. 8 issue of Automotive News, legal concerns or challenges have arisen in Illinois, New York, Massachusetts and Oregon over whether manufacturers can also be dealers.
Tesla contends that customers don't really buy cars at its stores. They're directed to the Tesla Web site to make their transactions. Dealer associations counter that this practice still violates franchising laws, opens the door to unfair competition and sets up Tesla customers for costly failures, contaminating an otherwise competitive and consumer-friendly marketplace.
Americans love the idea of cutting out the middle man. "Wholesale to the Public!" and "Factory pricing!" really get our attention. While the concept may work well for someone buying a jacket or a sweater at a factory outlet or books and music albums online, it can have catastrophic consequences for consumers when it comes to buying their second-most-expensive personal purchase, a shiny new car.
There are other sound reasons why consumers should be leery of factory-owned retail automotive outlets, aside from the legal issues. It's easy to see why Tesla's 17 stores, scattered around 10 states and Washington, D.C., might seem appealing. Most are located in shopping malls; convenient if you are near one but perhaps not so much for customers served, for example, by more than 4,000 GM dealers located in urban, suburban, small town and rural areas.
Tesla stores have the same kind of glitzy, cool atmosphere that consumers love about Apple Stores -- not surprising, since a former Apple executive spearheaded the concept for Tesla. What's missing in a Tesla factory store, though, is the automobile equivalent of Apple's Genius Bar: a place where people with problems can go to get their cars fixed. That's a problem for customers who are accustomed to the usually brilliant service offered by highly trained technicians in the nation's 17,000-plus independent dealerships.
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A 2012 Beta Prototype model of the Model S sedan on display at a Tesla showroom at the Fashion Island Mall in Newport Beach, Calif., in July. Photo credit: BLOOMBERG |
Franchised automobile dealerships offer the one place consumers can go to get everything they need related to their cars. Of course, they can buy a car from a dealer, but they also can get their car serviced while it's under warranty and beyond, and they can buy factory-authorized parts and accessories. They can get a price for their trade-in or even sell their used car outright to the dealer. Dealers can arrange financing through locally or nationally known lenders. Tesla customers won't find service, parts, financing or trade-in capability for their old cars at Tesla storefronts.
Consumers who bought Daewoo and Yugo automobiles can tell you what a nightmare it was to get their cars serviced and their warranties honored when those brands quickly vanished from local communities. Moreover, there is no guarantee Tesla will have better success regardless of how much we root for it. When other manufacturers exited, there were no dealerships that customers could call on for help after the failed automakers hightailed it back to their home countries in Asia and Europe. Who will honor Tesla warranties if there are no brick-and-mortar dealerships and Tesla leaves the market?
Sometimes, even when brands leave a community, the local dealers remain, selling other brands, willing to honor warranties and provide service for the departed manufacturer even when it's not required.
An independent network of franchised dealers guarantees competition in local communities, and that is good news for consumers. More competition means better prices and pressure to provide better quality. Moreover, local dealers serve their community by providing jobs and financial support to local schools and nonprofit organizations.
Dating back to the founding of General Motors in 1908, the company started granting dealership franchises and providing a margin on vehicles in exchange for buying the land and building the retail facilities. Henry Ford followed soon after, realizing that he had enough on his hands to design and manufacture Model Ts without taking on the infrastructure needed to sell and service his cars. Interestingly, Ford tried to set up a factory-owned dealership network in the mid-90s, lost millions of dollars and abandoned the idea within two years.
Colorado has had an independent dealer law on the books for 75 years -- one of the first in the United States. While Tesla has a store here that was grandfathered in, going forward manufacturers will not be able to own retail stores in Colorado. We think that's an advantage for consumers. Is it also good for Colorado's franchise dealers? Absolutely. But we are confident that new car customers will continue to benefit from what independent franchise dealers bring to our communities and to the marketplace.
Tim Jackson is CEO of the Colorado Automobile Dealers Association.
