Tesla is no threat to the franchised dealer system
Elon Musk's vision for replicating the Apple experience in Tesla factory stores should be allowed to coexist peacefully with other automakers' franchised dealers.
The American system of independent, franchised dealers is unquestionably the most efficient way for major manufacturers to distribute automobiles. The system has worked so well here that it has been emulated in markets around the globe.
It also is an insulated system. Dealers have lobbied legislatures in every state for laws that shield the franchise system from automakers that might want to run their own retail outlets. Now 48 states prohibit or restrict factory ownership of dealerships.
But Tesla cannot seriously be considered a threat to the franchise system.
Tesla, which opened its first store in 2008, now operates 17 stores in 10 states and the District of Columbia, and six more are scheduled to open this fall. Most are in shopping malls. The company, which doesn't report U.S. sales to Automotive News, built only about 385 vehicles in the first nine months of the year. Yet Tesla stores are under fire in several states where dealers charge the factory-owned outlets are illegal.
Dealers seem to fear that Tesla, a niche manufacturer, may establish a precedent that would allow larger, established automakers to introduce and sell new brands in ways that circumvent franchised dealers. That's unlikely.
In the late 1990s, General Motors and Ford Motor Co. planned to consolidate, own and run dealerships in some major markets, theoretically to compete with big-box retailers that threatened to change the retail business.
The Ford Retail Network, later renamed Auto Collection, was rolled out in five markets. In 1999, GM said it would buy dealerships and create its own retail business, GM Retail Holdings. By 2000, the Ford and GM experiments had angered dealers, cost sales and spurred the wave of state legislation to keep factories from competing with their own dealers. GM abandoned its plan in 2000 before actually running stores; Ford threw in the towel a year later.
There may be flaws in the Tesla business model. NADA Chairman Bill Underriner speculated that Tesla eventually may see the wisdom of using franchised dealers that can service vehicles, perform warranty work, arrange financing and handle trade-ins efficiently.
But that should be up to Tesla and the market.
State franchise laws were enacted to keep factories from competing with their own dealers who have invested heavily in their businesses. Government regulations should not be used as a hammer to deter an alternative retail vision that might appeal to consumers.