Tesla Motors’ is having trouble selling the Model S in various US States laws because of laws requiring that cars can only be sold through franchised dealerships. Events this week made the trouble even more obvious when NJ Gov. Chris Christie’s administration (apparently) went back on a promise made to Tesla Motors to take the question to the New Jersey legislature. Instead, in a surprise announcement, the New Jersey Motor Vehicle Commission (NJMVC) abruptly announced a rules change that, starting April 1, prevents Tesla Motors from selling cars in New Jersey.
Similar actions have been taken in other states – strict laws prevent Tesla from selling the cars, but those laws don’t prevent customers from buying the cars or registering them in the state.
Good news is that, according to a blog post
on the Tesla Motors website today, Tesla will not be shutting down their locations in New Jersey. Their service centers in New Jersey will remain in operation, and the stores will transition to being “Galleries” in which personnel will not do anything other than education. Sales will happen either via stores in New York or Pennsylvania, or via the Tesla Motors website.
In any case – I see three big scale issues here:
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- What’s the correct model for car sales?
- Car dealer organizations trying to preserve their power & monopoly over car sales.
- Are car owners at risk when an automaker has a monopoly on service?
Elon Musks blog post (see link above) goes through those issues rather well, but of course he’s presenting the version of reality Tesla wants us to believe.
In the US automotive sales regulations are made at the State level, and vary from state to state. Generally what’s required is that car manufacturers cannot sell cars directly to the public, and instead sales are handled via dealerships. Dealerships in turn are required to devote space not just car sales, but to used car sales, and car repair.
These legal requirements are why car dealerships have the shape they do – the repair shop, and used car section, are all required by law.
The whole automotive sales industry exists because of these laws, and it is the Auto Dealers Associations in each state that protects those laws. Therefore, the ADA’s carry a lot of power over the car buying experience.
Tesla Motors insists on selling cars their way – but the direct sales model goes against these laws. The ADA’s, to preserve their position and power, therefore have no choice but to attack Tesla Motors.
Tesla Motors wants us to think this is the whole of the story – that the laws exist to protect automobile dealers from repressive automakers who might put the squeeze on the dealers.
The laws also act to protect customers from auto manufacturers creating a monopoly over the cars they build. What if a car were built so nobody but the auto maker could service that car? Wouldn’t the auto maker be in a monopoly position, and free to charge any fee they want for service?
As it stands, auto makers also do not operate service shops – all service is done by independent shops. That is, except for Tesla Motors.
Because independent service shops all compete with each other for business, in theory the customers can choose the best shop and everything is fine.
In theory, an automaker who monopolizes service on cars they sell doesn’t have as much incentive for good service as does an independent shop who has to compete with other independent shops.
In his blog post, Elon Musk says that Tesla’s policy is not to operate the service centers as a profit-making business. If true, that’s good for the customers, because Tesla won’t be using their monopoly on service Tesla automobiles as a means to gouge customers. I believe they do this as a marketing tool, to convince the customers that Tesla is honest and dedicated to the overall cause. Tesla is looking to build goodwill and customer loyalties, not make a quick buck.
But, in 2017 when the 3rd generation mass market Tesla automobile goes on sale, will the company owned sales and service model scale to hundreds of thousands of car sales per year?
In a couple decades, if Tesla lasts that long as a business, and they’re selling millions of cars a year, will their current policies stay unchanged? Or will Tesla Motors turn evil and begin gouging customers over service?
That is – Tesla is telling us that, like Google, they will do no evil. But recent events surrounding Google, all the NSA big brother stuff, are making us doubt Google’s Do No Evil policy. Will a future iteration of Tesla Motors begin doing Evil?
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