The Daily Caller

The Daily Caller
A man looks around Tesla Motors A man looks around Tesla Motors' Model S P85 at its showroom in Beijing January 29, 2014. REUTERS/Kim Kyung-Hoon  

New Jersey colludes with the auto dealer cartel in blocking Tesla from direct sales

Photo of Alan Daley
Alan Daley
Writer, American Consumer Institute

Tesla sells its electric cars directly to customers, no middleman, and customer demand is so brisk that a backlog of has developed. The popularity of the cars and the direct sales model is very disturbing to automobile dealers, and in some states they have enlisted politicians to hobble Tesla’s distribution model. Five states have banned Tesla direct sales and four have imposed nasty restrictions or have similar legislation pending.

In an attempt to justify the state of New Jersey’s collusion with the automotive dealer cartel, the dealers say that Tesla’s direct sales distribution model is a monopoly, and that dealerships are a mandatory customer convenience for handling the predictably high volume of automotive recalls. They are dead wrong about Tesla’s competitive status and they are embarrassingly right about the high volume of recalls from which the dealers profit.

The usual design flaws and manufacturing plant recalls for FordGMHonda, and others push customers into dealership repair shops — not something that Tesla owners experience.  As the Wall Street Journal notes in a letter from Tesla’s Chief Executive:

“Consumer Reports conducts an annual survey of 1.1 million subscribers, which factors in quality, reliability and consumer satisfaction. The Tesla Model S was the top overall pick of any vehicle in the world, scoring 99 out of 100. This is the highest score any car has ever received. By comparison, in the industry report card, Ford, which sells their cars through franchise dealers, received a score of 50. BMW, which makes competing premium sedans, received a score of 66.”

The bottom line is that Tesla’s customer experience does not include regular recalls, and it shows in customer ratings.

When dealers said Tesla’s distribution model is a monopoly, they were just blowing exhaust. Tesla competes for customers against many well-designed cars regardless of fuel type. And for customers determined to buy an electric car, Tesla competes against; the Volt, the Smart Car, Fiat 500e, Toyota RAV4 EV, Chevrolet Spark, Ford Focus Electric, Mitsubishi i-MiEV, Nissan Leaf, and Honda Fit EV.

The direct sales model of Tesla should cut distribution costs. Lower costs and competition from other electric cars will help keep Tesla’s retail prices in check, and if for some arcane reason an electric car buyer wants a dealership involvement, it’s available from Tesla’s competitors.

Tesla can use court challenges to lift restraints imposed on its sales model. Since Tesla’s strong competition against existing dealerships and automakers will persist, they will continue fighting with every disruptive tactic they can. We should expect Tesla to push for a Supreme Court ruling, which will be at least a year away.

Automobile dealers engage in this public scuffle reluctantly because they know the public rates car salesmen at the bottom of the barrel for trust.  Consumers also rate politicians at the bottom of the same barrel with car salesmen. Since politicians are beholden to opinion polls, why would they be willing to force car salesman between consumers and great cars?

Alan Daley is a retired businessman who writes for The American Consumer Institute Center for Citizen Research.  He owns neither a Tesla car nor Tesla stock.