Tesla, the electric car company founded by celebrity entrepreneur Elon Musk, is not only trying to innovate the way cars are powered but also the way cars are sold. In the latter, Tesla is running into some political head winds thanks to the auto dealers lobby.
Tesla would like to sell its line of electric cars, including the luxury sedan Model S, directly to customers in its own stores. The problem is that most states have laws forbidding this practice, having established a system of car dealer franchises. According to a paper on the economic effects of franchised car dealers, the system grew up at the beginning of the automobile age for two reasons. First it allowed car companies to concentrate on manufacturing while collecting franchise fees. Second since franchised dealers were given exclusive rights to sell a manufacturer’s cars in a particular geographic location they had a local monopoly that protected their investment in infrastructure and inventory.
Since the advent of the Internet, consumers are able to access information about cars directly from home and not have to rely on dealers. After looking up car information on the web, consumers could go to a store to check out the models before deciding to buy. According to the Washington Post, studies suggest that direct sales of cars would save consumers $2,225 per car.Modern supply chain methods would be able to cost the costs in inventories at company owned stores,
Thus far Tesla has managed to open company owned stores in Minnesota, Massachusetts and Washington, It has, however, struck out in other states such as New Jersey and even free market oriented Texas. But the fight is not over.
Tesla is able to sell its line of electric cars at the two company owned stores it has in New Jersey until April 15, 2014, according to CNN. Two bills are pending in the New Jersey state legislature that would exempt zero emission cars like Tesla’s from the state’s auto franchising law.
The auto dealers lobby managed to block a measure in the Texas state legislature that would have allowed Tesla to sell cars directly in the Lone Star State. However, according to the Austin Business Journal, outgoing Texas Governor Rick Perry suggested that it is time to revisit that question. Part of the reason is that Perry would like to attract a Tesla battery manufacturing plant that would employ 6,500 people to Texas. However, thus far, Perry is disinclined to call the legislature into a special session to consider repealing or amending the state auto franchise law.