Tesla has built its business by selling its cars directly to consumers. But in several states in the United States, automakers are required by law to partner with franchise dealerships on car sales. According to Tesla general counsel Todd Maron, that traditional franchise dealership model is counterintuitive to Tesla’s mission. And by opposing Tesla’s direct distribution model, traditional auto manufacturers like General Motors are behaving anti-competitively.
“With respect to General Motors, their position boils down to this: Because they voluntarily chose generations ago to use a certain business model, [the company feels] everyone that comes after should be required as a matter of law to use the same model,” Maron said during a Tuesday FTC workshop on auto distribution. “That’s code for ‘Tesla is able to sell the product to consumers for a lower price than we’re able to through the franchise system.’ We don’t think they should have that policy.”
Maron then pointed to a recent quote from General Motors CEO Mary Barra: “Unlike some electric car customers, Bolt EV customers never have to worry about driving to another state to buy, service or support their vehicle.” According to Maron, this is evidence of Barra remarking on GM’s ability to block Tesla from selling cars directly to consumers and then bragging about “the fact that our customers can’t buy our cars as easily as theirs.”
Reached for comment, GM helds it’s ground but didn’t directly rebut Maron’s arguments: “The benefit of a nationwide network of thousands of dealerships is that General Motors customers never have to worry about driving to another state to buy, service or support their vehicles,” a spokesperson told BuzzFeed News. “We also believe all automakers should operate in the marketplace under the same rules and requirements of how we sell, service and market our products.”
Maron, however, insists Tesla’s direct-sales model is crucial to the company’s viability. Here are seven reasons why the company feels the traditional franchise dealership model is at odds with its own:
1. Dealerships are typically in out-of-the-way locations.
Maron insists that Tesla stores are most effective in locations with high foot traffic.
“We do this for a reason,” he said. “It’s not surprising that when new technology comes out, consumers don’t go to it. You need to bring the new technology to the consumer. That’s a standard, well-accepted thing if you go to any business school … You have to make it convenient for people.”
2. Dealerships typically hold a lot of inventory.
But Tesla custom builds its cars. It doesn’t have the same inventory as a traditional automaker. “Inventory is the lifeblood of a traditional dealership,” Maron said. “Our cars … don’t get built until they are ordered. This is untraditional for the franchise dealer.”
3. The dealership model depends on a high volume of quickly closed sales.
Many consumers visit car dealerships with a rough idea of what they’re looking for. Because of this, Maron said, car salespeople are paid based on how quickly they are able to close sales. But because Tesla is a relatively new product, consumers are likely not as well-informed about the car’s technology. As a result, they have more questions and sales don’t close quite as quickly.
“The longer a sale takes, the worse it is for the salesperson and the dealership,” Maron said. “And our customers take a long time to study the car. [Tesla sales sometimes require] hours of customer education. With our model, we can afford [that] and traditional dealership cannot. We do this because it’s our mission to educate people and we’re the best ones in the best position to do that.”
4. Dealerships would have trouble profiting off Tesla’s model.
According to Maron, car dealerships don’t profit from new car sales alone; they also make money from used car programs, financing products, and parts and service contracts. But Tesla only profits off of new car sales.
“We only profit in one way: from new car sales and new car sales alone,” Maron said. “We can’t … profit from services because our cars have far less parts than gas-powered cars. There’s no regular service visits for engine tune-ups and oil changes. … We don’t make money off financing programs. We don’t have insurance products or add-ons. A franchise dealer would look at this and scratch their heads. They would not know how to make money on this model.”
5. Dealerships depend on manufacturer advertising. Tesla doesn’t advertise.
“Traditional dealerships rely on manufacturers to fund their advertising, which we see on TV, radio, and on print media,” he said. “We don’t advertise and we certainly wouldn’t allow, let alone subsidize, someone else to advertise for us. What franchise dealer is going to accept not being able to advertise?”
6. Franchise dealers would never make money selling Teslas.
Tesla’s direct-sales model undermines dealership markups on car prices. Given the choice between purchasing a Tesla from dealership at a higher price or from Tesla directly at a lower one, consumers are more likely to opt for the latter. “No franchise dealer would ever opt into this system with us,” Maron said.
7. Finally, there’s a conflict of interest.
Maron says Tesla is fully committed to its mission of replacing all gas-powered cars with electric vehicles — a mission auto dealers may not be eager to embrace.
“We don’t simply believe that electric vehicles represent a nice complement to gas-powered cars,” Maron said. “We believe it’s imperative they are replaced entirely by electric vehicles. … It would be impossible for traditional dealers to convey this message adequately. This isn’t a knock on them, but dealers are not fundamentally committed to the mission of EVs — we are. They make 99% of their revenue off of gas-powered cars. If you’re opening a Yankees team store, are you going to ask a lifelong Red Sox fan to manage it?”
This post was updated to include comment from General Motors.
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