Tesla Direct Sales: NJ Exposed A New Paradigm of Retailing
This has far larger implications that extend to many other states, where franchise laws have protected independent dealers, in some cases since the 1930’s, by not allowing OEM automotive manufacturers to sell directly to retail customers, or to even own a store within that state. Tesla has been battling this issue as the success of their latest product – the Tesla Model S – has driven their growth and rapid expansion. While they have prevailed in a few states (Washington, New York & Massachusetts), others have only taken a firmer stance against them – including Texas, Ohio and Virginia.
Ultimately the Supreme Court may have to determine the future of the Tesla direct sales model. Dealer lobbies insist that the current franchise system is needed to help protect consumers, but the quality of automobiles has drastically improved and the internet has allowed consumers to research and shop without ever having to visit a dealer.
While local dealers will always have some role to play in terms of service and sales their role in the consumer purchase path is far less critical than it was decades ago. And whether the owner of that dealer is an independent or OEM probably matters very little to the consumer; he or she only wants a fair deal and to be treated with respect, as well as have a trusted source to return to should there be any product issues. In this arena the OEM owned dealer would seem to actually have a better shot at providing what the consumer wants.
In addition, one has to compare the retailing of automobiles vs. other consumer products. Look at Apple. They have their own company owned stores in key locations and malls which can retail their own products and offer support. But they are not legally prevented from doing so by franchise laws. Why should the retailing of automobiles be any different?
To that point – a strong case could be made by Tesla that it is not attempting to retail the same old-fashioned internal combustion driven automobile which requires continuous oil changes and tune-ups due to their complicated engines and transmissions.
Instead - the Tesla product is a high-tech transportation machine powered by a completely different power train, virtually service free. It is supported by software which can be updated over-the-air (just like your cell phone), and the diagnosis of vehicle operating conditions can also be done over-the-air without having to visit a dealer. So at what point does new technology create a new product category which should be exempt from prior constraints which applied to all older products? It seems that Tesla has done precisely that.
So far Tesla has somehow side-stepped this franchise issue in California. But here it is loved and supported strongly by the state, being a California start-up, as well as being a larger and growing high-tech employer which also strongly represents the green California agenda. But California dealer groups are not happy about this for the same reasons as elsewhere, so it could likely become an issue here as well.