Skip to main content

Why Tesla should stop fighting auto dealers

By John O'Dell
updated 6:08 PM EDT, Tue March 18, 2014
Under a new law, Tesla Motors cannot sell cars directly to consumers in New Jersey effective April 1. Under a new law, Tesla Motors cannot sell cars directly to consumers in New Jersey effective April 1.
HIDE CAPTION
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
Tesla's electric car
<<
<
1
2
3
4
5
6
7
8
9
>
>>
STORY HIGHLIGHTS
  • New Jersey's new law makes it illegal for Tesla to sell cars directly to consumers
  • John O'Dell: Tesla is not about to upend the franchised dealership system
  • He says as selling and servicing cars is an entirely different business from making them
  • O'Dell: As Tesla grows, it will also need to use the traditional dealership model

Editor's note: John O'Dell is senior green car editor at Edmunds.com, an online resource for car shopping and automotive information. Edmunds.com has purchased a Tesla Model S for long-term review purposes. Follow the website on Twitter: @edmunds

(CNN) -- Tesla Motors prides itself on promoting a disruptive technology -- electric cars -- but it was Tesla itself that was disrupted recently as New Jersey said it is illegal, effective April 1, to operate factory-direct car sales in the state.

New Jersey is not alone. Arizona, Maryland, Texas and Virginia also ban direct sale of cars to consumers.

Understandably, Tesla CEO Elon Musk was upset and has encouraged people in the Garden State to go to New York or Pennsylvania to buy Tesla cars.

John O\'Dell
John O'Dell

Many wonder whether Tesla has been out to turn the car-marketing world on its head, do away with the franchised dealership system and change forever the way people in the U.S. buy cars.

It can seem that way as Tesla fights to keep selling its cars direct to its customers, but missed in the speculative fervor is that Musk himself has said that as it grows, Tesla probably would be looking at expanding its presence -- and sales -- through franchised dealerships.

Today, progressive dealerships around the country representing every automaker are creating experiences that make car buying easier and deliver a high level of customer satisfaction. Musk could cherry-pick dealers who can deliver the experience he wants for his customers, just as Lexus did when it launched its brand in the U.S. in 1989.

Selling and servicing cars is an entirely different business from making them. Using franchised dealerships relieves the car manufacturer of the tremendous capital burden of paying for and staffing brick-and-mortar facilities. That's one reason the auto industry went with that model in the first place.

Besides, car dealerships are important corporate citizens, pumping into the national economy hundreds of millions of sales-tax dollars, tens of millions of dollars in charitable contributions and billions of dollars in paychecks. That makes them valuable economically. It also gives them clout that few politicians want to challenge.

Elon Musk: Affordable Tesla on the way
Automakers show off new cars in Detroit
On GPS, Musk talks about future of Tesla

More importantly for car buyers and car owners, a national network of franchised dealerships with local sales and service facilities can make buying and caring for a new or used vehicle relatively easy.

You can see why the idea might ultimately appeal to Tesla.

Tesla -- as innovative, different and disruptive as it may be -- is still a small player in a very large arena. It sold just under 25,000 cars last year globally. General Motors sold more than that every day. If Tesla has an eye on significant growth, the traditional dealership model, in its most progressive form, is a path the brand shouldn't ignore.

Today, Tesla is arguing that it has no existing franchised dealers with which its factory sales compete, and that it is selling something so unique that an entirely different sales model is necessary at the beginning. That won't always be the case.

So far, Tesla's game plan to make its money purely on car sales. (Electric cars bring in almost no service and maintenance income, which is lifeblood to most car dealers.) There also is no bargaining at Tesla, where the manufacturer's suggested retail price is the sales price, take it or leave it.

That works when your customer base is largely a high-income group of "early adopters," you have no real competition for your $70,000-$120,000 vehicles, you don't take trade-ins and the profit per vehicle allows you to pamper your customers with personalized services.

That will change in a few years, though, when Tesla begins selling its planned third-generation electric car, one priced to compete with the likes of BMW's 3-Series. Reaching out to the mid-to-upper mass market where there is a lot of competition for the consumer's attention -- and dollars -- takes a different kind of approach. When Tesla scales to reach that more mainstream audience, turning to a more traditional sales format may indeed be necessary.

Until then, the company has a high-profile battle on its hands. The courts, and the market, will decide the merits of Tesla's arguments. Even if Tesla were to prevail on the legal front in every case and win the right to continue selling direct to car shoppers in every state, that decision would hardly override the existing franchise protection laws and the value that locally owned and operated dealerships can bring to the equation.

Follow @CNNOpinion on Twitter.

Join us at Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of John O'Dell.

ADVERTISEMENT
Part of complete coverage on
updated 6:03 PM EDT, Tue August 19, 2014
It used to be billy clubs, fire hoses and snarling German shepherds. Now it's armored personnel carriers and flash-bang grenades, writes Kara Dansky.
updated 1:27 PM EDT, Wed August 20, 2014
Maria Haberfeld: People who are unfamiliar with police work can reasonably ask, why was an unarmed man shot so many times, and why was deadly force used at all?
updated 5:52 PM EDT, Mon August 18, 2014
Ruben Navarrette notes that this fall, minority students will outnumber white students at America's public schools.
updated 5:21 PM EDT, Tue August 19, 2014
Humans have driven to extinction four marine mammal species in modern times. As you read this, we are on the brink of losing the fifth, write three experts.
updated 7:58 AM EDT, Tue August 19, 2014
It's been ten days since Michael Brown was killed, and his family is still waiting for information from investigators about what happened to their young man, writes Mel Robbins
updated 1:23 PM EDT, Wed August 20, 2014
Sally Kohn says the Ferguson protests reflect broader patterns of racial injustice across the country, from chronic police violence and abuse against black men to the persistent economic and social exclusion of communities of color.
updated 8:42 AM EDT, Mon August 18, 2014
The former U.K. prime minister and current U.N. envoy says there are 500 days left to fulfill the Millennium Goals' promise to children.
updated 9:10 AM EDT, Mon August 18, 2014
Julian Zelizer says the left mistrusts Clinton but there are ways she can win support from liberals in 2016
updated 1:38 PM EDT, Wed August 20, 2014
Peter Bergen says the terror group is a huge threat in Iraq but only a potential one in the U.S.
updated 1:34 PM EDT, Sat August 16, 2014
Mark O'Mara says the way cops, media, politicians and protesters have behaved since Michael Brown's shooting shows not all the right people have learned the right lessons
updated 11:23 AM EDT, Sun August 17, 2014
Retired Lt. Gen. Mark Hertling says the American military advisers in Iraq are sizing up what needs to be done and recommending accordingly
updated 3:41 PM EDT, Fri August 15, 2014
Marc Lamont Hill says the President's comments on the Michael Brown shooting ignored its racial implications
updated 5:46 PM EDT, Fri August 15, 2014
Joe Stork says the catastrophe in northern Iraq continues, even though many religious minorities have fled to safety: ISIS forces -- intent on purging them -- still control the area where they lived
updated 6:26 PM EDT, Thu August 14, 2014
Tim Lynch says Pentagon's policy of doling out military weapons to police forces is misguided and dangerous.
updated 9:15 AM EDT, Fri August 15, 2014
S.E. Cupp says millennials want big ideas and rapid change; she talks to one of their number who serves in Congress
updated 7:57 PM EDT, Thu August 14, 2014
Dorothy Brown says the power structure is dominated by whites in a town that is 68% black. Elected officials who sat by silently as chaos erupted after Michael Brown shooting should be voted out of office
updated 7:49 AM EDT, Thu August 14, 2014
Bill Schmitz says the media and other adults should never explain suicide as a means of escaping pain. Robin Williams' tragic death offers a chance to educate about prevention
updated 11:05 AM EDT, Fri August 15, 2014
Nafees Syed says President Obama should renew the quest to eliminate bias in the criminal justice system
updated 4:24 PM EDT, Thu August 14, 2014
Eric Liu says what's unfolded in the Missouri town is a shocking violation of American constitutional rights and should be a wake-up call to all
updated 3:22 PM EDT, Wed August 13, 2014
Neal Gabler says Lauren Bacall, a talent in her own right, will be defined by her marriage with the great actor Humphrey Bogart
updated 6:56 AM EDT, Fri August 15, 2014
Bob Butler says the arrest of two journalists covering the Ferguson story is alarming
updated 4:35 PM EDT, Wed August 13, 2014
Mark O'Mara says we all need to work together to make sure the tension between police and African-Americans doesn't result in more tragedies
updated 4:06 PM EDT, Mon August 18, 2014
Pepper Schwartz asks why young women are so entranced with Kardashian, who's putting together a 352-page book of selfies
updated 7:08 PM EDT, Wed August 13, 2014
Michael Friedman says depression does not discriminate, cannot be bargained with and shows no mercy.
updated 11:25 AM EDT, Tue August 12, 2014
LZ Granderson says we must not surrender to apathy about the injustice faced by African Americans
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT