Tesla Has An Interesting Legal Strategy On Direct Sales

[William Maley]

Tesla has been fighting tooth and nail to sell their vehicles direct to consumers in the U.S. But six states - Arizona, Connecticut, Michigan, Texas, Utah, and West Virginia - have banned direct sales. Tesla is trying to change this with a combination of new legislation, applying for dealer licenses, and other items. However, Tesla is ready to take this issue to federal court with an interesting legal argument.

 

The Wall Street Journal reports that Tesla's legal staff has been looking into a 2013 federal appeals court ruling in New Orleans dealing with coffins. What?! The case dealt with the St. Joseph Abbey in Louisiana trying to sell monk-made coffins to help alleviate a shortage due to Hurricane Katrina. But the state had laws that restricted coffin sales to those who were licensed by the Louisiana Board of Funeral Directors. The court sided with the abbey saying they could sell the coffins without having a funeral directors license.

 

“It is widely accepted that laws that have a protectionist motivation or effect are not proper. Tesla is committed to not being foreclosed from operating in the states it desires to operate in, and all options are on the table,” said Todd Maron, Tesla’s chief counsel.

 

But could this argument work? Northwestern University law professor John McGinnis says it could. Using this case could shine a spotlight on how laws affect the sale of certain items such as cars.

 

“Until now, these decisions have been in niche areas of the economy. With Tesla behind it, it would go into something as economically important as the structure of the industry for retailing cars,” said McGinnis.

 

The timing is what intrigues us the most. Tomorrow night, Tesla will be revealing the Model 3 - their mass-market car. Reservations for this new model will also open.

 

Source: The Wall Street Journal (Subscription Required)

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[regfootball]

all for it if they can push it through, but at the same time, direct sales won't be the holy grail to the consumer like everyone thinks.  A tesla is only wanting to sell direct so they can skim the profits more than a dealer can.  It's not going to reduce car prices.  The market will determine what cars sell for, which mostly for cars is based on how healthy the economy is and people's ability to get credit.  Market factors what they are, a Tesla will sell for what a Tesla is worth in relation to everything else.  Direct sales means the direct seller makes more of the money.  It also means they will look for ways to skirt dealer functions, like service, etc.

 

This is good from a legal aspect.  It just isn't going to do anything besides centralize the owner of the retail functions of car companies even more.

 

I for one would like for car dealers to choose to be open sunday in my state if they want.  Having worked in car sales i can tell you everyone loved sundays off guaranteed, however, it should not be a law, it should be up to the business owners.  Same thing with liquor.......

[loki]

I agree Reg.

[David]

+1 Reg, I totally agree that the Blue Laws from the Prohibition era need to Die. It should be the right of a business to be open 7 days a week just like it is the right of a person to shop 7 days a week. GOV needs to stay out of dictation what, when and how you can shop.

[Robert Hall]

Car dealers and liquor retailers are open here on Sundays...the idea of them closing on Sundays is absurd and old timey nonsense. 

[hyperv6]

The real dirty fact is Tesla needs money badly. I just saw where it is estimated they are down to about 1 Billion in cash right now. The cost of the 3 and X model development has drained them. They are only pre selling the 3 not to generate money so they can continue to build it. 

 

Some estimate that they could be out of cash by 2018 if they do not deliver the 3 models buy late 17 or early 18 at the price they promised last night.

 

Their track record of on time releases have been not so good. They will be facing more and more competition and their quality issues are very unreported. If you read up on the web sites you see many of the issues the media never tell you about. They also have a web site with a delivery inspection sheet as owners have to inspect their own cars upon delivery for issues.  

 

The fact is every car maker would love to sell direct but the old companies can not cut off the dealers they have nor can they afford to buy them out. Hence their wanting to keep with what they have. 

 

As for car sales on Sunday? I could see it in some busy locations but many dealers would mostly not see a big gain here. If anything later service hours here have been productive and some Saturday service. But most Sundays with the NFL most dealers would not find it as busy unless they serve beer along with the big screen in the waiting room. 

 

For the longest time I hated the Parts departments here as most closed at 5 PM and had no weekend hours. That has changed but I worry as the people I know there say they are usually dead. 

 

I found this story very interesting. 

 

http://www.thedailybeast.com/articles/2016/03/31/tesla-s-model-3-could-destroy-elon-musk-s-company.html?via=desktop&source=email

Edited April 1, 2016 by hyperv6

[Suaviloquent]

I'm not gonna bog this thread down with the specifics of product or perceptions. Just the sales channel strategies.

 

I have strong reasons to suspect the unspoken few bright people in the car industry would slash and burn dealers if they wanted to.

 

You look at how the dealerships exist today - they are rife with mergers an acquisitions. Automakers are beholden to them, and as any sales channel that has its own vested interests - the incumbents cannot dump them because they're the largest distribution chain. The channel innovation is a part of how businesses transform themselves. I don't understand why automakers claim they're on top of the the new stated of car access instead of ownership - such as ride sharing or car sharing services. Yet they refuse to consider direct sales. There's obvious channel conflict. Dealers would hate to see automakers sell directly. However, eventually shateholders will be barging down doors, or put management in place that are stewards of their requirements - more profits and etc.

 

But direct sales have huge advantages. It's no secret, pocket prices are exactly what the MSRP is because there is no intermediary in the value chain that can cause price leakages. No dealer holdback, no volume incentives, no performance bonuses, none of that crap. And the inertia in the organizations is because they're too entrenched into this legacy.

 

And the dirty secret is that every business whether for profit or not needs money badly.

 

Those who fail to innovate - even in their "go to market aka get the product into customer hands strategy" they can leave a lot of money on the table. Yeah, sure. The Bolt will have the advantage of dealerships.

 

But recognize this - Tesla only needs deliver half of their pre-orders, so basically let's assume they delay their shipments by another half-year to equal approximately ALL other  electric vehicle sales - which also includes the Models and X!

[hyperv6]

It is this simple. 

Blessing added profits. 

Curse the added responsibility of running the sales and service internally. 

[Suaviloquent]

What are you talking about? For all we know Tesla service centres staffing needs are outsourced to contractors that have a service level agreement with Tesla.

 

Tesla above all else is network organization. They have a lot of their value chain in-house - hence their high vertical integration, but that doesn't mean they are paralyzed by organizational complexity.

[hyperv6]

What are you talking about? For all we know Tesla service centres staffing needs are outsourced to contractors that have a service level agreement with Tesla.

 

Tesla above all else is network organization. They have a lot of their value chain in-house - hence their high vertical integration, but that doesn't mean they are paralyzed by organizational complexity.

 

Oh good it is bad enough to work with a Dealer franchise but even worse to work with a independent contractor that is not connected to the MFG. I can see where at times it may help but also many times where it will be much worse. 

UPS for all their good and bad their drivers as a whole are pretty decent getting things there due to their inner organizational complexity. 

But many other package services who use drivers who are private contractors their service can be a total nightmare most of the time. On Trac on the west coast is a real burn on shippers. While cheaper so much is late or delivered wrong. 

Roadway Package failed miserably on the independent contractor. It is hard enough to control a franchise but even more difficult to deal with contractors. 

[David]

The real dirty fact is Tesla needs money badly. I just saw where it is estimated they are down to about 1 Billion in cash right now. The cost of the 3 and X model development has drained them. They are only pre selling the 3 not to generate money so they can continue to build it. 

 

Some estimate that they could be out of cash by 2018 if they do not deliver the 3 models buy late 17 or early 18 at the price they promised last night.

 

Their track record of on time releases have been not so good. They will be facing more and more competition and their quality issues are very unreported. If you read up on the web sites you see many of the issues the media never tell you about. They also have a web site with a delivery inspection sheet as owners have to inspect their own cars upon delivery for issues.  

 

The fact is every car maker would love to sell direct but the old companies can not cut off the dealers they have nor can they afford to buy them out. Hence their wanting to keep with what they have. 

 

As for car sales on Sunday? I could see it in some busy locations but many dealers would mostly not see a big gain here. If anything later service hours here have been productive and some Saturday service. But most Sundays with the NFL most dealers would not find it as busy unless they serve beer along with the big screen in the waiting room. 

 

For the longest time I hated the Parts departments here as most closed at 5 PM and had no weekend hours. That has changed but I worry as the people I know there say they are usually dead. 

 

I found this story very interesting. 

 

http://www.thedailybeast.com/articles/2016/03/31/tesla-s-model-3-could-destroy-elon-musk-s-company.html?via=desktop&source=email

West coast your dealerships are open 7 days a week, service is Mon to Saturday and the parts departments are open 10am to 7pm Mon to Sat. I love that I can buy at any time and for the most part get service and parts when I need them. No need to close down on a sunday.

[David]

 

What are you talking about? For all we know Tesla service centres staffing needs are outsourced to contractors that have a service level agreement with Tesla.

 

Tesla above all else is network organization. They have a lot of their value chain in-house - hence their high vertical integration, but that doesn't mean they are paralyzed by organizational complexity.

 

Oh good it is bad enough to work with a Dealer franchise but even worse to work with a independent contractor that is not connected to the MFG. I can see where at times it may help but also many times where it will be much worse. 

UPS for all their good and bad their drivers as a whole are pretty decent getting things there due to their inner organizational complexity. 

But many other package services who use drivers who are private contractors their service can be a total nightmare most of the time. On Trac on the west coast is a real burn on shippers. While cheaper so much is late or delivered wrong. 

Roadway Package failed miserably on the independent contractor. It is hard enough to control a franchise but even more difficult to deal with contractors. 

 

 

Tesla certified repair / service centers are Pet Boys locations. Not sure who they use on the east coast but pet boys here is anything of a service level experience I would expect on a 100,000 dollar auto like the model S. I have tried them a few times and will search out a Napa or O'Reilly rather than deal with the crappy service and poor parts inventory of pet boys.

 

I personally think Tesla will find great pain as they grow in using a cheap ass company like Pet Boys.