Electric cars

Tesla's Direct Sales Battle Comes to Connecticut

The electric car company might achieve victory in another state but the win should not be limited just to Tesla.

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Tesla
Mariordo/Wikimedia Commons

Tesla's ongoing war with state legislatures over direct-to-consumer sales continues, this time in Connecticut. Senate Majority Leader Bob Duff has proposed legislation that would allow the company to sell its cars directly to consumers, something that's not currently legal there.

The proposed law would greenlight certain car manufacturers to open up to three stores in the state. While it technically isn't exclusive to Tesla, it's written in such a way that few if any other companies would qualify. To sell direct, manufacturers can only make electric cars—and they can't have franchise agreements with any existing dealerships.

If it wasn't already clear this legislation was designed specifically to benefit Tesla, note that a spokesman from the company, Jim Chen, was at the press conference unveiling the bill.

"Because of the unique technology that goes into a car and because of their made-to-order design, our business model does depend on the ability to sell cars directly to our customers," Chen said. "These customers can in turn take solace in Tesla's direct accountability for every sale."

One of Duff's selling points is that all the tax revenue that could go into Connecticut's pocket is instead going to nearby states, like New York, that allow Tesla sales.

"We know that consumers have choices, and if they don't have those choices in Connecticut, they'll make that choice in another state," he said.

Loosening economic restrictions is, of course, a good thing. Should the legislation pass, Connecticuters will have increased access to a wider array of cars. But critics such as auto manufacturer General Motors (G.M.) make a valid point when they argue that electric-car companies and gasoline-powered-car companies should play by the same rules.

Most states have some form of ban on direct car sales, and Tesla isn't the only one hurt by these laws. For example, G.M. launched a built-to-order, direct-to-consumer car in Brazil back in 2001. The same laws that Tesla is fighting also prevent G.M. from bringing that product to the United States. So it's understandable if G.M. is a little bitter that Tesla has been allowed to open stores and galleries in 26 states, some of which refuse to extend the same freedom to competing manufacturers.

Prohibitions on direct-to-consumer sales benefit dealerships far more than consumers. Back in 2009, the Justice Department published a study that called the arguments in favor of such laws unconvincing. Industry publications like Road and Track agree, describing the current laws "blatant protectionism."

In an article for the environmentalist website CleanTechnica, James Ayre took Connecticut's dealership association to task for its support of the protectionist laws. "They are in such an indefensible position to my eyes," he wrote. "After so many decades of people having no option other than to get ripped off by some scubby sort at a dealership, who's really going to side with them against direct sales?"

Even the Federal Trade Commission (FTC) has asked states to take a libertarian approach on this matter. As the agency wrote back in May:

Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy. Most manufacturers and suppliers in other industries make decisions about how to design their distribution systems based on their own business considerations, responding to consumer demand. Many manufacturers choose some combination of direct sales and sales through independent retailers. Typically, no government intervention is needed to augment or alter these competitive dynamics—the market polices inefficient, unresponsive, or otherwise inadequate distribution practices on its own. If the government does intervene, it should adopt restrictions that are clearly linked to specific policy objectives that the legislature believes warrant deviation from the beneficial pressures of competition, and should be no broader than necessary to achieve those objectives.

Perhaps pigs are flying through a frozen hell, because the FTC hit the nail on the head. Manufacturers should get to decide whether or not to sell directly to consumers without the government mandating they go through a middle man. And picking and choosing certain companies or industries for special treatment is arguably even worse than a blanket prohibition. While the Connecticut law is potentially a step in the right direction, there's no good reason to single out Tesla; states should let any manufacturer who wants to sell direct-to-consumer.

[Read our previous coverage of Tesla's battle over direct-to-consumer sales in New Jersey, Georgia, and Michigan.]

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  1. If the government does intervene, it should adopt restrictions that are clearly linked to specific policy objectives that the legislature believes warrant deviation from the beneficial pressures of competition, and should be no broader than necessary to achieve those objectives.

    Policy objectives. Right.

    1. Why are you first, Eugene? It’s not the PM Links yet.

      1. I sensed a disturbance. Someone would have a copy-and-paste at the ready for Links.

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  2. What the hell business is it of the government if a car manufacturer wants to sell their product directly to the consumer? Do states have constitutions with an amendment to protect franchise businesses? Because I’m pretty damn certain that’s not in the US Constitution.

    1. Have you been to Connecticut? It absolutely is your neighbors’ and politicians’ right to deny you commerce.

      1. No, and I’m never moving there.

      2. Born and raised there. Don’t care if I ever set foot there again. Now I live in the libertarian utopia of California. 🙂

  3. “After so many decades of people having no option other than to get ripped off by some *scubby* sort at a dealership, who’s really going to side with them against direct sales?”

    Scummy? Scummy and chubby? So cute and chubby?

    Whatever he means by the word scubby, I don’t exactly think of the internet and/or direct sales as it’s opposite or even opposing it in anyway.

    Instead of going to the dealership to experience scubbiness, I’ll get more of it (filtered from getting) in my inbox.

  4. This is just the nose of the camel under the tent. Pretty soon the evil libertarians who run all the state legislatures will want car dealerships to be allowed to open on Sundays.

    Yes they went to the “But what about the kids” argument right away.

    For third-generation auto dealer Dan Koppy, some things in the family business are held sacred.

    “I even remember as a kid, Grandpa was always home on Sundays,” said the owner of Koppy Motors, a Forest Lake dealership that has been around since 1936.

    Why do those orphan beaters want to tear kids away from granddad?

    1. People think blue laws are a holdover from a long time ago, but my home state of Illinois banned sunday car sales in 1982. And their argument was that they want good family men to sell their cars, the kind of men that go to church.

      Because you know when I think of a car salesman, my image is a god fearing upright family man in church with his family.

      1. “These prices are too fuckin’ high!”

        1. “Palomino!”

      2. How can that even be a consideration for the passing of law.

      3. Illinois banned sunday car sales in 1982. And their argument was that they want good family men to sell their cars, the kind of men that go to church.

        Is it a legislature or a cargo cult?

  5. “When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.”
    – P. J. O’Rourke

  6. It was my understanding that the whole reason for franchising the sale of cars in the first place was that the auto manufacturers simply did not have the capital to operate the retail establishments (that’s the norm for most manufacturing – you buy your stuff at Walmart, not direct from the factory) and once they became big enough that they could afford to operate retail factory outlets the auto dealers made sure laws were written to keep them from doing so. IOW, the protectionist laws weren’t to protect the auto manufacturers, it was to protect the auto dealers. Now comes Tesla, the big bad evil corporation determined to monopolize Tesla distribution by screwing over the little-guy auto dealers, and the usual suspects are solidly on Tesla’s side? What gives here? Somehow Tesla has convinced people that their whining for special treatment and exemption from the laws that apply to everybody else is a demand for fairness.

    I agree that Tesla should be free to sell their products however they want, but so should everybody else. If GM decides to start selling autos direct right next to the Tesla dealer right across the street from the GM dealer, is anybody going to defend GM’s right to sell autos direct? Or just point to GM’s franchise agreement and ignore the fact that GM had no choice but to sign franchise agreements because they were legally barred from selling direct?

    1. GM should be allowed to sell cars however it wants. See how simple that was?

      1. Yeah, I’m not sure if Jerryskids missed it or not, but the goal of Tesla is not to be the only manufacturer who can sell direct. That part of the legislation is a fop to the current dealers. Their dealerships are worth millions because they have local monopolies on their brand. If GM branded stores were allowed by law, how long before that multi-million dollar cash cow was out of business? Dealer markup counts for a large chunk of change – enough to make a difference to price-conscious consumers.

        Also, how would manufacturers feel about factory operated repair shops? Dealerships typically make a huge percentage of their revenue on service. How about a manufacturer that chose to compete on service? Could Nissan cut out their dealers and increase the quality of the customer experience while reducing the retail price of their product and advertising cheaper service than their competitors? Or even offer free basic service for the duration of the warranty?

        The current crop of dealerships have invested millions to build their business, and are certainly willing to spend millions to block attempts to remove their state-mandated monopolies. That dynamic has nothing to do with Tesla. They are just trying to get into the state any way they can.

        1. My dad, in the 60’s and 70’s, refused to buy a new car off the lot. He went to the dealer, told him what he wanted, and required that is be ordered from the factory and delivered for him to pickup.

          These days ordering of new cars can be done online, and then pickup and service can be performed at the dealership. The only cars that need be in the lot are used ones for sale. I’d think this could cut costs for dealers, as they wouldn’t be required to keep nearly as large of an inventory, just a couple of each model for customers to see in person and test drive.

          1. The problem with a custom order is pricing. You would think that ordering a car would cut the price – they know they have a sale in advance, they incur no floor planning costs (industry speak for the loans that cover inventory) – what’s to lose?

            Yet if you special order your vehicle, you won’t get the best price. Why? Because dealer incentives such as holdback are based on their allotment and are not available on special orders…. or at least they weren’t the last time I researched it heavily about a decade ago.

            A lot of the incentives in the auto industry are upside down and backward.

            1. Technology is changing and spreading. I think it’s inevitable in the marketing of cars.

        2. Key word = monopoly. Proven to benefit the few at the expense of the many.

          Repeat after me: bad, bad, bad.

          1. Monopoly? How so? Car companies compete with other car companies to sell cars. Dealerships just compete to see how much they can add on top of the car company’s price before you go to a different dealer who didn’t add quite as much to the car company’s price.

    2. I highly doubt most everyday people have a problem with GM cutting out the middleman. The real problem are the dealerships. They aren’t going to just take a death sentence lying down and they gave quite a lot of power.

      Tesla is actually being smart about this. It would be near impossible to get the protectionist laws completely removed, which is why they are going for an exemption instead. They’re thinking about what’s realistically feasible. They would not have any chance whatsoever to get the current protection laws removed with the amount of power that the dealership associations currently have.

  7. If I was in charge of Ford, I’d start opening salesrooms right across from Tesla. When the state showed up to shut me down, I’d tell them to swing by the Tesla dealership on the way over. You would either break the state or break Tesla – either way you win.

    1. The government would break Ford because (1) electric cars don’t kick puppies and (2) Ford didn’t take the autobamacare bailout.

      1. The real question is, does Ford want to take on its existing dealership network? There are probably billions of dollars at stake across the US in Ford dealerships, should they get cut out of the deal. That’s a lot of money on the line. Dealers would be pissed, to say the least.

        So how do you go from where we are now to a new world of Ford direct sales? It would be extremely difficult to do it all at once – probably impossible. So you have a situation where you are competing with your own retailers.

        In areas where this happens you typically see the factory store selling for the MSRP with no discounts, obviating the advantage of factory direct sales.

        1. Let customers order online, then have a delivery fee of which part goes to the dealership where you pick it up.

      2. Ford took the 5.9 billion ATVM loan and they took the 15.9 billion banking bailouts. But hey a good PR campaign goes a long way.

    2. Lowes follows Home Depot wherever they open. Lowes avoids the cost of studying the market and piggybacks for free off of Home Depot’s efforts. And then competes with them head to head. Only Lowes focuses more on the retail consumer where HD focuses in contractors.

    3. The state won’t be the first one to show up though, you know government takes forever. The first one to show up on Ford’s door will be lawyers from the auto dealers demanding damages for breach of contract.

  8. One of Duff’s selling points is that all the tax revenue that could go into Connecticut’s pocket is instead going to nearby states, like New York, that allow Tesla sales.

    “We know that consumers have choices, and if they don’t have those choices in Connecticut, they’ll make that choice in another state,” he said.

    Geez Duff, why go through all this trouble. Just tack on a couple hundred dollar ‘registration fee’ for any car purchased in another state that is being registered in CT. Not only can you get the Tesla money, you can get it for any other fucker who thinks living in CT is a good idea.

    I was sooooo glad to get out of there. Fucking $200 a year ‘property tax’ on my car.

    1. “I was sooooo glad to get out of there. Fucking $200 a year ‘property tax’ on my car.”

      Uh, didn’t you say you live in CA now? It’s more than that here, depending on age and some other factors.

  9. “Prohibitions on direct-to-consumer sales benefit dealerships far more than consumers.” Uh, what exactly are the benefits to consumers?

    1. Uh, what exactly are the benefits to consumers?

      Lemon laws for one. Not to mention federalism in general; I’d much rather go to my local dealer and demand repairs or invoke local lemon laws than wait for the manufacturer several states away and the NHTSA to hash out who’s going to repair/replace what parts at what cost to whom and then fill me in post hoc.

      I’m not a fan of protectionism exactly, but we are talking about an industry that was already too big to fail and failed. The choice is really sorta locally-crafted shit sandwich vs. a mcturd with cheese from a government intervention/involvement standpoint.

      1. I can order a computer for $1000 from Dell or some other company online without issues like this.

        1. I’ll bet you can order a Tesla online too!

          GM, Ford or Chrysler…not so much.

      2. You are making no sense. If Tesla is opening their own stores, they would have dealership licenses. So the local Tesla dealership would still be liable by local lemon laws.

        The only difference between a franchised dealership and a manufacturer owned dealership is the owner of the dealership, that is all. From a consumer perspective, and legal perspective it is identical.

  10. Legislation to favor one business model over another is just a name for things we all do together.

  11. “Pigs flying in a frozen hell”. Good one. I’ll have to use that some time!
    And yes, it’s amazing that the FTC would seem to have such a pro-market attitude, at least on this particular issue.

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