Does Tesla Stand a Chance Against the Auto Dealer Lobby?
Once upon a time, U.S. automakers sought to create a hedge against bad times by setting up a franchise system of independent car dealers who had to buy a minimum number of vehicles from manufacturers. Eventually, the system came to symbolize a buffer between automaker and consumer. Car dealers protected the consumers from Big Bad Wolf automakers — or so the story went. Now that this conception is far removed from reality, it’s easy to see why Tesla (NASDAQ:TSLA) has a beef with the traditional auto sales model. Whether the electric car maker can gain widespread traction against a powerful dealer lobby is another story.
During the period of great struggles for General Motors (NYSE:GM) and other U.S. automakers in the early 2000s, many pointed to the dealer system as one reason the manufacturers were handcuffed. Since it’s nearly impossible to dissolve a dealership, automakers have an awfully hard time increasing efficiency with respect to their car lineup. To stop making Oldsmobiles, for example, GM had to get rid of Olds dealers, which became a problem with a billion reasons to avoid repeating.
Tesla offers an alternative to the model with its dealer-free, direct sales system, but auto dealers are flexing their considerable muscle in state legislatures around the U.S. As Tesla found out recently in New Jersey, the chips are stacked against the green car innovator and Wall Street darling. Monopolies are hard to topple, especially when they flood the media with pointed critiques of upstarts that appeal to consumer protection.
In the case of dealers versus direct online sales, the only issue worth examining is the money at stake.