Tesla Strikes Deal To Keep Dealerships In New York | Hacker News Reader

Tesla Strikes Deal To Keep Dealerships In New York

techcrunch.com

135 pointshouseofshards54 comments

Just goes to show you - it's sometimes better to ask for forgiveness than permission.

Imagine if Tesla hadn't opened stores in these locations - they would be indefinitely, unconditionally barred from doing so unless they had flouted the auto dealer rules and went forward with the stores regardless. Now they have a foothold. When you realize that the stakeholders (in this case, New York State Politicians) have a political interest in you flouting their rules then the rules just don't seem that rul-y anymore.

It's also what's going to get their foot in Texas, as well.

Elon Musk is one smart dude.

I agree. It's like this fred wilson blog post. The genie is out of the bottle.

http://avc.com/2013/10/the-genie-and-the-bottle/

How is requiring a car dealer to sell through a dealership beneficial to anyone besides the dealership lobby which spent millions of dollars in getting that law in place? This is why I freely support any company attempting to disrupt any industry that uses the US gov't to create laws limiting direct competition (Healthcare for example).

Politicians who stand up for this kind of nonsense should be ashamed.

I imagine it's not just dealerships that oppose Tesla. It's nearly everyone involved in the automotive industry, from independent service shops to part suppliers to oil companies to the other American manufacturers.

Why would an independent service shop care if it is [local moderately wealthy businessman with contracts with wealthy corporation] or [wealthy corporation] who owns the dealership? Either way they have the Magnuson–Moss Warranty Act so either way car owners can choose to either take their car to an independent shop or to a dealer shop.

Lingering concerns could be cleared up by lobbying for some Right to Repair laws: http://en.wikipedia.org/wiki/Right-to-repair_act

Perhaps Tesla is not playing nice with independent service shops. You might be allowed to get your Tesla serviced at an independent shop, but fat load of good that does you if Tesla won't release service manuals (for example)

Or, if I am allowed to speculate even more wildly, dealerships have to profit on sale & maintenance because they make nothing on the car itself (as they buy them whole from Ford etc). So if a dealer-owned shop comes to town, it can run the shop on lower profit margins thanks to the profits of the parent company, making things harder for independent shops.

That's called efficiency. When you're just a middle-man adding overhead, technology replaces you.

Nobody asked "which is better", they asked "why would independent shops rally against direct sales"

Actually it is well known that already current manufacturers make it hard for non dealer shops to obtain service manuals.

Electric vehicles require much less maintenance (for example the routine checkup you need to only do once a year, no oil changes etc).

Second thing is that Tesla has a belief that car repair should not be for profit. Currently majority of profit on cars comes from dealers servicing them. It incentives manufacturers to crazy things like requiring to remove a wheel to replace battery, or remove from bumper to change a light bulb.

Tesla cars will basically generate less profit for mechanics due to those two things alone.

Please, how much time have you spent working on cars? Most cars are quite straightforward to service. It takes a while to get to the timing belt, to be sure, but that's the nature of the timing belt.

Cars made in the last 5 years are getting nasty, but that's because of how damn complicated & compact they are anymore. Things get stuffed in funny corners because they are running out of space. (Trucks, which don't try to be "city-sized", still have room aplenty in the engine bay)

Cars made in the 70's had dumb design decisions sometimes because they were still learning how to design a car to be servicable. (Like some old domestic, I forget which, whose V-6 had to be removed to access three of the spark plugs. I'm pretty sure heads rolled when they put everything together and discovered that little oversight!)

I've worked on Hondas, Toyotas, Subarus, Volvos, Nissans, and Chevys, from the mid-70's to the late 90's, and I do not believe for a moment any of them were designed to be hard to service on purpose.

P.S. The main service I do on my cars these days is brakes, tires, light bulbs... There are other items for sure, but modern engines are very reliable. Tesla is not immune to any of these.

Tesla cars are so mechanically alien that I don't really know how an independent shop might be able to do something with it, unless it's a simple tire change or bodywork.

Tire changes and bodywork are probably in the top six or eight most common things people have done to their cars (after car washes and oil changes, which are revenue races to the bottom anyway). Somewhere in the top twenty are probably subwoofers, replacing bulbs and lamp assemblies, window tinting, detailing, windshield repairs, and brake work. Most of those should be possible on a Tesla without unusual training.

That's fine,but all electric vehicles require a tiny fraction of the maintenance that petrol powered, oil lubricated ones do. This is a problem for the future of maintenance shops.

That's certainly why they would dislike Tesla in particular, and perhaps why they might spitefully lobby against Tesla selling direct to the consumer, but otherwise I don't think that independent shops should really care about the dealership situation one way or the other.

You overstate the maintenace required on modern internal combustion engines. Most will go 100,000 miles with nothing but oil changes. Oil changes are often a loss leader for maintenance shops. Tesla cars will still need tires, brakes (though maybe less often thanks to regenerative braking taking the load off of standard friction brake pads), air conditioning service, alignments and other suspension work, etc.

These days, it's not.

Originally, it was beneficial to the manufacturers to let franchisees take the risk of opening new storefronts. The franchise laws were put in place to stop manufacturers from undercutting their own franchises once the market was established.

That sounds so odd. If franchisees were worried about that, then the manufacturer could sign a contract agreeing not to operate. Why does it need to be coded into law?

And when the manufacturer undercuts you and you're already bankrupt by the time the court case that the manufacturer's spendy lawyers will drag out long past your ability to pay...what then?

A proper contract would allow for an immediate injunction as releif.

What makes you assume that's even on the table? What manufacturer is going to give away the fruits of their power imbalance so readily?

Given the choice between a private contract and government legislation, most companies would likely choose private contracts.

IANAL or a historian but from other discussions I read, I got the impression that, at the time, contract law wasn't as advanced as it is today. That's likely why it took a law to clear the way for franchises.

You're basically arguing that any contract between power-imbalanced parties needs to be written into law.

That's generally the case, yes. As one example technologists seem to like: California invalidates noncompete clauses at the level of state law, not through requiring every engineer to individually attempt to negotiate the noncompete clause out of their contract.

Contracts between power-imbalanced parties tend to be worthless. Any time one side can afford a legal fight and the other side cannot, you're really depending more on the integrity of the more powerful party than anything else.

That's the reductio ad absurdum claim that all too many HN posters would read of it. I am saying that when the gulf is wide enough that you can trivially withstand the other party's ability to seek redress (or, in the reverse, engage in barratry to force compliance regardless of the reality of the situation), they have no ability to seek redress and it is in that case that there is a valid reason for governmental action.

Certainly no one should expect this status quo to last for long. The dealers will keep lobbying to kick Tesla out, and Tesla will keep lobbying to lift this restriction.

In that light, this is an interesting long-term strategic move on Musk's part. It arms him with a "we've been selling in this state for X years with Y thousand satisfied customers, so how can this be so problematic that it needs restriction?" argument for his lobbying efforts a few years down the line.

Wow so this seems actually worse than outlawing Tesla because what they are doing is giving Tesla major privileges over any future competition. Seems very monopolistic.

Well, as is often the case, they got theirs. They cleared the hurdle, now barriers to entry help instead of hurt them.

With Communism, a person's job is determined by an external power. How is the dealer network telling Tesla that they can't sell their car in NY not an example of communism?

Put down that microscope citizen. I've already told you, you are a cashier, cashiers don't use microscopes. Microscopes are for scientists. You can't be a scientist. Get back to your station. Don't make me taze you.

"With Communism, people breathe air. Since people breathe air in New York, how is New York not Communist?"

Tesla Motors isn't a person.

Being allowed to keep their existing stores is "major privileges?" How so?

They get to have 5 stores and no other manufacturer is allowed to have any?

This will last for about 2 seconds. One of two things will happen - the auto manufacturers / dealer franchises will get to a bunch of legislators and legislate the closing of Tesla's stores.

Or - they will see an opportunity and open up stores themselves. I look forward to seeing a GM store, a Chrysler store, and a Toyota Store, right next to the Apple store in the mall.

In that case - goodbye auto dealers. it would be a mistake to underestimate their political power, though. I have an auto dealer franchise for a client that has over a billion of revenue in a year - an auto dealer that's only present in a couple of states.

Can someone with more knowledge of the (outdated) franchise law explain why Tesla can't/hasn't created their own dealerships (that officially aren't Tesla owned), but sell only Teslas?

I believe the answer is, because they don't want to do that.

Because, under the same state laws, that's illegal as well.

"It shall be unlawful for any franchisor to ... acquire any interest in any motor vehicle dealer in this state ... or to use any subsidiary corporation, affiliated corporation, captive finance source or any other controlled corporation, partnership, association or person to accomplish what would otherwise be unlawful conduct under this article"

-- NY Vehicle and Traffic Laws, Article 17A, Franchised Motor Vehicle Dealer Act, S 463 Unfair Business Practices by Franchisors

There'd be little point to having the rest of the law on the books if it were so easy to work around.

Note that "franchisor" as defined in that law includes all manufacturers, whether they sell franchises or not. IANAL.

Maybe they would prefer to kill dealerships (saving customers $2,225 average per new car according to a 2000 report). Lord knows, I've never had a good experience with a dealership, let 'em die!

http://www.washingtonpost.com/opinions/charles-lane-tesla-ta...

But if manufacturers have no competition for dealerships (because they own them all), what would keep them from jacking up the prices?

If Tesla want to increase the price of Tesla cars for end customers, why would they need a dealer monopoly?

Manufacturers set the prices they sell their vehicles to the dealerships for, don't they? Unless the dealerships are going to start taking a loss on every sale, they aren't providing any restraint on manufacturer pricing. What keeps Ford from jacking up its prices is the Nissan lot next door, the year older Ford on the used lot, and the regional rail station down the street.

This American Life did a great story on car dealerships[0]. Basically, dealers have a number they have to hit every month, and they're basically incentivized to sell cars and be willing to take thousands of dollars loss to hit the number because if they get below the number they don't receive any bonuses, and the bonuses are the principal form of cashflow to both the dealers and salesmen.

[0]http://www.thisamericanlife.org/radio-archives/episode/513/1...

Obviously, no matter what perverted incentive/bonus system you have in place, the essence of selling cars to a manufacturer and by extension to a dealership is to charge more than it cost you to make or acquire the car in the first place.

Just because manufacturers can average it out across all dealerships doesn't make it less true, and obviously dealerships can never make a car cheaper, all things considered.

I worked at a Nissan dealership during college. We would occasionally sell a car at cost if a manager had been driving it around and had racked up too many miles on it. But we never lost money on a deal.

That just isn't true.

There isn't a lot of margin in cars anymore, but the cost of the car isn't the actual cost. There is lots of back-end money that determines the real cost. (just like PCs -- a big PC buy is own or lost over who Intel gives the biggest rebate to)

The only real exception is in a really bad economy where a dealer gets surprised by the evaporation of demand for an overstocked unit (ie pickup trucks in 2008-9). In those cases, they may sell vehicles at a loss for cash flow -- they borrow money to buy those cars in the lot.

Competition with other manufacturers?

What is keeping computer (or any other good) manufacturers from doing that?

The dying of third-party resellers and the rise of direct sales must be why consumer electronics prices are becoming so high.

What keeps them from jacking up the prices right now?

These laws are crazy. They work for Tesla currently, but what about the future and future direct-to-customer sales models by other companies?

When Tesla grows, they will need more than 5 dealerships in order to reach more of the population.

When a new competitor tries to sell direct, these rules will make it impossible for them to compete on an even playing field with Tesla and therefore have to revert to the old dealership model. Win for Tesla, loss for free markets and competition.

This is a great compromise for Tesla. The dealerships don't fear Tesla, they fear their manufacturers will start selling directly over the internet and cut them out of the loop. This should pacify their fears but still allow Tesla to operate. Long term, I suspect, this will be overturned, but for now it's a great compromise.

As a bemused European looking at this situation. Did a new U.S. manufacturer, just agree to sell cars in mob town?

It is interesting that the US -- a champion of Laissez-faire in many other areas -- is the only country in the world with such laws.

[regardless of whether one likes the idea of Laissez-faire or not, the contrast is interesting]

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