FTC panel considers direct-to-consumer auto sales

Tesla store

The Federal Trade Commission (FTC) recently assembled a panel of experts in auto manufacturing and marketing to consider the question of whether automakers should be allowed to sell cars directly to customers.

For several years, Tesla has been waging a war with auto dealers’ associations over this issue – the company’s direct sales model is currently allowed in about half of US states. In the past the FTC has sided with Tesla, calling for legislation to revisit existing regulations.

At the panel discussion, representatives from Tesla, as well as Elio Motors, a company that has plans to manufacture cheap three-seater vehicles, told the FTC that new car companies shouldn’t have to follow the dealership model.

Tesla’s lead lawyer, Todd Maron, argued that Tesla customers have a lot of questions that can’t be outsourced to third parties. “Our customers take a long time to study the car,” Maron said. “It takes hours and hours of a patient education process that only we can afford them and a traditional dealership model cannot.”

Maron also argued that Tesla dealerships couldn’t coexist with the company’s direct sales model. “If we hypothetically used a franchise dealer in a certain state, we would still be selling online and in neighboring states. If a franchise dealer marked up the price of our car, no customer would ever buy it from them, they would simply go to us and buy it for less.”

On the opposing side, auto industry analyst Maryann Keller and dealership attorney Paul Norman argued that the dealership model is good for consumers because it promotes “intrabrand competition” between auto dealers within the same city.

Keller also argued that cars aren’t like other consumer products. “There are simply costs associated with the distribution of objects that weigh 4,000 pounds, occupy 50 square feet of space and are sold to consumers with varying needs including trade ins, credit issues, etcetera,” she said.

“Independent dealers also act as advocates for consumers and provide a local presence which is a convenient place for customers to go to solve their problems,” said Mr. Norman. “Independent dealers add an extra layer of accountability.”

 

Source: Ars Technica
Image: Ming-yen Hsu (CC BY-ND 2.0)

  • http://www.electric-car-insider.com electric-car-insider.com

    Norman> Independent dealers also act as advocates for consumers

    Oh boy. Pants on fire. Somebody get a fire extinguisher…

    There may be a more adversarial relationship in retail sales somewhere, but for the life of me I can’t think of one.

    • Ed

      Pants on fire?! Too late!!! I smell burning flesh!!

  • pj47tech

    Quote: “Keller also argued that cars aren’t like other consumer products. “There are simply costs associated with the distribution of objects that weigh 4,000 pounds, occupy 50 square feet of space and are sold to consumers with varying needs including trade ins, credit issues, etcetera,” she said”
    Sure, just like we need dealers for all home sales, which are larger assets, etc. – sorry, that argument doesn’t hold! In today’s world, there is no reason a company can’t build an online sales model with minimal infrastructure and try it.

    • jgs

      The other problem with the quote is that if the dealer model were actually such a superior business model, there’d be no need to legislate it. The vaunted invisible hand of the marketplace would impose it.

  • http://www.shockwavemotors.com/ Shockwave Motors

    Time for the government to take a step back and allow for new and creative ways of conducting business – instead of preserving restraint of trade practices that continue to protect certain industries.

  • Food4Thought

    If it works for Tesla then Mrs. Keller’s arguments all fall flat. Feels like the Dock Worker’s Union arguing against container ships. If a dealership brings a competitive advantage….then they should do just fine. Some folks like going to a single location to browse different models and colors, and like the convenience of doing a trade-in and driving away with a new car. Dealers should embrace this model of convenience and stick with their “trusted” brands. The market will determine the winners. Isn’t that what a free market is all about?

    • Ed

      Well said. Get out of the way and let Tesla sell however they wish. If dealers add value to the car purchasing process, then they should be able to crush Tesla.

  • EVPerks.com

    Dealers are more afraid of losing revenue in their service departments due to the fact those departments generate 80% of their revenue and EV’s require 80% less maintenance. They say they want to sell EV’s but they really don’t, with a couple of exceptions.

  • Bruno Bevilacqua

    It can be amusing to compare Tesla to Apple, but Apple’s business model is anything but fair. In short, they want to rule their product user’s life, how and when and where one can or cannot access certain capability of the product that has been fully paid for. For being seen as the underdog who came around and doing a business that is incomprehensible to the IT illiterate law makers and judges, Apple has so far had a free pass to put in practice some of the wildest marketing policies ever seen and allowed since the early 20th century.
    Now, Elon Musk has himself talked about the amazing political and economic power of traditional car dealers and car makers. Can one imagine just what if GM and Ford had been allowed to own their whole dealership network to this day?
    Of course, Tesla has shown us how successful a start up car company can be if they can sell directly to consumers, but there’s gotta be a cap to it.
    Once again, just imagine how unbalanced, how concentrated economic and political power, if GM or Ford had been allowed to get to the 21st century owning all the businesses down their business chain!
    For me, this is just unacceptable.
    There is got to be a cap (market share) for direct sales.

    • http://www.efest.ca Robert (Electricman) Weekley

      “There is got to be a cap (market share) for direct sales.” Why?
      (Maybe I missed the hint.)

      Let’s go back to what is Tesla’s Business Plan / Purpose:
      “To Accelerate the advent of Sustainable (Electric) Mobility!” – and – so how does having Dealerships that can’t make money in the Service Department Selling it’s product, make a win for Dealers, and a Win for Tesla Motors, and a Win for the Consumer?

      • Bruno Bevilacqua

        The cap, a certain point in market share, to prevent a company that grows as big as GM to concentrate even more anticompetitive power than GM has these days.
        Say you wanna start a new car company. You’d start your company, spread your stores across the land and when you got to a certain limit, you’d have to go third party if you wanted to grow beyond that point. You could keep your previous stores, working normaly but with your direct sales limited to that “competitive” cap. And those company owned stores would be the reference in service to the rest of the third party owned stores.
        They argue traditional car dealers wouldn’t like their business because their electric car doesn’t require the kind of service gas cars do, they’d have to earn their profit just out of the EV sales. Well, alright, but does Best Buy make any money out of servicing the electric/electronic stuff they sell or do they make a profit basically out of their sales?
        There has to be certainly a shift in how car sales are done, what a car dealership/sales front should be like, but allowing large car makers to own the whole business just doesn’t make any sense for those arguing against anticompetitive practices.
        So, we would have smaller, starter companies runing their show in full, but if they get big, they’d have to play along with retailers.

        • jgs

          Why is normal antitrust law not sufficient to control this problem? Why are cars special? AFAIK we have no “cap” rules for (say) smart phones, or vacuum cleaners, or jet engines, and yet the market seems to function OK.

          • Bruno Bevilacqua

            For quite a few reasons, and I’ll bring two of them here.
            First, except for Apple, we don’t have a consumer electronics maker trying to run their own retail chain. And even Apple (the mean, wanna take over the world Apple 😛 ) doesn’t put their own retail as exclusive, they sell through third parties. Their Apple Stores are a reference in service to the rest of the retailers.
            Second, cars (motor vehicles in general) ARE that special because its production involves some of the widest chain of supplies in industrial history, with some of the greatest count of work places, and they have an amazingly high added value – and absolute value, too.
            So, yes, as a car maker grows big it gains enormous power – real power – in the economy and in politics.
            Just imagine if some day, a decade or more ahead, our beloved Elon Musk (I’m not being sarcastic here, the guy truly inspires everyone, including myself) decides his goals have been achieved in the car business and sells his majority stake in Tesla to Wall St. sharks. Or if along the way another global crisis catches Tesla at the wrong moment and it ends up in the hands of those sharks – or other sharks out there. Just imagine all that power, never before gathered by GM, Ford, Chrysler or any other maker… just what kind of odious business practices would they be in a position to impose and how many politicians would dare to challenge them??!

          • Bruno Bevilacqua

            For quite a few reasons, and I’ll bring two of them here.
            First, except for Apple, we don’t have a consumer electronics maker trying to run their own retail chain. And even Apple (the mean, wanna take over the world Apple 😛 ) doesn’t put their own retail as exclusive, they sell through third parties. Their Apple Stores are a reference in service to the rest of the retailers.
            Second, cars (motor vehicles in general) ARE that special because its production involves some of the widest chain of supplies in industrial history, with some of the greatest count of work places, and they have an amazingly high added value – and absolute value, too.
            So, yes, as a car maker grows big it gains enormous power – real power – in the economy and in politics.
            Just imagine if some day, a decade or more ahead, our beloved Elon Musk (I’m not being sarcastic here, the guy truly inspires everyone, including myself) decides his goals have been achieved in the car business and sells his majority stake in Tesla to Wall St. sharks. Or if along the way another global crisis catches Tesla at the wrong moment and it ends up in the hands of those sharks – or other sharks out there. Just imagine all that power, never before gathered by GM, Ford, Chrysler or any other maker… just what kind of odious business, labor, you-name-it practices would they be in a position to impose and how many politicians would dare to challenge them??!

          • jgs

            How does this differ from the power of an industrial titan like, say, General Electric (especially in the earlier parts of the twentieth century, but even now)?

            Call me naïve, but until and unless a manufacturer has the ability to exclude others from offering competing products, the Invisible Hand of the Market is supposed to take care of abusive practices against consumers (if Tesla screws me, I buy my next car from GM), unions (ha) and worker protection laws (ha) are supposed to protect labor, and so on. In fact, even though you bring up business and labor practices, I don’t see how those would be affected in the slightest by mandating a particular retail model, which is all you originally advocated I think — that would only, hypothetically, protect consumers, who are also hypothetically protected by the availability of competing products from other manufacturers.

            Of course if a manufacturer does gather to itself the ability to exclude competition (say, by dominating the supply chain to the extent they can induce their suppliers to discriminate against would-be competitors) they’d fall afoul of the Sherman Act if they exercised that power.

            To take an example from recent history, there was a lot of wailing (I did some of it) about Microsoft’s monopoly power in the late twentieth. They had (and still have) enormous power – real power – in the economy and in politics. Yet, today they are just one of several big players in the marketplace and I don’t think anyone thinks they’ll ever resume their dominant position. No special legislation was required to achieve this end, the Sherman Act (and similar, abroad) was sufficient to curb excesses that might otherwise have kept them dominant.

          • Bruno Bevilacqua

            Full unregulated market leads to unbalance. But that is eventually, not every sector needs meticulous regulations, and we have to look at the past, the history to find out what needs regulation to maintain the market fair and balanced, what doesn’t.
            Can you imagine, Microsoft got in trouble not long ago just for adding Internet Explorer to its OS. Now Apple simply decides what apps iOS users may or may not use and it doesn’t get any questioning at all.
            On the Apple Store thing, Apple had first, for decades, done sales through third party retailers, like everybody else. Then recently they decided they needed their own stores to do all that Tesla is preaching. However, they did it without damaging the distribution through third parties. They (still) do not use their power to get third party retailers out of the “selling Apple” business. There stores compete with third party resellers selling the same product. That is competition, ok. Now if Apple decides to stop supplying third party distributors and retailers, than we’d see some damage. And that’s just what Tesla seems to want.
            So, back to cars and Tesla, if we come from a system where direct sales have been forbidden for a reason, do you really believe the wisest, most balanced and prudent thing to do is just drop that without any “tuning” so to speak?
            I wouldn’t call it naïve, I think the assumption that people can just switch products if things go wrong with a certain maker when we are talking about a product that costs several months salary is plain wrong. It just doesn’t happen that way. Never did, never will. Besides, big businesses tend to all play the same game, so this is not about Tesla getting worse, then its nearest competitors getting better, this is about turning the whole automotive market into a game of sharks only and ripping everybody else off.
            I think Tesla (and anyone) should have do right to open stores in every town, sell directly… up ’till, say, 10% of last years overall sales. After that, supply the resellers. That way we’d have best of both worlds.

            People (consumers and workers) will get screwed big time if Tesla gets this free pass, grows big and then turns wildly greedy. It’s a pass that will be also granted to the other big companies and, believe me, when you realize this thing went wrong there will be no option left out.
            Forget the character Musk, we are talking about allowing any company, big as it can get, to own the entire chain!

          • jgs

            “the assumption that people can just switch products if things go wrong with a certain maker when we are talking about a product that costs several months salary is plain wrong”

            Fair enough. That’s post-sales, though. Why do you think regulating the sales channel is either necessary or sufficient to provide some assurance of serviceability?

            “we are talking about allowing any company, big as it can get, to own the entire chain!”

            I don’t yet understand how it is you think regulating the retail business model will address your concerns about vertical integration.

          • Bruno Bevilacqua

            It’s how it is today, with its distortions and all, but I think we can’t just blow it up because it presents distortions. Lets fine tune this. It seems clear this far that new companies NEED direct sales to get their business rolling, get their message and their products across to the public. I’d say, fact! So let’s guarantee this for the small and the newcomers. Up to 10% marketshare.
            I think some regulation in this area has always been necessary, though what we have today is too tight, I can’t call it sufficient, it’s more like overwhelming as I was saying above, but this is not about “aftersales” or serviceability, this is about first sales – that’s what is counting. EVs, like electronics, do not require as much service. So why the hell can’t they sell it like smartphones, computers, A/V systems manufacturers do, throught third party resellers in addition to their own stores? How bad can this be for their business if they have no evil plans in their sleeves?
            Allowing a car company – specially one we believe should be rewarded with big sales for its achievements – to own the whole thing down to sale floors and even refueling (recharging, ok) stations without a size limit is absolutely irresponsible. People are forgetting the “undesirable” old ones will have the same rights. And it is not a bakery business.
            I’d love to hear Ralph Nader on this.

          • neroden

            I feel very strongly that manufacturers should be allowed to control sales in an absolutely unlimited fashion. Why not?

            SERVICE is a totally different matter. Tesla should be required to release service manuals to the public and sell parts to anyone who wants them. Period! It’s SERVICE where competition is valuable. Not sales!

          • jgs

            Yep. Which is the one strong point BB made too, but he’s got it mixed up with a bunch of unrelated stuff.

          • Bruno Bevilacqua

            And… voilà! Tesla just started showing ist claws agains consumer freedom and proving us why one maker shouldn’t be allowed to own the entire retail:

            http://www.cnet.com/roadshow/news/angry-blog-post-cost-one-man-tesla-model-x-reservation/

            I guess for having an argument here oposing their point of view on a matter that is so important to them, I can kiss my Tesla dream goodbye.

            Cheers!

          • Anthony C

            Agreed. I think they’ve even stated this is the long term plan, but with the aluminum on current vehicles and the low number actually out there, I don’t think there’d be a lot of takers there yet. But as number of vehicles go up, I would understand someone taking that up if they tried to keep it all in house. But I’d give them a couple years, just to get a solid system in place to make the transition and work out the hows and whos of who can mess with their vehicles, so as to limit the liability of an outside company messing up a fix on their cars and hurting their image. As Ford and others start using Aluminum more and the tooling gets out to auto shops, I can see this being a gradual rollout in areas that start seeing a lot of Tesla sales.

          • Anthony C

            The older ones should have the same rights, but if they want to go that route NADA should use their protectionist stooges for that instead, let the dealerships put through a law that makes it hugely expensive to buy-out the contracts of a dealership. While I would still find it to be a little shady, I think it’s a whole lot more ethical than trying to shut down competition wholesale. A company shouldn’t be forced into a relationship to do business just because other companies in the field have defaulted to that way of selling their goods, that’s basically the mob charging “fire insurance”, with them trying to set Tesla on fire as an example to others that would dare try and innovate.

    • Jim Fox

      Please tell us EXACTLY how and where Apple uses the business malpractice you claim. Give us links to examples. One can buy an Apple product from an Apple Store, on line or from a retailer. I believe you are talking nonsense, conflating their retail business with their philosophy of building and selling both the hardware and software, resulting in an integrated system- just like Tesla.
      Many times I have had problems which a visit to an Apple Store has resolved on the spot at no cost- which is impossible with non-Apple products. Just like Tesla.

      • Jim Fox

        “if GM or Ford had been allowed to get to the 21st century owning all the businesses down their business chain!”
        It’s called the Free Market and cars would have been cheaper.

        • Bruno Bevilacqua

          Then go tell Elon Musk he has nothing to complain about, you genius!
          Ever heard of anti-trust, monopoly, etc.? Which planet did you come from?

          • Jim Fox

            Ah, the good old ad hominems, insults and ranting! Works for certain types of people… Has Elon Musk anything to “complain about”? Perhaps you could tell us all. There is a world outside the USA that makes far more [and better] cars than Uncle Sam.
            COMPETITION is the word and no amount of restrictive practice has ever prevented better ideas getting thru.
            Nothing more.

          • Bruno Bevilacqua

            You say I’m talking nonsense, then I bring you the practical examples and you keep trying to get away with it.
            Musk’s Tesla has being fighting dealerships in various states from day 1. In my planet, “starting a legal/political fight” against something and “complaining” about that something can both be used in the same sense.
            And the world outside the USA (Japan, Europe and South America, for example) has far more restrictive marketing laws for car sales.
            So, you are really, really lost in space.
            Sorry, I brought a serious, sober, thoughtful argument in this page, won’t spend any more time with your bravado.

          • Wade

            Apple has the highest customer satisfaction rating of any product. Keeping the app store fenced in is something Apple users perceive as a benefit. They just want the tech to work, intuitively. They don’t want to worry about malicious code every day all day. Just like Apple, if people don’t like Tesla products and their sales model, they are free to purchase something else. Even a used Tesla from a third party.

          • Bruno Bevilacqua

            But who ever said Apple products aren’t good? I’ve been talking about and questioning their marketing policies, not their product quality alone.
            That said, I don’t know of a single being that is happier about iTunes Store than about the way their desktop/notebook computers work for finding and installing applications. Besides, it has been proven that Apple doesn’t limit its store “filter” (what gets in and what doesn’t) to security, they have filtered things solely based on their marketing interests – to the disadvantage of consumers’ right to choose. We are far beyond the day we believed Apple was doing this for security, malicious code prevention, etc. Very far.

          • neroden

            The USA is the ONLY country in the world with the insane “car dealership” laws. Every other country allows direct sales by the manufacturer, period.

          • Bruno Bevilacqua

            I’m sorry but you really don’t know what you’re talking about.

            Period.

    • Anthony C

      When they started out, I think they all owned their networks. Then they figured out that they can divorce themselves from sales so that all they had to worry about was the dealerships buying(and paying to carry all the stock on their lots) and they could just worry about building cars and meeting the demand. Then when they tried to sometimes get back into direct sales the car dealer that was making boatloads of money just paid off their local shill in the state houses to make it illegal to sell their own product. They should have been protecting themselves in their own contracts but when they realized they didn’t, they corrupted the system to save themselves.
      In the end, I say Elon finds a trusted friend, loans them a billion, gives them a dealership contract in every state, and basically buys and runs all the dealerships with the only mark-up being what they’ve computed to be the amount they already cost from the cars price. That way price stays the same, these pansy NADA and government protectionests get the shaft, and nothing major changes.

  • dogphlap dogphlap

    I can see that dealers may fear the same fate that has engulfed independent booksellers and consumer camera shops. It is now so easy for a buyer to research on the web for a book or high end camera, go to a brick and mortar store to get some advice and handle the object only to leave the store saying “I’ll think about it” then buy it on line for 20% less.
    If my memories of being mistreated by all car dealers I’ve ever tried to do business with were not so raw I might feel some sympathy for them.

  • bob

    Someone tell the dealer network the 20th century us over. EV buyers are not like gas car buyers.
    Still need to test drive the product but it seems to be working for Tesla. 100,000 sales tells it like it is.