Electric Car Maker Tesla Plans to Short Circuit New-car Dealers
If you want to buy a new car or truck in the United States, you have the choice of going to a dealership in person or not buying at all. For the first time, one automaker – electric vehicle maker Tesla – will attempt to short-circuit dealers by selling its cars directly to consumers over the Internet. It's controversial, risky and already under fire from traditional dealers, but Tesla's model could spark bigger changes.
The store above in Denver is one of 14 Tesla has opened in the United States and 25 worldwide, with another eight to 10 set to open in North America before the end of the year. While the company has focused on meeting production targets of its electric Model S sedan, it's also been adding stores like these – owned by the factory, usually located in malls or central shopping districts closer to Urban Outfitters than other car dealerships.
It's a key part of Tesla's overall business: Instead of building cars and selling them to dealers who hawk them to shoppers, Tesla wants to build only cars customers order – eliminating part of the auto industry's massive overhead costs in inventory. By selling its cars directly, Tesla's executives believe they can make their customers happy, and eventually sell more cars for less money.
"Our way of thinking about the whole ownership experience is fundamentally different than the way other car companies think about it," said George Blankenship, Tesla's vice president for sales. "The best way to do this is to control the process throughout."
There's a reason America's 17,500 dealer franchises have an impenetrable hold on where you buy a new vehicle. Over seven decades, new-car dealers have built a protective web of state and federal laws that give them a legal shield against automakers and their own competitive urges unique in American business.
Starting in the late 1930s, auto dealers successfully lobbied state capitols to even the field with manufacturers, who were prone to canceling franchises without warning, making it costly for an automaker to pare back franchises once granted. In modern times, those rules are what prevent automakers from going the route of Apple or Amazon; it's illegal in several states to sell new vehicles over the Internet or for an automaker to own a dealership.
Much as those rules protect dealers, they also make dealers immune to some of the consumer pressures other businesses face. More customers file complaints about auto dealers with consumer protection agencies than any other business, according to the Consumer Federation of America. While new-car dealers do face tougher standards than used-car lots, buying a new car can often be a painful process even when no rules are broken.