Apparently Elon Musk ( @elonmusk ), the founder of Tesla Motors, wants to bypass auto dealerships, and has gone to the Texas legislature for special exemptions to allow him to sell his cars directly to consumers. The story is covered here: http://www.bizjournals.com/houston/news/2013/04/10/tesla-ceo-texas-electric-car-sales.html?ana=e_vert&u=mH+E2NbuZImKyOtjDdOH3auZqb9 This story caught my attention for a couple reasons. First of all, I've long been interested in finding ways to make small manufacturers able to compete effectively against large ones, changing the very structure of our economy, and car manufacturers seem like the epitome of this. I often draw a verbal picture of a new federation of companies to make an alternative car that is a better value for customers, with many more smaller business owners that much more effectively distributes wealth. To me, that's what capitalism should be, rather than large car companies that need government bailouts -- let's build a system that beats them in the marketplace with higher quality, more passionate (and engaged and rewarded) workers, and can not only afford but is passionate about making environmentally and socially responsible choices, not just financially sound ones. The car industry is my pet example. And secondly, I recently heard how auto dealerships became essentially a monopoly with the exclusive right to sell cars to consumers, via an excellent Planet Money podcast. Go listen to it here: http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful It turns out that car dealers don't have to play by the free market economics the rest of us are subject to. They are a very protected group of businesses, with territories protected by state laws that prevent manufacturers from competing with dealers. This structure arose during the Depression, and has become a powerful, entrenched lobbying force in every state. The interesting part of this story was the early history of how dealerships arose: with no national highway system and bad roads, local dealers were really necessary to get cars out across the country in the first place, and provide maintenance services. During the Depression, however, the manufacturers forced dealers to buy more cars than they could sell when nobody was buying, by threatening to cancel their contracts if they refused. At that point, dealerships were small businesses being totally dominated by the large car companies, so local legislatures passed laws to protect them. And those protections still exist today, in a much different world. So now car buying rates among one of the most hated things Americans do, and new small manufacturers who hope to revolutionize the industry have to get laws changed before they can hope to do something about it. It looks like at least one dealer is on board, though I wonder if he only was able to write this because he's retired? http://www.chron.com/opinion/outlook/article/Let-s-drive-business-in-Texas-forward-4473447.php

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Comments (18)

Innovative companies improving our world and changing old-fashioned laws? We could only hope. I'm rooting for Elon Musk, but we Americans are too afraid to lose what we already have, no matter how pointless and detrimental. Thanks for the post, John. It is another outrageous example to show our lawmakers.

03 May, 2013

I want to add some benefits of buying used cars 1.The most important things that you are able to save you money on insurance and tax. 2. If you do your deal smartly than bargaining is possible. 3. Now used cars are more reliable than they available before. 4. Sometimes you able to get a car with factory warranty. 5. History of used cars is also available with vehicle identification number. So there are many benefits of buying used cars and if you purchased it from loyal dealer than you are free from all issues of reliable performance.

So it is good news for our economic growth, county's financial condition, buying and selling flexibility, both the dealership owner and customer. It definitely facilitated the service era.
BMW Mechanic Los Gatos

13 May, 2013

Car Dealers are very similar in the UK to how they operate in the US. They seem to control the market. Any small business like Tesla are up against a brick wall. I run a car valeting business in Sussex www.goodwincardetailing.co.uk and offer New Car Protections which the dealers now offer. They see something which makes them extra profit and take the business away from the small company. Eventually they end up controlling the market

01 Jun, 2013

Selling electric vehicles directly to customers is a very good idea. One thing that this article doesn't mention is car insurance for electric cars. I would be very interested to know the types of rates that auto insurance companies will charge people will drive electric vehicles!

18 Aug, 2013

I don't think I ever gave much thought to why dealers exist like they do today. I think it will take more than a single manufacturer to make it happen but change would be excellent. With the exception of a few brands, dealerships are usually awful to deal with. The buying process is super high pressure and then even worse in the finance office. It's hard to feel good about buying a new car when their trying to hammer you with upsells at the end of it. Definitely one of my least favorite things to do.

29 Oct, 2013

This is pretty interesting and good post John. But I've been asking this question for a while; is there a difference with the cost of the car if manufacturers directly sell it to customers and bypass car dealers? I've only had two encounters with actually buying a car so I'm still trying to get the hang of things. Thanks!

21 Nov, 2013

You know, this legislation is really not pro-business. Perhaps Texas needs to elect some legislators that are in favor of free market as opposed to these regulations that are meant to hamper competition. Clearly, the actions here suggest that Texas is against fair business dealings and free market.

18 Dec, 2013

Being able to sell direct is a real long shot...the odds of that happening are probably similar to the Seahawks chances of winning the Superbowl!
Just kidding. It must be great to be in Pioneer Sq. on game day. Best Auto Insurance

31 Dec, 2013

Great post! Tesla is doing an amazing job and only makes sense to want to sell to buyers directly. I know other name brands do this as well ie) Mustang dealerships etc.

Kudos to Tesla!

20 Feb, 2014

I like the idea of selling electric cars direct to the consumer. John i totally agree with what you have mention above but what about the car insurance. I would like to know about it.

03 Mar, 2014

I was reading about this in past as well. Tesla motors and their issues with dealers and some lawmakers over their electric cars selling bypassing dealership. There were lots of obstacles in their business but what's the scenario I was confused about their model of business. What is the benefit of selling cars without dealership and what is wrong by going with dealership ?

05 Mar, 2014

I drive a Chevy Volt (getting 180mpg) and the reason is I have friends who are serving in the US military to protect the shipping lanes in that Sand box over in the Persian Gulf. We need to let them drown in their oil.

28 Mar, 2014

How is a new dealership going to compete if he gets to sell directly to consumers? If that happens then you have Honda Factories selling to walk-ins? http://www.brandonhonda.com . so I own a dealership and am not a happy camper about what Elon Musk wants to do. I don't know it's a slippery slope for the car business.

12 May, 2014

Very nice post John. But I want to ask what is the difference in the cost of the car if the manufacturer sells to customers directly or through a car dealership? Thank you!
by Alexander

02 Oct, 2014

Coming from the uk, We always tend to find some US of A rules quite pedantic and incredibly money-over-sense arbitrary.
Dealership, while as good "job creation" as may be, surely is not the Best option for consumer. I wish Tesla all the best luck.

The Future is Bright and it's electric and we need to make a leap from Dino Fuel the faster the better.
check all things electric on my blog www.c-zero.info - all things electric and adventures in the UK and London :)

08 Feb, 2015
Angelo Culter-Nile

Electric cars are the future of car industry and all sort of new electric cars with latest technology can be very crucial in coming days. Electric car dealership is a really damn good idea and I think a profitable one as people are getting more of friendly towards electric vehicles. EVs are green vehicles and there is not much for environmental pollution if you are using an electric car. Thanks for this nice article. Volkswagen e-Golf I think a nice electric car with all latest technology to watch out for. http://www.slideshare.net/orionautomotiveservice/volkswagen-e-golf-the-…

25 Jun, 2015