Car Dealers vs Tesla Battle Royale!

This Slate article ties Auto Dealers to a certain political party.
I’ll try to leave that part out as much as possible. But politicians are an integral part of the dealer model. What is the basis of auto dealer power?
Money of course:
They spent a record $7 million on federal lobbying in 2022, far more than the National Rifle Association, and $25 million in 2020 just on federal elections

The NADA PAC kicked in another $5 million. That’s a small percentage of the operation: Dealers mainline money to state- and local-level GOPs as well. They often play an outsize role in communities, buying up local ad space, sponsoring local sports teams, and strengthening a social network that can be very useful to political campaigns. “There’s a dealer in every district, which is why their power is so diffuse. They’re not concentrated in any one place; they’re spread out everywhere, all over the country,” Crane said.

The EV revolution could be ushered in, potentially at a handsome premium, by the dealers themselves. This was, in fact, the weekend’s theme: “NADA is all in on EVs,” read the event’s promo material. “Getting all charged up” read the programming packet tucked into my complimentary NADA-branded backpack.

One major problem with this plan is a certain company called Tesla. When the electric car manufacturer started up, it refused to use dealers at all, opting instead for a direct-sales model.

Other EV startups—Lucid, Rivian—went the same way

The dealers, of course, fought back and are fighting still. They’re in court in California, Texas, Colorado, Mississippi, and Florida, among other places, to keep laws on the books that prevent cars from being sold by manufacturers or that prevent manufacturers from servicing their own cars or otherwise encroaching on their business model. After years of litigation, Michigan, the birthplace of the dealership, recently agreed to let Tesla sell and service cars in-state. Half of states have loosened dealer protections more (red states, ostensibly “pro-business,” tend to have the most binding restrictions), but dealers are still making record profits.

The car dealers in Dallas were gathering on the 10-year anniversary of a triumphant 2013 stand they took, as a political bloc, against direct sales in Texas. That year, the Legislature of the Lone Star State downed proposals to allow direct sales of vehicles there—thanks to millions in campaign donations and lobbying outlays from the dealers. After another takedown, in 2017, the Houston Chronicle marveled that dealers are “astonishingly difficult to dislodge.” Now Teslas made in Texas have to be shipped out of the state and then reimported across state lines to any buyers in Texas who purchase them online, one of many ridiculous workarounds born of dealer-protection laws.

I expect direct sales model will eventually triumph but it will be a long road to victory. Just too much money involved and politicians can be bought.


Stop making Teslas in TX and watch what happens to the legislature…

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Agreed. Dealerships will fade as ICE vehicles become the minority.

The Captain


I’m skeptical that direct sales will eventually triumph. Direct sales work awesome when you have a scarce product with virtually no competitor inventory and a waiting list for purchase. You can build-to-order, and maintaining physical inventory on dealership lots (whether independent dealers or manufacturer-operated dealers) is utterly unnecessary. You don’t need to advertise, you don’t need to adjust prices granularly to the local level, and you don’t need anyone to carry the capital cost of unsold inventory off your balance sheet.

In a more competitive marketplace, though, much of the advantage of the direct-sales model dissipates. Fewer of your units will be build-to-order - as customers gain the ability to buy competing products immediately (or near immediately), and will be less willing to wait two or more weeks for delivery. Similarly, you’ll want to have available inventory for purchase dispersed throughout your markets so that you can offer immediate (or near-immediate) possession. As that inventory swells and is geographically distributed, you start to get more benefits to having hyper-local price adjustments (ie. the price can vary from city to city or county to county, rather than being set nationally, to balance inventory) and advertising.

Tesla’s spent all of its existence in the former market conditions, and incumbents that are introducing popular new EV’s (like Ford with Lightning) are facing similar conditions. But those market conditions are ephemeral, and certainly will change as EV’s move into a mainstream product. I don’t think the direct-sales model has nearly as much advantage once everyone’s selling mostly EV’s.


Should Musk choose that fight, as in: “you know what? We could just build a Gigafactory in Oklahoma/Nebraska…” I expect Texas would gnash teeth and then… er, well - for YOU you don’t need dealerships.