Not to clutter the already cluttered Tesla thread here is a look at the Dealer vs. Direct Sales business model conundrum.
Both have their advantages and disadvantages. In fact there are more options, Franchising and Value Added Resellers (VAR)come to mind.
The benefit of Dealers is that it relieves the producer from the investment in the sales network specially important for low priced items. Imagine Coca Cola having to service the final consumer!
The drawback of Dealers vs. Direct Sales is that there is a pipeline to fill and that can be a huge investment. It does not matter whether it’s the producer or the dealer who foots the bill, it raises the price of the product to the final consumer. When you have both models operating in the same industry, the price elasticity of demand favors the direct model.
Since autos is a topic too hot to handle, think back to DELL vs. IBM. DELL was the Tesla of the PC era, they assembled and shipped PCs on demand with no sales pipeline. IBM was impacted so severely that they tried to imitate DELL. Their resellers objected so strongly, that even without a law protecting the resellers, IBM caved.
A little know factoid is that for DELL to be able to build PCs piecemeal on demand they required a huge inventory of available parts. To solve this problem DELL required its suppliers to have warehouses next to DELL’s assembly plants for “just in time manufacturing” to work.
When the first auto dealers popped up it made sense for OEMs to rely on dealers, they didn’t have the resources to deal directly with the public and there was no need for a law protecting dealers, the economics of the industry was sufficient. Very few retail businesses need laws to protect them from manufacturers, economic realities suffice. At some point auto makers found that they had grown large enough that dealers no longer provided an economic benefit. Dealers fought back and got the laws passed. From an economic point of view consumers are paying for the inefficiency mandated by these laws.
In the current auto market, the dealer protection laws favor Tesla in some ways (price elasticity of demand) while it hinders them in others.