Have they been outraged at this government suppression of free enterprise. NJ has a Socialist legislature, so you can’t blame Chris, but Texas and Arizona could get this cleared up right away.
Fire a lot? Yes, sure. What happened in NY where Tesla is allowed to sell directly to consumers? I’m sure it wasn’t a lot.
Your answer doesn’t make sense to this reply. There will be other manufacturers that will still sell through dealerships.
[quote]
Originally Posted by Alba
There are different ways to account for “loss” of state sales tax from auto dealerships. States can still apply sales tax to cars sold directly by manufacturers for one.
[QUOTE=brickbacon]
Tax revenue is not just sales tax. Even so, I don’t think you can tax manufacturers as easily as you can local consumers.[\quote][\quote]
It is easy. Just look at the Amazon model. The manufacturer can collect the sales tax and pass it on.
In some instances it can be cheaper to outsource things. If several manufactures have an agreement with the same mechanic it is cheaper for them. This will also deal with your supposed problem of suing in another state.
Why? Because it reeks of protectionism, which does more harm than good in most cases. Look at other supply chains where the middlemen were taken out or reduced. The result was better competition and lower prices.
My question wasn’t whether they will win, but what happens when they do.
Furthermore, you seem to think that tax is being applied to everyone in the supply chain. There is only one tax amount and that will be paid by the consumer.
What do you think happens when consumers pay a lower price for a product? They put the remaining money in their savings account? That is not how it works, especially, in a buying based economy as the US.
Furthermore, what do you think happens when jobs are “destroyed”?
[QUOTE=brickbacon]
States will lose lots of jobs. They will have to field tons of complaints from ABC motor owners whose batteries catch fire, and can’t sue because ABC is located several states away or registered as a shell company in the Isle of Man. They will see far more people mitigate the amount of taxes they have to pay. Etc. etc.[\quote]
Even if something like this does happen. Do you think it is impossible for states to make amendments and rulings that prevent such a thing?
Furthermore for someone that keeps saying it’s not only about Tesla, you keep referring to specific Tesla situations…
[QUOTE=brickbacon]
A lot. Tesla dealerships often exist in malls run by a couple guys. A third party wouldn’t likely have to sell multiple brands to make ends meet. But I think the assumption should be that their would be fewer jobs and lower costs to Tesla, otherwise, they would just have a franchisee sell their cars. [\quote]
[QUOTE=brickbacon]
Here is one that I have personally been to. I don’t know how many people are there at any given moment, but having visited that mall several times, I can tell you there are usually not more than a handful of staff, and there doesn’t need to be. The one is DC isn’t very well staffed either. Although I guess they technically would call them showrooms.[\quote]
Plus, I don’t think this means what you think it means. This clearly states that laws are the problem for selling directly to consumers, nothing whatsoever about the effects on consumers, middlemen and states.
Does anyone know why some quotes in quotes aren’t working?
WADR this seems like a completely ridiculous argument. You’re saying we should deliberately force gas stations to employ people who serve no purpose whatsoever, in that on the whole they make the process less efficient, because otherwise they’ll be on welfare or committing crimes.
One shudders to think of the implications of applying this rationale more broadly.
I don’t know if it’s compelling or not - it’s a complex matter best left to economists. But fortunately I - not an economist myself - have said nothing of the sort. I did not say it would save time and therefore it saves money. I said it saves time and that in its own right is a consideration.
These are small and far-fetched considerations.
In sum, your argument seems to boil down to an argument in favor of legally creating inefficiency in order to create jobs and tax revenue. A very weak argument, to put it mildly.
Because eventually they will, and will need to, sell to a crowd other than the specialty luxury and exotics buyers who are used to going two states over for sales, delivery, service and repair.
Okay. Sounds like the target moved sometime between the Q and A.
Okay. To be fair, it reads to me as if you are trying to argue all cases simultaneously - the way it useta be, the way it was last week, the way it is now, the way it might be over the next few years and the way it might be in some further future.
Those are all very interesting viewpoints but you can’t shift from one to the next to prove everything everyone else is saying is wrong. Or whatever it is you’re aiming for.
Three states pulling mickeymouse limitations aimed at one maker is an inconsequential issue that will evaporate within the next 24 months. IMVHO, it’s not worth extensively arguing all possible cases as if the situation applied more broadly, or was likely to persist, or even spread.
Maybe this has escaped you since I have only said this half a dozen times; THIS IS NOT ONLY ABOUT TESLA. Tesla does not, and likely will not sell cars in the volume to make a big difference. Tesla won’t fire a lot of people because they never hired a lot of people. The issue is the Ford, GM, Toyota, etc. would.
The point is that OTHER manufacturers would follow suit by selling cars directly the majority of the time. They have a clear economic incentive to do so. Look I the article I linked to before. GM already does this in Brazil. Ford tried to do this in the US a long time ago. There is no reason to think every major company would not attempt to do this if it were legal. Doing to would clearly cost jobs and cost the state revenue. Would some still have dealerships? Maybe, but they would be much smaller and employ far fewer people because the value they add is much lower than it once was.
That doesn’t mean direct sales should never happen, or that it’s a bad idea. It just means that legislatures are understandably not willing to slit their own throats in a still fragile economic situation just to possibly save consumers some money.
Yes, but far fewer. There would be little reason for big manufacturers to prop up local dealerships when they can capture those gains themselves.
They can so long as consumers are honest about where they intend to ultimately register the car. This is when you lose lots of tax revenue. This is why even though you are required to pay tax on internet purchases, almost nobody does, even people who get their taxes professionally done. Sure, there are ways to mitigate the losses to the state, but ensuring compliance also costs money.
Amazon hasn’t started doing this yet, and it was basically browbeaten to do that because they wanted to have physical locations in most states. The states argued that their mere presence in the state mean they need to collect sales tax. Amazon reluctantly agreed not because of impending legislative action (which AFAIK, hasn’t actually passed the house), but because their future plans include same day delivery services that require a local hub for distribution. Amazon essentially volunteered to do this. There is no guarantee manufactures with no local presence would agree to do this, and even if they did, states would still lose money because of the layoffs and other things related to smaller dealership footprints.
How does it deal with the problem of an individual suing an entity in another state or country?
Either way, you ignored the issue. If you are gonna require manufacturers to maintain the functional equivalent of independent dealerships without the independence, why do you think this would be any less burdensome? Less directly profitable? Sure, but why is that better for Joe Sixpack?
And yet, every country and nearly every municipality in the US does it. Why do you think that is? Either way, your supposition is far, far too simplistic. Middlemen are not inherently a problem, nor do they necessarily raise prices.
Your question makes an invalid assumption, namely that they will win.
First, taxes are applied to basically everyone in the supply chain. The guy who makes the motor pays taxes, as does almost anyone else involved. Are you trying to say that the consumer ultimately bears the burden for all those taxes?
Why do you think the consumer would necessarily pay a lower price? The main reason consumers paid less in Brazil when they bought online was because the Brazilian government offered subsidies. Let’s just take a look at the logic here. If I am Toyota, and I know people on average will pay $28k for a Prius, and I sell them to my dealers for $27k, why would I charge the consumer $27k when I know they will, on average, pay more? Or alternatively, why would I, as a legislator, keep the taxes on vehicles the same if I know I can raise them to steal any of the “extra” gains that could have been realized by the larger auto manufacturers? the shot question is, why would the price the market would bear be based on my costs to such a large degree? After all, the supply of any specific vehicle would now by controlled by one party as opposed to multiple dealerships. Why would this monopoly be better for consumers?
Either the “technology” that allows for the streamlining necessitates more employment, the displaced workers find new jobs in other more utile areas, or they don’t find more/equivalent jobs. The issue is that you if you destroy 30k jobs overnight, all those people can’t immediately find more productive things to do that pay the same amount. Especially given our current economy.
New Jersey can’t make laws for Delaware and vice-versa. How can one state control a company that has no presence in their state?
That wasn’t the point of the cite. It was that the laws were not specifically to target Tesla. The story talks about many of the other people who challenged the laws and lost. THAT was the point.
No, I am saying that increased efficiency doesn’t mean that the gains are captured by consumers or the state. You can’t just look at a system and assume that it’s better for person X because it lowers company Y’s costs. This is part of the reason NJ still has gas attendants. Voters look at the gas prices in other states, and see the NJ is often cheaper. They also reject your basic premise that that the system is better or more efficient for them or as a whole. All you are basically doing is shifting the workload to the consumer who you HOPE will be better at it, and destroying a few jobs. Even if you assume gas would go down let’s say 5 cents/gallon, voters collectively have clearly decided the value of not getting out of their car is worth that.
It is already applied pretty broadly in numerous sectors. It’s not always better, but it’s not always worse either.
Which is only meaningful globally speaking if that time is more productively spent in one fashion or another.
It’s not really my argument. I would be happy to shift away from a dealership model. The issue is that the consideration of those in office are far different from individuals with no skin in the game, and no broader considerations to think about.
Either way, your assumption that the system is less efficient in general is likely correct, but that doesn’t mean being more efficiency helps constituents in any way, shape, or form. Why should Gov. Christie care if Ford makes more money at the expense of thousands of people in his state?
Maybe, maybe not. Either way, these governments aren’t worried about Tesla, they are worried about big manufacturers.
Bullshit. They original comment was:
That was a general comment not about Tesla, but rather the reason behind independent franchising.
I disagree. I am saying that the prevailing wisdom is that dealerships offer continually diminishing level of value added from the manufacturer’s POV. As such, the issue will keep coming up. The question is whether local and state governments will opt to back big corporations at the expense of local “small” businesses. And the last point is really why I don’t really give too much of a shit because the reality is that the chances this will lower the cost of the next car I buy is fairly slim.
Let’s be clear here. I am not saying one side is right and the other is wrong. I am saying that everyone who keeps making it seem like NJ and other states are doing the functional equivalent of paying people to dig and refill ditches is not really being fair. Notice how these laws exist almost everywhere, and are not really party specific. It’s not as if these lawmakers don’t get economics or want to hurt Tesla, they are trying to balance competing interests in a way that is most beneficial to their states.
Its worth nothing that Tesla is not BANNED from selling cars in any state. They just can’t sell them by bypassing the dealership models in the respective states.
Sorry for the multiple posts, but I just wanted to express something that really annoys me is that Tesla is reacting to this, and framing he issue, as if they are being personally persecuted by cruel bureaucrats. There is a good chance Tesla wouldn’t even exist without the help of the US Government. They loaned Tesla $465 million. To quote this article:
The vast majority of states have subsidized the cost of buying/owning electric vehicles. This is not a conspiracy against electric cars. Tesla has been insulated from market forces by government for a long time. I think that is probably a good thing, but the story that Musk is trying to sell reeks of hypocrisy.
Even worse is the bill they want to pass that don’t try to assert the rights of consumers to buy cars directly, but rather that electric car companies should have the right to sell directly, completely ignoring the rights of other competitors.
Do you own a dealership or something?
Why isn’t the open market capable of determining whether it’s best to sell cars through franchised dealers vs direct? I’m hardly a free market fundamentalist and believe in plenty of places where the govt should intervene in marketplaces, but generally I think the govt should restrict itself to attempting to correct market failures (in cases of externalities, tragedy of the commons, or other similar issues). There’s none of these things in the case of simply vending automobiles. If not having dealerships is bad for consumers, they can buy from manufacturers who have dealers. If it isn’t bad for consumers, then the govt has no business requiring dealerships just to artificially inflate employment in car sales. I mean seriously, why the fuck should I have to subsidize extra car salespeople when I’m buying a car? Fuck that.
Nope. No stake in the game whatsoever beyond having grown up in NJ.
There are externalities here. Namely, the servicing, warranties, litigation, tax compliance, and anti-competition issues. These agreements were largely created to curb monopolistic practices. You can argue there is less of a need for that these days, but there were valid reasons why this structure arose. If the system were created today, we would obviously make changes, but that is not the case.
There is very little reason to think manufacturers would have dealers as we know them today given the costs. Your argument only pans out if the costs of having lots of physical spaces allows them to sell A LOT more cars.
I doubt changing the system would make cars any cheaper, and would likely make certain cars more expensive. Dealers often make no money on the actual car, but rather servicing and financing. If you take them at their word, you would likely pay more for a car if they weren’t competing for your business.
Again, please explain WHY you think cars would be cheaper for the consumer?
Those aren’t externalities. Externalities are costs (or benefits) not borne by the contracting parties. The primary externality involved in automobiles is the pollution coming out the tailpipe, something which is heavily regulated by the government and appropriately so. Servicing and warranties are not externalities. They are merely further services being purchased.
If monopolistic practices are at issue, then level anti-trust laws at the guilty parties. This particular law is not only not aimed at monopolistic practices, but it’s fucking promoting them.
If dealers really do offer value-add, then consumers will buy cars through them. If they do not, and competing products are offered direct, then consumers will buy direct. If dealers can’t compete in the marketplace then too bad for them. They should no more be propped up by the government than music stores, typewriter manufacturers, or buggy-whip makers.
They are externalities. And your definition is wrong. To quote wiki:
The state will pick up the costs of many of those things and related issues in the absence of being able to hold the company accountable.
You misunderstood. The issue is that manufactures located in other countries or states will not always honor or issue those things which will bring extra costs to the state in terms of complex litigation, accidents, more money spent on consumer protection, etc.
Wrong. To a consumer, there are now multiple places I can buy a Prius (for example). Those dealers compete in a variety of ways, hopefully lowering the price and ensuring good service. In the future, Totoya online sales might be the only place you could buy a new Prius, thus giving them a monopoly. Why do you think that would be better for consumers?
They won’t exist. Why would I buy from a dealer when I could buy it directly?
My definition is correct, and functionally equivalent to wikipedia’s. The parties to a transaction are the ones who consent to it. Costs borne (or benefits enjoyed) by third, non-contracting parties are externalities. None of the items you mention are costs borne by third parties. They are potential costs borne by the purchaser of a vehicle, a voluntary party to the transaction.
Your entire argument appears to be that consumers don’t know what’s good for them, and will buy from online car venders to save a buck only to get burned on service costs.
brickbacon - thanks for putting in an argument for the other side of the story. You haven’t convinced me, but you raise SOME FUD on why the dealer model could be better for the consumer. I wish there was some data to support that though.
One of your arguments is around monopoly sales if we only went direct from the dealer. Toyota is the only manufacturer of the Prius. They HAVE a monopoly on sales of that car already - the dealer system does nothing to prevent that. The dealer system helps Toyota by spreading the cost of sales out - Toyota sells at wholesale, and is happy for the revenue and profits. The dealers get marketing support, financing support and in exchange make their money off of service and some car sales. Toyota also gets out from under carrying huge inventory costs.
Those same dealers that you seem to want to defend for their great support of the marketplace are also the ones who charge more to women and minorities:
You also argue that Tesla got a lot of government support. So did GM (aka Government Motors as some called it). I don’t think taking a loan makes them hypocrites about complaining about restraint of trade. Nor does the fact that manufacturers of electric cars benefit from tax credits and deductions provided to their customers. That does lower the cost of purchase, but it also helps by reducing some the impact of certain externalities such as pollution, oil refinement, etc.
Elon Musk has, once again, spent a bit of time venting on his blog on the final decision in New Jersey:
So, consumers benefit from buying from dealers because dealers lower the price and ensure good service. Buying through dealers is better for the consumer. But if given the option of buying directly from the manufacturer, consumers have no reason to buy from a dealer.
Is that your position?
Why doesn’t this “consumer protection of having to buy from dealers” argument apply to any other goods? For example, I recently bought a television from Amazon? Shouldn’t the state require electronics companies to have dealerships in the state for my protection?
What is unique about cars that requires this 1930s business model?
You are right, I misread your post. My apologies.
No. I think I have stated the various reasons why a government would be hesitant to change the current system in addition to the likely benefits of such a system today. Of course it would likely not be what we would design from scratch, but don’t have that opportunity. It basically the similar to the issues that exist with things like healthcare and the second amendment. No sane person would create the system that are in place now, but completely changing everything is often not practical or prudent.
Thanks, but just to be clear, I don’t necessarily think it’s better. In fact, it is worse in all sorts of ways. The issue bothers me more because it’s being framed incorrectly in my opinion, and because it’s being made to seem like the government is persecuting one company.
To some extent yes, but since they can’t actually SELL that product to the end user, their leverage is minimal in many cases. For example, let’s say that Toyota tells dealers they are raising prices on the Prius by 75%. Dealers can always sell other brands if they don’t believe they can sell them at that price. Then Toyota will be stuck with those cars since they can’t get them to customers.
Let’s be clear, car salesmen, IMO, deserve the reputation they have. I am not saying they are paragons of virtue. What I am saying is that direct sales will likely not benefit consumers or local governments. And given that a wholesale change in the law to allow that would put lots of people out of jobs, I can see why a state would want to prevent that.
It’s a restraint of trade that they are only arguing should not apply to THEM. It’s one thing to say X is unfair, but to argue it’s only unfair to you while arguing it should still apply to others is blatant hypocrisy. Read the bill Tesla is proposing. They are not trying to level the playing field, they are trying to continually shift it in their favor. Note that they can open dealerships at minimal extra cost to sell in every state that has “banned” them. Their customers are generally not very price sensitive, so even if it did cost more, they would likely pay it. There is no market necessity that’s forced them to ask for dispensation. They just don’t want to play by the rules that have applied to everyone else.
I doubt the calculus makes sense for the government to subsidize these cars for financial reasons. Currently, electric cars are not that much better given we rely heavily on coal power to charge them. I agree with the subsidies, but it probably doesn’t make strict financial sense.
Somewhat. The issue is that if Toyota can sell a car to a dealer for $15k, and the dealer can sell it for $17k, then if Toyota can sell it directly, they would sell it directly for less than the dealer does, or raise the price they charge the dealer.
Think of it like how Apple products work. Apple products are sold in lots of places, but rarely on sale based on a discounted wholesale price. Apple sells to big retailers at roughly 3% off list price. Those places, like Amazon, may sell them below cost hoping they act as loss leaders when people stay to buy other stuff. They issue is that a car dealership can’t really do that because ALL their products would essentially be loss leaders, and they also have to compete on servicing, financing, etc. with other places. I think dealerships make roughly 30% of their profits on sales. I don’t think there is a way for the math to work for them while staying competitive pricewise. They don’t have the volume to survive on a 3% margin and stay the size they are. You can see the same thing happening for big box retailers as people treat their stores as showrooms to test out products, then go buy it online for less money. Yes, a dealership might be able to survive if they could leverage a better deal from manufacturers, but they would no longer have that leverage. The only way they could exist is to pare down their services to only things that are profitable and less labor intensive, or to close. I think many dealerships would just do the latter.
A car is far more expensive, and more likely to harm or injure people than a TV. I bet a car is the most expensive thing a good minority of people will ever buy. I hope that one day these laws will be slowly repealed, but the comparison isn’t really valid. A car is closer to a house than it is a TV. We basically require all sorts of middlemen in the purchase of a house, and even then, we saw blatant theft, greed, and malfeasance in the housing market almost take down our economy. I don’t think anyone sane is arguing there was too much oversight and regulation there. Similarly, I think taking a overly lax and permissive attitude towards cars sales would be problematic for a variety of similar reasons.
Basing your argument on Apple’s sales policy is next to meaningless. Macs, iPods and iPads are niche products with insane brand loyalty, not commodities like virtually any car below the $100k mark.
You’re also invited to name any second company that functions with a <5% reseller discount. Apple gets away with it because they’re Apple. Name another.
It does apply to (just about) every other good. The television equivalent to Tesla is not Amazon. It would be if Samsung TVs, say, could only be purchased directly from Samsung, and not from Amazon, Best Buy, or anywhere else.
All of retailing is based on the idea that you don’t generally buy directly from the manufacturer.
True, but that is not that relevant or quite accurate. Apple is/was the biggest company in the world. Their products are not niche products, nor do they have the insane brand loyalty they once had. They are, first and foremost, a wildly successful company that makes good products. Either way, there is nothing precluding this alleged loyalty from occurring in the automotive field. People are already pretty loyal to their car companies. Kia, hardly a huge company, has a near 50% loyalty rating. The Kia Forte model is at 68%. While brand loyalty is important, reasonable alternatives are more important. Most people I know are deciding between only a handful of cars. A manufacturer can easily exploit that in the same way Apple does, at least in terms of undercutting dealers.
Second, we have data on this via GM Brazil. They think they will sell 80%+ of Celta sales online by the end of the year. This is in a country where on 45% of people are online. There is no doubt people will eschew buying things in person if they can save money.
Third, since the manufacturer would be able to address demand AND control supply. They will will have all the leverage. For example, let’s say Toyota is selling 500 cars a month to a dealership in San Diego. To Toyota, they view that as the function equivalent of leaving $500x dollars on the table. Knowing there is demand there, they can air a local ad that Toyota online will beat any local price by $200. They can also just limit the number of cars they sell to any dealership by just not earmarking cars for certain sellers.
Fourth, people hate both car dealers and haggling. There are plenty of people who would pay just to not have to deal with them.
Many luxury brands don’t go on sale, or if they do, they are sold at a “loss” by retailers. Oil companies and wholesalers leave gas station operators will small profits as well. Lottery tickets sellers usually get around 5% of sales and a small portion on winnings. Either way, the main reason Apple can do that is because they are bigger than Target and Walmart. It’s the demand for their products, and their size that allows them to dictate terms so strictly. Car manufacturers will always be bigger than dealers, so they will be able to set the terms just as strictly as Apple does. That’s why I think this is is more correctly framed as small business vs. big business. Either way, they consumer is probably not gonna come out ahead. Honestly, why would I buy from a dealer if I could buy directly? Do you think the dealer would ever be able to compete on price?
Okay.
You’ve written something like 20k words answering every point raised with a bewildering array of comparisons, most of which make no more sense to me than Apple, and are absolutely determined to make or defend some point that completely eludes me.
Are you just enjoying exploration of the subject, or can you put that point in one reasonably short and coherent sentence?