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Tesla wants to dump dealers

2013-06-06 09:42

AUSTIN, Texas – Tesla CEO Elon Musk has criticised the traditional way of selling cars and indicated the model would hamper the 10-year-old automaker's growth prospects.

Tesla is pushing to sell its Model S electric sedan directly to people rather than relying on a network of independent dealers but his efforts have met stiff resistance from dealer groups around the US.

MAKING THINGS DIFFICULT

Musk said during Tesla's 2013 annual meeting on June 4: "The auto dealers' association is creating some problems, making it harder to get things done.”

The annual meeting comes after a string of positive news through the previous month for Tesla, including its first quarterly profit and a near-perfect score for the Model S from what many believe is the influential Consumer Reports magazine. As a result the value of Tesla shares has nearly tripled during 2013. On Tuesday, Musk said the company's gross margins could approach those of Porsche "over time".

Tesla is now beefing up its sales operations in anticipation of growing Model S sales. The company expects to have 50 outlets by the end of 2013, up from 34 during the first quarter of 2013.

Musk said traditional dealers might not be the best advocate for electric cars because they relied largely on petrol vehicles for revenue. Musk said buyers were broadly supportive of direct-to-consumer sales. He told shareholders the "traditional dealer" model had not worked for other auto start-ups, including Fisker Automotive and Coda Holdings, which filed for bankruptcy in May 2013.

GOING DIRECT

"It didn't work for Fisker, didn't work for Coda. In the last 90 years, when did it work?" Musk said at the meeting in California. "We have to do this directly."

David Hyatt of the National Automobile Dealers' Association disputed Musk's comments, saying the troubles facing Fisker and Coda did not stem from their sales models. "Industry experts say Fisker failed because it rushed its product to market before engineering problems were resolved. Coda did not receive government loans and was under-capitalised. Thank goodness there are independent dealers left to try to help the customer.

"Manufacturers and brands may come and go but the dealers are there for the long term."

'HARD BILL TO PASS'

Most US states do not allow manufacturers to sell new cars directly to consumers. A pair of bills that would have allowed such sales in Texas failed to make it to a floor vote in the state legislature before its regular session ended on May 27.

Democratic Representative Eddie Rodriguez, who proposed the bill in the White House, said: "Honestly, it was a hard bill to pass anyway, and I knew that when I filed it.”

A companion bill was introduced in the Senate by Republican Senator Craig Estes. Rodriguez said: "It was very different than what the current system is. I knew it was going to be a challenge; the dealers are a pretty strong lobby group."

Reuters

Comments
  • Hilton Carroll - 2013-06-06 13:41

    The Land of the Free obviously does not believe in free trade. If Musk believes he can do the job of providing direct sales and service support for his cars, he should be allowed to do so. Not as easy as it sounds and discounters like the late Tony Factor tried it in SA and failed. But then there was no Internet - maybe it's time for a new sales & service model for the motor industry?

  • Alan Jerrold - 2013-06-06 14:30

    Only problem is, how do you get the car serviced in a very large country like the US when there are no dealers?

      Warren van Wyk - 2013-06-06 18:58

      Auto Electrician + Battery Centre = Car Getting Serviced

  • John Jessup - 2014-03-25 17:48

    It is not new for motor manufacturers to own their own dealers. It's also not new that it has mostly been a dismal failure. You need entrepreneurial traders unencumbered by necessary corporate bureaucracy. This guy will find that out when he gets greedy and starts producing too much volume. USA dealers are however doing their public image no good by reacting the way they are. Better to wait for him to fail.

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