Lone Star State Renegade
Tesla vs. TADA.
Tesla Motors, seller of the much desired Tesla Model S, is no foreigner to the realm of legislative battles. Within more than a few states, including New York and North Carolina, Tesla has managed to win lawsuits and prevent blockage of their non-dealership sales technique, resulting in more of the electric luxury cars on the road than ever.
Unfortunately, Tesla seems to have hit a wall in Texas. Mainly due to the efforts of the Texas Auto Dealers Associate (TADA), who insisted Tesla’s sales would hurt family-owned dealerships in Texas, Tesla was unable to gain exemption from the laws that prevent in-state sales through non-franchised dealers. As a result, Tesla has been forced to partake in some frustrating, and some downright silly, sales techniques in order to serve the nearly thousand or so Texan Tesla Model S owners without breaking franchise laws.
For example, the “galleries” Tesla operates within Texas are absolutely forbidden from allowing interested parties to test drive a car. Tesla employees also can’t name actual prices or refer customers to out-of-state stores. The most they can do is direct customers to Tesla’s website and state that the Tesla Model S is “around the same price as other luxury cars.” Even if a buyer is initially happy to overlook the limited information Tesla can provide (and many people aren’t), their complications won’t end after the purchase of the car. The car must be handled as an out-of-state transaction, and even Tesla service centers located in Texas are forbidden from displaying the Tesla logo or advertising publicly that they will work on Tesla cars. The Model S cars that are dropped off at buyers’ homes arrive in an unmarked truck without instruction (and remember, no one has test driven them), and without any final touch-ups to rid the car of road grime or similar faults. Since the transaction is technically an out-of-state purchase, the sale also results in higher interest rates than non-Texas buyers, disqualification from the buyback program, and the arrival of an uninspected car with no plates and the sales tax unpaid.
So why did Tesla fail in Texas? Elon Musk, Tesla CEO, has recently guided two bills through the Texas legislature in order to build a rocket launching facility in southeastern Texas to support his SpaceX program with little opposition, yet his $345,000 payment to lobbyists failed to push the House or the Senate to hold chamber-wide votes on legislation to repeal the restrictions on Tesla Motors. The resistance was largely due to the $780,000, more than double what Tesla paid, given by TADA and other car dealers. TADA also wisely focused their money on 26 lobby contracts, while Tesla avoided direct political contributions. According to the TFPJ (Texans for Public Justice) report last month, if Tesla plans on succeeding in 2015, Musk will have to send his money flow into the political spectrum.
What franchised Texas car dealerships fear is the direct-to-consumer sales technique that Elon Musk brings to the table. Much like Apple — whom he has repeatedly pointed out as his sales inspiration — Musk has chosen
Tesla struggles with Texas legal hurdles
to forgo the hard sell, commission driven sales techniques of ordinary dealerships, opting instead for uniform prices and what he calls a more “educational approach.” As he told ABC News in August, “We actually train people to educate. We always wanted to be a really low-key kind of friendly environment, where we’re not constantly trying to close deals.” It’s impossible to ignore this direct opposition against the stereotyped middleman dealership sellers, whom Musk believes are prejudiced against electric cars, and unliked by most customers.
Musk also told the Texas Tribune that “Texas is a free-enterprise state that prides itself on being the freest in the nation — I think that’s a good thing.” When even electricity providers in Texas are subject to competition, it’s hard to disagree with Musk’s statement that “The laws that are in place to protect the big established auto dealer groups are very un-Texas.” Musk knows that the dealers are powerful allies in local political campaigns, but remains hopeful that having the public favor will lead to his eventual success, since he believes that if the legislatures continue to vote against what Musk believes is the majority’s desire, it is a perversion of justice.
Bill Wolters, the president of the Texas Automobile Dealers Association responded to Musk’s accusations by saying, “This happens all the time. Someone wants an exception to the franchise laws. If we made an exception for everybody that showed up in the legislature, before long the integrity of the entire franchise system is in peril.”
Wolters insists, too, that the only thing Texas ever asked from Musk was to comply with the franchise laws everyone else has to follow, and that Tesla would in fact fare better selling through a network franchise, one that would be of their own choosing.
While the franchise system once made sense as a way to deal with the capital-driven evolution of the auto industry with storing, marketing, and servicing cars, it has also resulted in higher prices for buyers. In fact, distribution can make up about 30 percent of a car’s final price. The internet has been largely responsible for making direct sale logistics much easier, resulting in more industries choosing to sell directly to the customer.
On the other hand, dealer associations across the state argue that consumers receive better service from franchised dealerships, particularly in the areas of warranty and lemon-law claims, than they would from factory-owned stores. They also argue that the franchise laws and licensure laws have worked well over time to protect the consumer. Typically, dealers are the ones who provide important services such as final inspections, detailing of vehicles before delivery, customer education and service during and after sales. Whether or not the Tesla business model can also achieve these services should be a major factor of whether or not the Tesla business model has long-term merit.
Published on March 16, 2014
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Direct Sales Model Seeks To Change Car-Buyer Experience.
Tesla has set out from the beginning to challenge everything in the auto industry. Tesla’s CEO Elon Musk characterizes himself as an outsider selling a an electric car the auto industry has said it couldn’t build or sell and he set up a network of dealers and chargers all owned by his company. The vertical integration might be something a founding titan like Henry Ford might have appreciated, but it has run into problems in 21st century automotive retail business world.
The issue is state-by-state franchise laws, which set up the conditions for the retail sale of automobiles. They have a long history, rooted in protection for local businesses against potential predatory practices by the deeper pockets of a factory-owned store. Consumer protections are also a part of the franchise system, in theory guaranteeing local recourse for any issue a consumer might have with a product that could have been produced on the other side of the globe.
Tesla argues that the model, like the auto industry itself, is dated and not reflective of new world of electric cars and online ordering. In addition, Tesla says as a start-up it poses little threat to larger, established dealerships and as a purveyor of online pure electric cars, it needs factory control to ensure the educational message about this new technology is fully transmitted.
As Musk told the Automotive News recently, “We’re in a tough spot because I’m not fundamentally opposed to franchising, but I think it’s really difficult for a new company with a new technology to be franchised. It’s not possible to effectively sell a new technology like electric vehicles, for a dealer to do that, without undermining the story behind gasoline cars.”
He added that once Tesla sales reached a certain threshold, said five percent of new car sales, then he would be more comfortable moving to a franchise system. To that end Tesla has supported bills in several legislatures authorizing their direct-sales model with limited success. Musk has also said he might seek national legislation that would override state laws against direct vehicle sales by the factory.
Here’s the state-by-state status of Tesla’s efforts, as compiled by Automotive News:
- In California, its home state, Colorado, Virginia and new Hampshire Tesla factory dealerships operate without trouble.
- On the other end of the spectrum, in Arizona, Texas, Maryland, Massachusetts and, most recently, New Jersey, Tesla is banned from setting up dealerships, limited its presence or sued to get it booted out.
Tesla has battles on several fronts
- In a slew of other states, Tesla’s model is being or has been challenged by legislation or regulation, including Washington, Minnesota, Ohio, New York and North Carolina.
- Tesla’s dealer status is less clear in several other states, including Oregon, Nevada, Missouri, Illinois, Indiana, Florida, Georgia and Pennsylvania.
- The remaining states (28 in all) don’t have Tesla dealerships yet.
- Of course, even without a dealership, you can arrange for the purchase of a Tesla online.
The most recent activity was in New Jersey, where the state’s motor vehicle commission ordered Tesla’s two stores in the state to close after a new rule on dealership licensing was adopted. Tesla claimed Gov. Chris Christies administration has promised to delay the regulation, which was favored by the New Jersey Coalition of Automotive Retailers. The governor’s office responded that it had indicated its position was that Tesla and the car dealers needed to find a legislative solution to the issue.
According to the National Automobile Dealers Association, 48 states have restrictions on factory-owned dealerships. In addition, Automotive News reports that NADA has said it would oppose any national legislation on the issue.
Meanwhile, Tesla is shifting some of its focus to selling the Model S in Europe and Asia while gearing up for sales of its second model, the SUV-like Model X, in the U.S.
Check out new contributor Spencer Blohm’s in-depth look at Tesla’s debacle in Texas here.
Photos by the manufacturer
Published March 15, 2014
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Top 10 Best Fuel Economy Cars for 2014
Here’s Top 10 list you don’t want your city to be on, but it could have a silver lining if you’re looking at a zero emissions or near-zero emissions car. The researchers at Texas A&M Transportation Institute (TTI) compiled their annual ranking of the worst cities in the U.S. in which to try to drive somewhere. This study year (2011) they also added another metric to those of extra time expended, added cost and wasted fuel – CO2 emissions added by congestion. Their list of the worst major cities in which to drive contains most of the usual suspects:
1. Washington D.C.
2. Los Angeles (tie)
2. San Francisco-Oakland (tie)
4. New York-Newark
The “good” news, if you can call it that, is that this year’s congestion measurements found about the same level of traffic frustration as last year, although the improving economy is expected to put that in the rear view mirror when 2012’s numbers come out. The other bad news is the statistical significance of the difference in time spent idling in these cities is relatively little. And quite a few cities are just bubbling under the Top 10, including Miami, Dallas, Detroit, Nashville, Denver, Las Vegas and Portland. In other words, it’s slow-going out there. As TTI said in their press release announcing the report, “As traffic congestion continues to worsen, the time required for a given trip becomes more unpredictable.” Some cities are likely to seize on this report as a rationale to attempt to mitigate congestion and the attendant human and financial cost by introducing special zones designed to limit congestion and reduce greenhouse gas emissions. London did so several years ago and several other cities have followed suit. In London, since 2003, extra fees have been charged to drive into the downtown area, with exemptions for low or zero-emission vehicles. The charge has resulted in lighter traffic and reduced pollution while it has also raised revenue for the city. These “Top 10” cities are the most likely to attempt similar measures with similar goals, which could put owners of zero or near-zero emission vehicles at an advantage. Typically, they would escape any fees and/or be allowed to drive in zones that would otherwise limit traffic. It’s a logical extension of the perks extended to plug-in vehicles – some cities and states allow free parking, solo driver access to carpool lanes as well as financial incentives. Published Feb. 23, 2013
Connect by Hertz offers Prius by the Hour
By John Addison. New car sharing programs allow two or more people to need only one car. Each shared vehicle results in 6 to 23 cars not being owned. Once someone joins a car share program, they cut their vehicle miles traveled up to 80 percent. Introduced first in Europe, car sharing is now growing in the United States with over 200 car share programs operating in over 600 cities.
Zipcar is the leader in car sharing with over 260,000 members. Car sharing is popular with individuals who live car free in a city, with couples who share one car, with university students and staff, and with corporate fleet and travel managers.
Zipcar makes car sharing easy. After a simple enrollment a member is issued a Zipcard. Members reserve a car online or on the phone. At the appropriate hour, they go to their designated car, parked in one of many lots in the city. A Zipcard is used to enter the vehicle and drive until returned to the reserved parking space. A variety of vehicles are available in their program from hybrids to SUVs.
Hertz, as the largest international rental car company, has entered the car sharing market by launching the Connect by Hertz car sharing club, with neighborhood parking in London, New York City and Paris. Hertz plans to expand into additional cities, as well as universities, in 2009. As Hertz expands, it can leverage its established presence in 8,100 locations in 144 countries worldwide.
Membership in Connect by Hertz includes insurance, fuel, roadside assistance, maintenance and cleaning. Connect by Hertz members enjoy a paperless program where they can reserve, drive and return vehicles all on their own, via the internet or phone. “Connect by Hertz supports Hertz’s diversified business model by providing best-in-class transportation solutions across the spectrum of customer needs,” commented Mark P. Frissora, Chairman and CEO of The Hertz Corporation. “In addition to being environmentally friendly, Connect by Hertz cars can save members thousands of dollars a year in vehicle ownership costs and, by leveraging Hertz’s established infrastructure, we’re the first major car rental company to be able to offer members the first global car sharing program.”
The showcase car of the Connect by Hertz fleet in the United States is the Toyota Prius. The fuel emissions of the London and Paris cars are significantly less than the voluntary target of a maximum 140 g/km CO2 output set by the EU.
To unlock and engage the Hertz vehicle, members simply swipe their membership card, the Connect card, over the car’s radio-frequency identification (RFID) reader. In car, a hands-free audio kit connects members to a Member Care Center representative should they have questions, need assistance or need to extend their rental. The in-car technology also enables Connect by Hertz to ‘communicate’ with the vehicle enabling representatives to unlock, engage and locate vehicles. The technologically savvy cars are also equipped with iPod connectivity and, in the US, NeverLost® in-car navigation systems and EZ Pass transponders.
Hertz may prove to be tough competition in market segments where it is already strong, such as corporate and fleet programs. Enterprise and Zipcar are starting to compete in these areas. Jeff Parell, senior vice president, Enterprise, emphasized, “Our WeCar program can be customized to fit the unique needs of any of our partners, including businesses, government agencies, and universities. So, it gives employees or students the flexibility to attend off-site business meetings, visit customers or vendors…”
Brendan Lange personally lives car free, but is enthusiastic about Zipcar for Business. Brendan’s firm coordinates major corporate events and meetings. Brendan’s job is to help clients make the events greener with the best selection of venues, food, beverage, and other choices. Through Zipcar the firm can use different types of vehicles by the hour to match varied needs: little cars for errands, small SUVs for hauling stuff, and upscale four-door sedans for taking clients on tours of potential event sites.
San Francisco claims to be the most successful city in car sharing. Although Hertz has not entered the S.F. car share market, Zipcar has strong competition from City CarShare, a nonprofit with a diverse fleet that includes cars that can fit in city parking spaces too small for many vehicles including Volkswagen Beetles, Mini Coopers, and Smart cars. City CarShare has more than 6,000 members in San Francisco, Oakland, and Berkeley. “Two-thirds of our members either sell a car or don’t buy a car,” said CEO Rick Hutchinson.
United States Speaker of the House Nancy Pelosi stated, “I’m proud to be a long-time supporter of City CarShare and I applaud their members for saving more than 1 million gallons of gas over the last five years.”
Car sharing is destined to grow and attract growing competition.
Copyright © John Addison. Excerpts of this article will appear in his upcoming book – Save Gas, Save the Planet. John Addison publishes the Clean Fleet Report.