As Tesla tries to reinvent how people buy cars, traditional automotive retail practices have been called into question. Despite the brand’s new approach, which has attracted a lot of attention, today’s arrangement is not without its benefits according to the dealers.
“The advantages of the dealer franchise system are numerous,” explained Bill Fox, chairman of the National Automobile Dealers Association.
“The first and foremost one is, we’re the face of the manufacturer in every small town in America,” said Fox. “We’re the guy that hires the local people, we pay for the cars, we support the local economy.”
According to Fox, dealerships collected a whopping 15 percent of all the sales taxes in the U.S. last year. Another benefit of today’s franchise system compared to buying directly from a manufacturer is that consumers have a local person they can interact with instead of dialing a 1-800 number.
Fox asked, “If you had a Tesla and it broke down, where would you get it fixed?” Continuing he said, “What they have is a service facility somewhere. And they’ll come and pick up your car, leave you a loner car … In my judgment, that’s an inconvenience.” He also noted, “I don’t know that the American public is ever going to accept that version of car ownership,” especially with electric vehicles that have limited range.
Fox owns numerous franchises in upstate New York, with brands including Toyota, Honda, Jeep and Chevrolet to name a few. He’s not opposed to Tesla selling cars so long as the law allows it, though he’s not a fan of the whole process. “I don’t think it’s a very good solution, I don’t think that the result will be that the consumer will be satisfied in the end.”
When asked about automotive retailers fighting what Tesla is trying to do, that is, sell vehicles direct to consumers, Fox said, “Yes, dealers have lobbied, there’s no question about that, they’ve hired lobbyists. But that’s because, you know, they’ve made these great investments and they’ve got an interest in … those stores and everything else.”
It’s not cheap to open or run a dealership. The initial investment to secure a franchise, buy land, build a facility, and hire people has got to be millions and millions of dollars. And this steep cost is no guarantee of fiscal success. Totaling their new- and used-vehicle sales, financing, service and parts businesses Fox said the average profit for dealers is 2.2 percent.
It’s understandable why dealers bristle at the thought of upstart companies selling cars directly. While not abreast of every franchise requirement in all 50 states Fox said dealerships follow these regulations, “And they think Tesla should adhere to the law [as well].”
Fox said, “If you want to sell directly, apply to get a dealer’s license.”
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