This was a conversation that started when talking about expanded Medicaid, but a CNN article prompted me to bring it up here. New Jersey is enforcing a ban on the high-end electric car manufacturer Tesla, in the case, from "direct sales" to New Jersey customers. Instead, they are being forced to sell through franchise car dealerships.
New Jersey's goal is to prevent Tesla from establishing a vertical monopoly from manufacture, distribution, and final sales of their unique car in favor of forcing price competition via the franchisees. I am not sure how I feel about this but believe I am opposed because there are other ways to prevent Tesla from using their advantage unfairly against state car dealerships while still allowing Tesla to sell directly.
Of course - we always need another middleman or two to keep the prices higher! Outside of dealerships lobbying for higher profits for themselves, there is absolutely no reason to deny any manufacturer the ability to sell direct. Think Amway, Rainbow or Kirby vacuums. Think MacDonalds, or any outlet mall.
The problem isn't with Tesla having that dreaded "vertical" monopoly (there is still lots of competition in which car to buy) it's that they are choosing to sell direct instead of through a dealer that adds absolutely nothing to the product while raising the price.
I do wonder, though, just how NJ justifies this legally? With the plethora of car sales outlets, there is certainly no monopoly involved. Tesla may well be the smallest auto manufacturer in the world. So how does NJ tell someone, anyone, they cannot sell a legal product?
To me, it does not make a difference, because I never could and never will be able to buy a Tesla, no matter who sells it.
But as GA say: "What if other car makers decided to sell direct to the consumer?" Would that be so bad? To put a bunch of unscrupulous, car dealers out of business?
The other car manufacturers are making so many cars that they can't handle them by themselves.
But Tesla, are they making enough cars to furnish dealers with the quantity to keep them in business?
To me this is like telling a farmer he can't grow and harvest his own crops, to make a profit for himself and his family, that he must hire sharecroppers so that he will not be in competition with corporately owned farms.
Or tell the farmer that he can't have a fruit stand to sell his produce, alongside the road because he would take profits from big grocery stores.
Or telling a dress designer he/she can't sell their dresses direct to the public, that they have to sell through a shop or boutique, so the shop or boutique owner can make a profit.
Who has the Moral right to say one way or the other? Who has the legal right to say how any producer should distribute his/her wares?
Oligopolies! Who are Tesla's competitors?
Not so much now, but potentially in the future, I think somewhere I mentioned that Ford, Chrysler, and GM formed an unbreakable oligopoly for about 4 decades. Between the three of them, they became whatever the "oligopsony" in relationship with their parts suppliers (much as Walmart is a monopsony with its suppliers) meaning they dictated the price they would pay. They had the same power over their dealerships which, if I am not mistaken, independents were not allowed. If fact, I believe independent dealers and places like CarMax are a relatively new phenomenon when compared to the history of auto sales. I am thinking there were some court decisions that allowed the independents to exist at all.
Today, it is a bit more free-wheeling because GM and Chrysler forgot who the customer was and that we began to have choices that weren't the ones dictated by the three manufacturers. If you were alive in the 50s and 60s, you will remember those days.
As to Tesla's competitors, I think two of the big three have electrics and the fuel-cell will be stiff competition in the next few years; hope I am still alive to buy one.
I agree with your "gut" feeling to be opposed, but not for the same reason. I am more inline with Wilderness' thoughts. What advantage is it that you see Tesla having?
This is not a case of Tesla having an "unfair" advantage of being the first or only electric car maker, GM has had one for years. There is no "vertical" monopoly issue, only dealership profit loss.
There simply is no case for the "unfair" or monopolistic reasoning behind this move. It is all about the power of the lobby. A practice that is usually universally condemned by both the left and the right.
Car dealers are unnecessary middlemen in Tesla's sales strategy and they don't like it. They see it as a threat to their business. Holy cow! What if other car makers decided to sell direct to the consumer. Can't have that, so they use the power of their lobby, (and the power of the major car makers), to tell lawmakers it isn't fair - pass a law!
If this passes in New Jersey I will be very surprised. The publicity alone should raise enough stink to taint anyone involved.
But, this tactic has worked before. In my state, (Maryland), and in many others, by law, nobody can sell a casket except licensed Funeral directors. This is not about funeral services or advice, or anything else in the process - simply the restriction of the sale of a product - the physical casket.
Why? Because funeral directors saw a huge part of their profits being threatened, (their casket profit mark-ups are almost obscene), and they lobbied for a law to protect them - consumer be damned!
I think the funeral directors got away with it because their customers - grieving and distraught folks, were more concerned with getting through the ordeal than looking at the reasoning. If they were even aware of it.
I think Tesla and car buyers are a different kettle of fish. I can see this one embarrassing the lawmakers, (and giving the dealerships a black-eye), in the courts.
It will be interesting to see how Christie handles this one.
Those are both good points, GA and Wilderness, and I am not sure I disagree with them. The answer the one question as to what advantage Tesla has is easy, and is already hinted at, no middleman to increase prices; Tesla, by selling direct, can always undercut prices of a third party because they manufacture the car -- that is the unfair advantage ... as far as it goes.
The larger question, however, is also one you brought up, price and product competition. If Tesla were the only electric on the market, NJ might have a point, assuming there was lots of demand for electrics. But it isn't, you have both lower-end electrics and hybrids; someday the fuel-cell cars on the West coast will make it East as well.
When I wrote the question for the forum, I had just read the article and hadn't thought much about it; but I am more and more inclined to disagree with Chris Christi on this one (actually, it is one of the State commissions and I bet CC disagrees as well).
I wonder what others think.
I believe, GA, if you look back in history, that is the way dealerships started out ... as direct marketing arms of the manufacturer. If I am not mistaken, it was only later that franchises became popular. Oil companies are still this way to a reasonably large degree although independents and franchisees are making up more of the market. That is why there is little price competition at the gas pump today.
I can almost always count on the BP in my area being higher than the rest in the area; the Kanagroo's 500 feet away from each other in little ol' Keystone Heights being within a penny of each other and higher than everybody but the BP down the road. Most of the time, the Citgo about 3 miles out of town has gas 1 to 4 cents lower, but then 20 miles up the road in the same county, I can almost always find gas 15 cents cheaper than KH, but with a penny of each other at those stations. Then drive five more miles up the road and the prices go back up ... in unison. As I said, not much price competition.
What is it with you and "unfair?" Do you see "unfair" in your dreams? How you can call a business strategy to eliminate a middleman that isn't necessary unfair is beyond me.
Is offering a better product than a competitor an unfair advantage? A less expensive price? Better customer service?
Is making your business operation more efficient an unfair advantage? Or choosing the least expensive way to get it to the customer? Is shipping in company owned trucks an unfair advantage over a competitor that uses more expensive, (and less controllable), independent truckers an unfair advantage?
Geez Louise... everyone into your tan coveralls now.
Oh my! I should have looked before I leaped. Christie's administration approved the "rule" yesterday, (3/11/14)! Tesla, New Jersey Clash Over Direct Sales
*Clarification: it is not a new law, it is a new "rule" - from the New Jersey Motor Vehicle Commission
To my dismay I also discovered that two other states have similar rules, (Arizona, Texas)!
This short article tells the real story simply by naming the involved parties - auto dealer associations!
As I earlier mentioned that this will probably end up being resolved in the courts, an article about North Carolina's auto dealer's lobby efforts against Tesla will probably be determined by interpretation of the application of the Dormant Interstate Commerce Clause - as other state-restrictive commerce efforts have been decided.
This article about Texas' Tesla ban lays it out in black and white - profit protection of dealerships. Some Texas spokesmen don't even bother to cloak their efforts in the guise of public good;
"...Glaser conjured another reason that the people at Tesla should not be allowed to operate as they prefer. "You tell me they're gonna support the little leagues and the YMCA?" he demanded. Tesla says, actually, it will — not that sponsoring youth athletics is, or should be, required to do business in America.
A more honest assessment came from Bill Wolters, president of the Texas Automobile Dealers Association, who fears that "if they change the franchise laws, it allows every other manufacturer to come in and do what Tesla is going to — compete with our family-owned businesses."
Legislative leaders at work - some of their constituents will be very proud of their purchase.
Now that surprises me, did Christi actually sign something or was this a rule from one of the State Commissions.
When I lived in VA, winemakers could not sell direct to consumers either, in fact, I think the law banned mail order. My memory is foggy, but I think the ban on the mail order was defeated in a court case and the VA legislature may have lifted the other. I think the original intent was to protect VA winemakers.
There is all sorts of goodies wrapped up in this; 1) you have State's rights vs Federal restraint of trade laws. You do have the monopolistic, oligopolic argument they are making that if Tesla is let in, what is stopping the other car manufacturers stepping and using using their competitive advantage to wipe out all the local car dealerships, a la Walmart and the downtowns of small to mid-size cities.
In this case, it could be worse than Walmart because not only is the manufacturer's cost of goods sold lower than the dealerships, they also, as a group, control what their competitors sell, and to some degree, for how much.
As they say, it is complicated.
Complicated? I don't think so.
Where can you buy a new 747, except for Boeing?
Where can a pharmacy buy a newly patented drug, except for the manufacturer?
Where can you buy a Kirby vacuum except from Kirby, through a salesman they have licensed?
When I had cataract surgery, there was exactly one source for the lens my surgeon implanted - Bausch & Lomb. No one else makes it and no one else sells it.
It's called patent law (or simple economic power in the case of Boeing) and is something we enforce. Forcing a third party into the mix doesn't change the monopoly one tiny bit; B&L still have the patent on what they make and so do drug manufacturers. No one else can sell it. All that third party does is raise the price - IF THE MANUFACTURER DOESN'T WANT TO SELL TO CONSUMERS THEMSELVES. If they do, no one else can sell at all, just like the Kirby vacuum, the Ford car parts and Jumbo jet manufacturers.
There are no Boeing dealerships, so it is mute. The drug manufacturer isn't selling to the public, the pharmacy is, so that is mute. I would be curious to see if NJ would ban door-to-door by Kirby, I doubt it because there is no threat to those others who sell Kirby.\
How would feel if B&L charged you $100,000K per lens because they were the only source (having driven all of the others out of business, for example) for lens' Would you have your cataract surgery? Probably not until they lowered the price just below your pain threshold although they are still making a 10,000% profit because it costs penny's to make the lens in the first place (of course in this flight of fancy, B&L is a true monopoly, which, in reality, they are not, of course.)
And patent law doesn't apply in this discussion either, as it protects the developer, for a period of time, from somebody making $$ off of their invention.
But, back to our family-owned or at least local car dealerships. Suppose, which isn't hard since it is true, a state has a vibrant network of dealerships owned and operated by citizens of that state; been this way for decades and it works well. Great price competition and all of that.
Now, let's say Ford, GM, Nissan, and Toyota (that is about all it would take, I think) decide they want it all for themselves and come into NJ and open their own company-owned dealerships in order to sell directly to the public. From this, you can get two scenarios; 1) where these companies continue to sell to the independent dealerships and 2) where they cut off the independent dealerships supply of cars in order to "corner the market".
In both cases, these foreign companies drive locally-owned companies out of business because they can sell at a consistently lower price and still make money. In the second scenario, the independent dealerships are shutdown quickly from lack of inventory and sales.
Is it your proposition then that the State has no right to protect its businesses from such encroachment by outsiders who are able to do so because they have a built-in competitive advantage, especially the kind exemplified in the second scenario where they can deny product to their competitors?
GA, I'm an RV'er. I drive a motorhome around and camp. When travelling through and needing some shut-eye I can park at WalMart, Flying J Truck Stops and a half dozen other commercial enterprises. I, like most everyone else that does it, will make a point of spending a few dollars at the store that gives me free access to their blacktop for the night.
But I can't do it everywhere - some towns and, I think the state of Maine, has prohibited the practice. One or more provinces in Canada has. Only for RV's, mind you - others are free to park in a WalMart parking lot overnight subject only to the whims of WalMart.
Want to guess what lobby group has accomplished these great laws for the good of the people - just who has prevented me from parking for a few winks of sleep before driving on without paying $40-$50 for the privilege? Would you believe campground owners?
This is nothing new - businesses have been trying to eliminate competition for as long as business has been around. We cry about monopolies and then help it happen, all so a specific business or lobby can earn more because they have no competitors to worry about.
I hear you. The real world is a grey world, fair or unfair depends on whose ox is getting gored. Little "inequities" are livable - just a fact of life. It is the bigger inequities that effect large non-niche segments of the population that get the most attention. And to my mind, rightly so.
Yes, the bigger inequities should get more attention.
But what should get the most of all is the concept behind them. In this case the idea that business can shut down competition they don't like as a matter of course. All it takes is a new law, but the mindset behind the politics of making that law is abominable and should not be tolerated.
Not sure what you mean by the "mindset behind ..."
The mindset that the politicians pass laws based on who is paying for their wants/needs versus what is good for the country or the people of the country as a whole. Middlemen do fit that description and should not be forced onto the population.
Nor should they be driven from the field of play either. What I don't like is the politicians bending to the will of the best paid lobbyist rather than doing just as you say, "what is good for the country or the people of the country as a whole." They need to do what they can to keep the playing field level so that all who want to try face the same hurdles and have a fair shot at the golden ring.
In the Tesla case, the only string I would attach to letting them sell directly to the public in NJ is that they must sell, at a fair wholesale price, to any competitor who wishes to sell their car as well.
Why would you require Tesla to reduce their price for a handful of favored people wishing to make money off them? What is the rationale there? What makes those people more important, more deserving of a lower price, than you or I?
The state would keep their own citizens in business rather than let outsiders drive them out of business. I am not saying it is right or wrong because the state is taking the perspective of their local businesses.
Like you, however, I tend to look from the perspective of the ultimate consumer.and I personally could care less about the middleman, if they don't perform a useful function. However, most do, btw, because most manufacturers don't have the ability or desire to directly market their product; it is often much more efficient to use a wholesaler; I use to be one with my first business venture.
I agree that most middlemen do add value. Whether that value is sufficient to cover their costs and profit (increased product cost) is another question. I find that most people would take a hefty price cut rather than deal with a middleman; the success of Amazon is a case in point.
While a middleman, and earning a profit, the increase in cost is small but Amazon adds zero to the product. Nevertheless they are very popular because of the lower cost than a typical middleman.
So long, I think, as people want to go to brick and mortar stores, there is going to be a big role for wholesalers. But, if the world moves on and is comfortable with an Amazon-type format, then the wholesaler becomes a dying breed.
For me, there are things I want to touch, read the label, see the real size of, etc. so it is off to the store I go. Having said that, I went shopping for a large screen TV and visited a few stores, big box, small box, etc; didn't like what I saw and finally bought it on-line from the Army PX system; saved a ton in sales taxes.
Saved a bunch, but also did not get the store good will, the store warranty, the store's ability to repair, etc. Me, too, except it was Amazon instead of the PX.
But yes, many people want a brick and mortar; it drives my wife crazy to wait a week for something. And many more do exactly what you and I did. Cars are another matter, for the service bay the usually have, though.
Tesla as other manufacturers don't have the customer's interests at heart but theirs. Their behavior responds to their need to maximize their gain otherwise why would the model s be from $69,000?
Secondly, they are privileging the high-end market meaning that their product targets a minority (the heaviest wallets).
Thirdly, it will cut jobs but isn't it where any governments are aiming at, now? However, for the consumer (if it doesn't become a scarce commodity), competition means choice, means lower prices and in a long term the democratization of the electric power.
When electricity will become the preponderant source of energy prices will rise and, it will be the beginning of the exploitation. History repeats itself.
That is the problem with most consumers ... they want the lowest price, not the best value.
You are telling me that an electric car costs a minimum of $69,000 to manufacture? I don't want the cheapest, I just want reasonable. What does justify that an electric car has an exorbitant price? Because it is new on the market? A new energy? The battery?
The benefit margin doesn't go to the employee does it?
Could be mistaken, but I believe that is the sales price, not manufacturing cost.
The justification is all those things you mention, plus R&D. When Toyota produced the Prius, for example, it took years to pay off the massive R&D costs and Toyota has some of the deepest pockets in the world to absorb such costs. Tesla does not; both investors and loans must be paid.
And finally, some of the margin between raw material costs and price does indeed go to the employee. Were it not so there would be no employees and the car would not get made.
I think the answer to that is Tesla has small production runs, especially compared to something like the Nissan Leaf, it is a larger car, higher quality and lots of bells and whistles.
That will make a huge difference all right. Toyota heavily subsidized the purchase price of the Prius for years after it was introduced but before production rates rose enough to make it viable, but then they had the capital necessary to do that. Tesla does not.
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