Why Can Tesla Sell Direct to Consumers?
Currently, Tesla is the only automaker in the United States that can sell its cars directly to consumers. Other major automakers must sell through franchised dealerships. So, why can Tesla sell directly to customers?
History of Car Dealerships
To understand this question, let’s take a brief look at the history of car dealerships. In the early 1900s, cars were sold by the manufacturer, directly to the consumer. As the automobile industry grew, manufacturers began to rely on middlemen – dealerships – to sell their cars. The dealership system became a profitable business model for both manufacturers and dealerships, who would buy cars at wholesale prices from the manufacturer and sell them to consumers at a markup.
Franchise Laws
In the 1950s and 1960s, states began to enact laws to protect dealerships from manufacturers who might try to cancel their franchises or open new dealerships nearby. These franchise laws made it difficult for manufacturers to sell directly to consumers, and they required car manufacturers to have a physical dealership in each state they sold cars in.
Tesla’s Unique Business Model
When Tesla began selling cars in 2008, the company decided to sell directly to consumers, rather than relying on the traditional dealership model. This meant that Tesla had to navigate a complex web of franchise laws in each state where it wanted to sell its cars. In some states, Tesla was able to open company-owned stores, while in others it had to operate “gallery” stores that could not complete sales transactions.
Tesla’s unique business model has faced legal challenges in several states, with auto dealer associations arguing that Tesla’s direct sales violate franchise laws. However, Tesla has fought these challenges in court and has been largely successful in defending its right to sell directly to consumers.
The Future of Car Sales
Tesla’s success in selling directly to consumers has sparked a debate about the future of car sales. Some argue that the traditional dealership model is outdated and that consumers would be better served by buying cars online, directly from the manufacturer. Others argue that the dealership system provides benefits such as local service centers and the ability to test drive cars before purchase.
Only time will tell how the car sales landscape will evolve, but for now, Tesla remains the only automaker in the United States that can sell its cars directly to consumers.
