“Cutting out a lot of people”

“Cutting out a lot of people”

I’ve been meaning to start writing more again. I was recently inspired by my friend Glenn Wilson’s 30-day challenge to write a blog post every day. Then I read Brad Feld’s post yesterday -Why I Recommend Writing For At Least An Hour A Day- -—- and it reminded me how much I get out of the process of writing things down. But the real inspiration for the post this morning comes from the NJ Auto Dealers — because their collective response the ongoing Tesla fight in NJ really pissed me off.

For those who are not familiar, Tesla sells cars directly to their customers. While this is a very typical business model in a lot of businesses, it is never done in automobiles. A variety of states have laws on the books banning auto manufacturers from selling directly to customers — instead you are required to work through a local dealership. Tesla refuses to do this, instead setting up their own showrooms, hiring their own salespeople, and selling directly to customers. In New Jersey, they had been granted two licenses to operate their own stores. However, as of April 1st those licenses will not be renewed, and people in New Jersey will have to leave the state to buy a Tesla.

Elon Musk penned a great letter explaining his point of view (he is brilliant at handling these situations). He admits that at one point in time there was a need for such laws to protect consumers from large automobile dealers, but he argues persuasively that such laws are no longer required. It shouldn’t be a shock that I’m going to side with Tesla on this one.

But what really got me really upset was the response from the NJ auto dealers. Their quotes speak for themselves. Here’s Jim Appleton, President of the New Jersey Coalition of Automobile Retails (NJCAR): “If you’re an internet billionaire, maybe you think the world revolves around you, and the world springs from your laptop. Well, I got news for him. This is not a new law, Tesla is operating illegally, and as of April 1st, they will be out of business unless they decide to open a franchise.” First of all, strong arguments rarely start out with personal insults. More importantly, this response completely misses the point — the question Musk raises is why such laws are needed in the first place. Are they a reasonable protection for consumers or just a protection racket for dealerships? There is absolutely no response to this question.

Even more damning is this quote from 25-year industry veteran Tom Dougherty: “They wanted to go direct, which means no sales force. That’s cutting out a lot of people. No way that’s gonna fly.” So Tesla shouldn’t be allowed to sell direct because Tom wouldn’t get paid — and Tom doesn’t like that. But what does “cutting out a lot of people” really mean? If those people aren’t adding value to the process — it means probably increased margins for the seller and decreased prices for the buyer. The only one who gets hurt are the guys who get cut out.

So, NJCAR’s point of view is that they’ve got a law on the books that protects their right to make money without adding value and Tesla can’t just around them, even if doing so is a better experience for consumers. Tesla must pay “a lot of people” in the middle to add unspecified value to either Tesla or consumers — and many would argue they actually create a worse experience for consumers. This is the absolute worst sort of industry lobbying and protection — and frankly the sort of government response that has the public so annoyed with politics. Instead of allowing an innovative company to sell a great product to interested customers — New Jersey has decided to protect the rights of car dealerships to force both parties to pay “a lot of people” that are adding no value. Nice work, New Jersey!