NADA chairman Bill Fox owns several dealer franchises in upstate New York. His stores sell Toyotas, Hondas, Jeeps and Chevrolets, to name just a few. He says he is not opposed to Tesla selling cars directly to consumers as 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.” That’s not surprising, since NADA stands for National Automobile Dealers Association. What else could the man say?
Fox also has several other reasons why limiting car sales to franchise dealers is good for all concerned. He says auto dealers collect 15% of all sales taxes collected in America every year. That’s a bit misleading, though. It is more accurate to say that taxes on the sale of automobiles, both new and used, total 15% of all sales taxes collected. Individual states actually collect the taxes when those cars are registered with the local department of motor vehicles.
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 says. He asks, “If you had a Tesla and it broke down, where would you get it fixed? What they have is a service facility somewhere. And they’ll come and pick up your car, leave you a loaner 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 maintains that auto dealers support the local economy better than Tesla does, because their stores pay salaries and commissions to local residents, who then spend that money locally. Banks also benefit because they finance dealer inventories and local communities collect property taxes on the cars kept in inventory on dealer’s lots. All of that is true, although that may do more to illuminate the wisdom of the Tesla direct sales model than justify continuing with the old way of doing business. Tesla does not need to pay carrying charges or taxes on the cars it has in inventory.
When asked about automotive retailers fighting Tesla’s plan to sell cars 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 costs a lot of money to open and operate a dealership. The initial investment to secure a franchise, buy land, build a facility, and hire people can run into the millions of dollars, with no guarantee of success. (Yes, Bill. That is what is called “capitalism.”) Fox says dealers only realize a net profit of 2.2%, on average, from the total of their automobile sales, parts, and service operations.
He says if Tesla wants to sell cars, it should do what every other company does – “Apply to get a dealer’s license.” Chances are, Bill Fox would be first in line if Tesla decided to open a franchise dealer operation in upstate New York.