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FTC Staffers, NADA Debate Tesla Sales Model
Late last week, a trio of Federal Trade Commission staffers released a blog post asserting car shoppers should be able to decide how they shop for their next vehicle, in regards to the ongoing controversy and legal battle Tesla’s direct-to-consumer sales model has sparked in the dealer community.
It didn’t take long for NADA to respond to the post. A press release from the dealer organization hit the Web late last week, claiming the individual states should, in fact, decide how consumers shop for new cars.
NADA claimed that the in implying consumers should be able to choose whether they want to visit a dealership or buy directly from the automaker the FTC staffers “failed to acknowledge how the franchised dealer network actually benefits car buyers through price competition and safety, and provides enormous economic benefits to local communities.”
In the NADA release, Jonathan Collegio, NADA vice president of public affairs, was quoted saying, “For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands — while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power. And buying a car isn’t like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold.”
The authors of the original FTC blog post — Andy Gavil, director of the Office of Policy Planning; Debbie Feinstein, director of the Bureau of Competition; and Marty Gaynor, director of the Bureau of Economics — began by focusing on how sales and consumer behavior is always evolving.
They gave the following example, as stated in the blog post: “Consumers once shopped predominantly at their local stores; but first mail order catalogs and today the Internet have created new ways to shop for and purchase a wide range of goods and services. Similarly, consumers once arranged for taxis by hailing one from a street corner or by calling a dispatcher; yet today, smartphones and new software applications are shaking up the transportation industry, creating new business opportunities and new services for consumers.”
The authors contend that the same evolution is being stalled in the business of buying cars, due to local laws in many states that require consumers to buy cars from licensed auto dealers.
“Removing these regulatory impediments may be essential to allow consumers access to new ways of shopping that have become available in many other industries,” the blog post states.
Of course, the current dealer sales system has been raised into question by automaker Tesla as it pursues its direct-to-consumer sales strategy.
The FTC staffers when on to explain why they think blocking direct-to-consumer sales is “bad policy.”
“American consumers and businesses benefit from a dynamic and diverse economy where new technologies and business models can and have disrupted stable and stagnant industries, often by responding to unmet or under-served consumer needs. When that occurs in an industry long subject to extensive regulation, existing businesses — like automobile dealers — often respond by urging legislators or regulators to restrict or even bar the new firms that threaten to shake up their market,” the FTC staffers wrote.
The staffers also contended that since Tesla only sold a little over 22,000 units last year, there might not be as much of a competitive threat from the young automaker to established dealers as originally thought.
Bottom line: The blog post asserts change is a “critical dimension” of the competitive process among dealers and the auto industry.
“Such change can sometimes be difficult for established competitors that are used to operating in a particular way, but consumers can benefit from change that also challenges longstanding competitors,” the blog post concluded. “Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated. We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are — expressions of a lack of confidence in the competitive process that can only make consumers worse off.”
The FTC emphasized that the views expressed in the blog post are those of the authors, and do not necessarily reflect the opinion of the Commission or of any individual Commissioner.
To view the entire blog post, see here.
To read more on Auto Remarketing’s coverage of Tesla and the automaker’s controversial sales model, see the below stories:
Tesla Sales Model May Push No-Haggle Pricing Forward
