Texas’ franchise-dealer system is quite effective
Having extensively researched the franchised motor vehicle dealer retail model, I am compelled to comment on Lydia DePillis’ article regarding motor vehicle franchise laws in Texas published in the Houston Chronicle on June 4, “Direct sales of autos still finding no traction.”
First, I must note that the article seems to imply that Tesla can’t sell a Texan one of the company’s vehicles. I believe the fact is that no Texan is being denied a Tesla today. One can simply go on the internet and configure and order the vehicle of their choice and have it delivered in Texas. As I understand it, this is Tesla’s preferred business model, and Texas is the third-highest state for Tesla registrations.
Given that what Tesla has been proposing in Texas is for manufacturer ownership of retail outlets, I am most interested in discussing the myth that there is a middleman cost in the sale of vehicles at retail outlets. If there is to be a retail distribution network of any kind, there is going to be a distribution cost for every vehicle sold, whether that cost is borne by a manufacturer or a franchised dealer.
If Tesla were to franchise dealers, the dealer would assume the same distribution costs that Tesla would incur with factory-owned stores.
So the real question is which party is better to keep distribution costs down and pricing competitive for Texas consumers? Is it independent businesses competing fiercely with one another, or a single manufacturer competing only with itself ?
I think this statistic is telling. Over the last 25 years, more than 99 percent of the increase in the price of a new motor vehicle has come from the manufacturer. And the dealer’s gross margin is now less than half of the manufacturer’s suggested retail markup.
I am also not aware of any existing documented evidence that shows a manufacturer’s price at a retail outlet would be lower than a franchised dealer competing against other franchised dealers. And Tesla is on record claiming it won’t
Which party is better to keep distribution costs down and pricing competitive for Texas consumers — independent businesses or a single manufacturer?
discount while we have documented evidence from transaction data in Texas demonstrating that when there is close intra-brand competition from franchised dealers for a particular vehicle, prices drop on average by another $500.
Perhaps the Texas Legislature has concluded that the franchise system best serves Texas and Texans by promoting inter-brand and intrabrand competition that we know lowers prices, protects and provides convenience for Texans, and benefits nearly 300 communities in the state.
After all, that franchised dealer system in Texas efficiently retailed over 1.6 million new vehicles to Texans last year alone. Landrith is president and CEO of Frontiers of Freedom, a Fairfax, Va.-based public policy advocacy organization.