A bipartisan bill introduced this month in the Colorado legislature to allow any auto manufacturer to directly retail their battery-electric vehicles to consumers is a direct, frontal assault on state franchise laws — in Colorado and nationwide.
If passed and signed into law, it would do grave and lasting damage to Colorado's franchised auto dealers. Notably, the bill was neither suggested by nor supported by the legacy automakers whose interests it purports to serve, and the fledgling bill is rightly opposed by the Colorado Automobile Dealers Association.
It's a bad bill, without question. But its existence highlights the folly of maintaining one set of laws for one group of auto retailers while exempting latecomers simply because their products use a different energy source or their manufacturers want to make a go of it on their own.
Legacy automakers have almost no interest in direct sales to consumers, in large part because they already benefit from the secret sauce of a franchised sales system: the ability to move their very expensive products immediately off their books as they leave the factory door.
At the beginning of the year, automakers in the U.S. — not including Tesla — had well over 3.5 million unsold new light vehicles sitting on or traveling to dealer lots. Assuming an average value of $35,000, that's almost an eighth of a trillion dollars worth of carried inventory, with interest largely but not exclusively borne by thousands of franchised auto retailers — and not on the books of 15 domestic and foreign automakers.
Are franchised auto dealers middlemen? Certainly, but not useless ones.
They market the automaker's products across a diverse economic landscape, provide individualized service when a product malfunctions, and continue to promote those products long after the original sale date.
Tesla has thus far chosen to try a different route, and its quarterly financial performance lags as a result — even as its stock price soars.
Franchised auto dealers could certainly benefit from better reputations among consumers, but their value to their automaker partners is well established and secure.
Tesla and other upstart EV makers would do well to recognize the inherent benefits of a franchised sales system.
Sometimes it's not necessary to reinvent every wheel.
