State franchise laws go a long way toward benefiting car dealers over car companies and consumers. Car dealers spend a great deal of money each year in every state backing politicians who will keep it that way. Musk is on the other side of the argument, preferring to not have any middle-men (or women) between his company and products and the customer who buys them.
Musk is backing a bill in the Texas state legislature that would change the law and allow factory-owned auto dealerships. The executive who made his fortune pioneering Paypal and then selling it to ebay often criticizes the conventions of the auto industry. Car dealers have a lower approval rating than Congress, but they also have politicians protecting their flanks in the halls of power.
See our Translogic video interview with Tesla Motors founder Elon Musk here.
Tesla currently operates in Texas, but is forced to dance around the franchise laws that prohibits the company from actually selling directly to customers in the state. Tesla has two "gallery" locations in Houston and Austin. Tesla staff, however, are prohibited from any "selling" activity. They can't give pricing information or take orders. A potential buyer in Texas must contact out-of-state company representatives to complete a sale. The buyer must also make his or her own shipping arrangements from the out-of-state dealer. Tesla also has service centers in Austin and Houston, but they aren't even allowed to evaluate vehicles for warranty repairs.
The franchise laws are written this way to prevent much bigger auto companies like General Motors, Ford and Toyota from bypassing independent dealers and moving to factory-owned stores, or from opening up factory-owned stores that would compete against independent dealers in the same communities. The Texas Automobile Dealers Association opposes any cracks in the law, even for a small company like Tesla, which sold a little more than 4,000 vehicles nationally in the first quarter, for fear that it will open the door to the larger auto companies biting into their businesses.
The Texas State Senate Committee is hearing testimony from Tesla and other interested parties on the bill today. Tesla recently scored a victory in Minnesota when the state dealers in that state dropped its pursuit of a law that would have prevented Tesla from selling cars directly to consumers. The EV company also has legislative battles to wage in Massachusetts and New York this year, two markets it views as critical to sales growth and future.