The head of the national car dealer’s industry trade group warned Wednesday that if automakers start selling directly to consumers — rather than through a middleman, like today’s dealership system allows — car makers will jack up prices and ignore customers.
“Critics are seeking to exploit stereotypes and demonize dealers,” NADA chairman David Westcott said at an Automotive Press Association luncheon in Detroit. “But I think they (manufacturers) recognize and appreciate the framework and stability in the industry.”
Automakers like Tesla Motors — lead by billionaire Elon Musk who has several businesses, including one that aims to make space flight more common — have attempted to chip away at decades-old laws that prohibit car manufacturers from selling cars directly to customers in many states. Musk wants to sell his much-praised Model S electric sports car straight to customers, but laws in most states prevent him from doing that. Over the past year, he has sought to unravel laws that have led to today’s setup with local franchises. His efforts have been rebuffed in states like Texas, where dealers are fighting to preserve the status quo.
The legal jousting may just be beginning. In recent weeks, Musk has mulled the possibility of circumventing state-by-state laws and making his case against franchised dealerships at the federal level.
Westcott warned that eliminating the middleman may sound convenient, but warned that expenses could rise for consumers if prices are set by manufacturers at a national level. Rather than creating competition among nearby dealerships, he suggested customers might be forced to pay the Manufacturer’s Suggested Retail Price, otherwise known as the sticker price.
“Almost no one pays that these days,” Westcott said. If direct manufacturer-to-customer sales occurred, he said, “today’s intense competition would be replaced by inflexible pricing set by faraway, indifferent manufacturers.”
He said the rise of the Internet has made car-shopping more transparent than ever before. Over the past decade, the average number of customer visits to a dealership before purchasing a car has dropped from 4.5 visits in 2003 to 1.3 today. Most prospective buyers have already done their research online.
Although Westcott devoted many of his remarks over a half hour to the wranglings with Tesla, he never mentioned Musk by name. Still, he attempted to strike a cordial tone.
“I’ve had an opportunity to meet with them a few times,” Westcott said, “and he’s quite an interesting individual. Anyone who can shoot rockets into the sky has done something right. The car is wonderful. The only thing we differ on is the distribution system.”
