For Tesla Motors, the Dealer Wars continue, but they won’t last much longer.

General Motors recently sent a letter to the Governor of Ohio objecting to proposed legislation that would permit Tesla to sell its vehicles directly to consumers in that state. The letter enumerates the substantial financial benefits of having GM in Ohio and argues that Tesla’s direct-sales model creates an unfair competitive advantage for Tesla that the upstart car manufacturer could potentially exploit, presumably to the detriment of… consumers.

Jim Appleton, the head of the New Jersey Coalition of Automotive Retailers, made the message even more explicit when he characterized car manufacturers as “congenitally incapable of fully and faithfully honoring warranty and safety recall obligations.”

It’s ironic that GM would endorse the argument that dealers are consumer protection advocates and should themselves enjoy the protection of the law in carrying out their mission of protecting customers from…companies like GM.

And of course the argument that dealers are dedicated to consumer protection is questionable, considering that price-negotiation outfits such as True Car and Edmunds are making successful interventions in the car buying process. Moreover, dealers are regulatory targets of state Offices of Consumer Affairs, but are themselves rarely ever plaintiffs in consumer protection lawsuits.

Dirty Little Secret

I discussed the manufacturer-dealer relationship with a friend whose family happens to own an auto dealership and she told me a dirty little secret. The dealer contract can be cancelled by the manufacturer with 90 days’ notice for no cause. In other words, dealers serve at the pleasure of the manufacturers, which explains why they don’t raise a ruckus about quality and safety issues.

And such issues are now endemic among U.S. auto manufacturers. A recent survey by Consumer Reports on vehicle reliability puts Ford 26th and Lincoln 27th among the 28 surveyed brands, whereas 7 of the top 10-rated brands are Japanese.

Reliability is a convenience issue, but it is closely related to safety in the minds of consumers, which is why the three top Detroit auto manufacturers have lost 27% of their market share in the last decade.

A Paradigm Shift

Tesla, however, already has a reputation for stellar customer service. The Model S has not been trouble-free for owners by any means, but the company has been particularly conscientious about making things right. Tesla is so proactive, in fact, that it has set a new standard of accountability that the traditional manufacturer-dealer model simply cannot compete with.

I believe that GM is objecting to Tesla for only one reason: Tesla is going to give legacy manufacturers like GM a terrible PR problem: guilt by association with dealers.
In an ironic twist, mainstream manufacturers are starting to consider ways to make more direct contact with their potential customers via company-owned gallery/storefronts similar to what Tesla is already doing.

Here’s My Prediction

Sooner than you might think, the dealer model as we know it will disappear. Dealers will become factory authorized Parts and Service companies that used to sell cars. This will happen surprisingly quickly because according to the NADA’s annual survey, that segment of the dealer business currently generates more profit than new and used vehicle sales combined.

Like Steve Jobs before him, Elon Musk is building a brand and an ecosystem with a wide moat that will be sustained by fierce user loyalty derived from a uniquely satisfying owner experience. As dealers fade into the sunset, there will be little love lost and much to gain for consumers… and invaluable goodwill will accrue to Tesla. That’s one more reason I consider TSLA to be the “stock of the decade.”

FD: Long TSLA

Read more at my blog: www.teslachronicles.com