Auto Dealer Groups Escalate Battle Against Tesla Stores Page 2

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Tesla's retail store concept

Tesla's retail store concept

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As we reported earlier this week, Tesla now faces lawsuits in four states, and as the company's network of showrooms expands, we'd expect to see a few more dealer networks calling up their armies of legal experts.

Ahead of the curve

Tesla and Musk surely understand that they're pushing the boundaries of what's acceptable in these showrooms. After all, being audacious is part of their M.O.

But unlike today's attention-starved pop stars, Tesla isn't just pushing boundaries for the sake of being edgy. They're exploring new ways of communicating with customers, and in doing so, they seem to be part of a larger trend of soft-sells and conversations, rather than old-school, stereotypical car sales techniques. 

Think of social networking, think of Facebook and Pinterest and Instagram. This is how a growing number of us get our information and how we communicate with friends, "friends", businesses, and brands. Successful marketers on social networks aren't the ones who shout offers at potential customers, Mad Men-style; they're the ones who share information, engage consumers, give the public a sense of what they're about, let shoppers peek behind the green curtain. 

That, in essence, is what Tesla is doing. Its showrooms are more like information hubs than traditional car lots -- that's why they're located in malls. The company's front-line workers are like Apple Geniuses, answering questions and explaining what makes Tesla different from its competitors.

Basically, Tesla has reimagined the auto shopping experience, removing the two things that customers hate most: haggling and buying. Creating a space for the public to window shop for cars, without pressure from sales personnel? That's pretty smart.

In fact, it's so smart that Audi recently riffed on the idea with its new Digital City showroom in London. Will Audi run into the same legal problems as Tesla? We'll know soon: the company plans to add another 19 of its showrooms over the next three years.

Our take

There's little question that Tesla's showrooms are skating on thin ice when it comes to legal issues. The real question is: are state franchise laws outdated? Are the laws that Tesla is flouting in need of revision?

And just as importantly, will Tesla's soft-sell sway shoppers?

Let us know your thoughts on Tesla's unique techniques in the comments below.


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Comments (28)
  1. Car dealerships can suck it. And the fact that they're crying about a boutique car company direct selling is ludicrous. They should be taking notes instead of fling lawsuits.

  2. Agreed. Congras to Tesla for this initiative. Dealer stores suck.

  3. A very nicely written article with some great insight into Tesla's vision.

    The complaint by the Automotive dealers is that they should be allowed to sell vehicles. However, it is not clear that they would be good at it. Look at all the problems Nissan is having selling the LEAF. Sure the car is part of the problem, but so is the fact that the dealers might rather sell something else.

    In Tesla's case, they need to control the process, at least for now. Perhaps there needs to be an exemption for low volume car companies. I think it is fair for Tesla to control this process, at least for the next few years. This is such a specialized product, in needs a special sales process.

  4. Agreed, this is a nicely written article explaining Tesla's vision and chances rather than just focussing on Tesla's problems which is the approach we have grown used to on this blog with too many articles reading as a Tesla death watch unfortunately.

  5. These laws are antiquated, protectionist, and now only serve as an arbitrary barrier to protect a special interest group -- the automobile dealers. Created prior to any Internet commerce, the laws no longer make sense in today's modern markets. They were originally enacted to foster competition. But over time as our modes of commerce have changed, these laws have come to do just the opposite. If we allow them to stay in place, they will continue to stifle true competition, thus harming market efficiencies and the productivity of the automobile industry as a whole. Today, we consumers end up paying a little bit more for our cars due to this now unwarranted protectionism. These laws should have been changed years ago.

  6. Well said.

    With internet and access of information, dealership has becoming the road block to fair competition.

    In fact, in my experience with buying my Volt and trying out Leaf, I would say dealers are the reasons those cars aren't doing as well as they could....

  7. Oh Man, you bought yourself a Volt. Geeee... sell that and go Tesla.

  8. I am waiting for the $30k Tesla. In the mean time, I am happy with my Volt (The fastest EV under $45K).

    I can't afford a $100k Tesla. The $60K Tesla base can't meet my long range requirement. Volt meets my daily commute requirement without using any gas...

  9. One thing you can't do at a Tesla store is pick a car out of an inventory and go home in your new car the same day. I'm getting tired of not finding what I want in stores and then having to go home and buy it on the Internet. Plus the few Tesla store employees I've dealt with should be working in electronics stores not selling luxury cars. But on the other hand Tesla is still very new as far as car brands go. And I think for Tesla the stores are a good way to make people aware of who they are. The only thing dealers need to learn is that customers hate overly aggressive sales people, cars are an expensive purchase people need a calm place to figure out what they want not a place that pushes them into a car and out the door.

  10. "... pick a car out of an inventory and go home in your new car the same day. I'm getting tired of not finding what I want in stores and then having to go home and buy it on the Internet."

    en then you say:

    " cars are an expensive purchase people need a calm place to figure out what they want not a place that pushes them into a car and out the door. "

    So all people except you need protection from buying a car in an impulse? ;)

  11. "The only thing dealers need to learn is that customers hate overly aggressive sales people" OK, so maybe sometime in the next hundred years huh? Since it didn't work out that way in the first 100.

    And if if frustrates you not to see the one product out of billions in the store that you want; stay home! Order it online, save some gas, create less traffic on the streets, make less pollution, have less stress. It'll be delivered right to you. Just the way Tesla does it, with exactly the options and colors you want.

  12. There it is!!!!"according to the National Automobile Dealers Association, is that in 48 states, franchise laws forbid or severely restrict the ability of automakers to sell vehicles directly to the public"..There is the solution!!! i am serious!!

    To avoid any problem...then Tesla should not SELL vehicles to the public. Tesla should SELL the vehicle as a SERVICE to the public. Zipcar already proofs that the ownership of a car is avery bad idea. then Tesla can make money by following zipcar model. If Tesla offers me a "Tesla Membership" for lets say 700usd a month...and that entitles me to drive a Tesla (full time) for as long I pay my membership then Tesla can have my dollars for the next +40 years of life that I still have!!!

  13. Yair, not a bad idea in addition to the purchase option. You should send it to Tesla and see what they think. Although I think they already have a waiting list of a few thousand paid reservation I don't think they are hurting for customers this year or next. Tesla is building as many S models as they can this year and probably at least the next two years just to fulfill customer demand.

  14. Good idea, but I doubt this would not work. It's a common tactic in other areas - avoiding calling it a sale by structuring a rent agreement that amounts to a sale. The UCC has provisions that cause such transactions to nonetheless be treated as a sale.

  15. Yair Yépez, That is a good idea for business developers and finance companies that run those businesses. Although Tesla is a car company they could cooperate with folks that start such businesses. Certainly they would not choose for their entire business to rely on that one customer, and what would they do with the 13,000 pre-orders they have collected so far anyway?

  16. Glad that others like you like the idea...However the point is for consumer to not own a Tesla but to always have access to it. Ownership is a liability for the buyer and the seller...buyer has to insure the car and seller must offer a warranty...this is the old 20th century model...the 21st century demands for access to services...People want to drive a Tesla not to own it...there is a big chance for Tesla to create a new economy based on services thatn struggling to change the old expired model...just like thay did when redesigning the car...they should redesign the car ownership concept.

  17. The oil companies are behind these lawsuits.

  18. Uh, no, they're not. Dealers see this as a possible end to their monopoly and livelihoods. They don't need the eternal fear of the oil companies to see the threat to what they do for a living. It doesn't mean I agree, but this has nothing to do with the oil companies. Telling car dealers we don't need you anymore is the whole deal and of course they will resist.

    It wouldn't be that hard to modify the laws or Tesla to tweak its stores. Allowing a customer to order the vehicle on line inside the store, though, contradicts the "no sales" claim, and is just splitting hairs. Tesla can do this, but it will need to be careful and can't just ignore the laws, antiquated or not. The delaers have far more political power than Tesla does now.

  19. I wonder why Tesla can't simply contract with a separate showroom company. Just because they can't operate a show room themselves does not mean their only option is car dealerships. I really love the idea of a showroom and have said before that I believe all car companies should have them and still leave selling to the dealerships. I'm sure it's frustrating for Chevy to have the Volt sold by someone who knows little about the car and sells so few he has little incentive to learn. An "experience" type showroom like what Tesla is doing fits for other car companies as well, even if they still use dealerships.

    If Tesla is not allowed to sell directly, why can they sell over the internet?

  20. Ooh, nice idea on the 3rd-party partnership. Best Buy is the company that immediately springs to mind, even though it's probably too downmarket for Tesla. Given the way Best Buy is courting EV shoppers, though, you never know:

  21. Jay, I'm not an attorney at all, but the whole "we don't sell cars, but you can order them yourself from a computer in our store" isn't likely to pass legal muster. Buying a car isn't just signing a contract, it's a whole process. But it's not that simple, of course, as different states have different laws.

    Although Tesla believes that it can allow customers to buy cars through the internet through stores, many disagree and seem to have a point, at least in some states. Like others here, I think a little flexibility by Tesla can allow it to work around most issues, but I don't think the current stores will work in some states. This could be interesting.

  22. Remember few years back; these same Auto Dealership Associations fought to block new vehicle sales over the internet?

    In unrelated news auto dealerships are wondering why the younger population is not coming into their dealerships! Today 43% under 30 use a tablet & >80% use a smartphone, however majority of dealerships rely on Flash sites (not viewable on mobile device) to view & configure a vehicle. Not to mention manufacture sites that require "enter your location/email" to get brochure with detailed specs!

    Manufactures & dealers need to move to where their customers are, or they'll have pay to find customers.

  23. They do pay to find customers. They even use a chunk of their budgets to pay for dealers to run retail sites dedicated to finding customers, and then dealers pay to hire salesmen to churn the customers that are found. Not sure how they could potentially pay more than that to find customers...

  24. Legal problems

    "The problem, according to the National Automobile Dealers Association, is that in 48 states, franchise laws forbid or severely restrict the ability of automakers to sell vehicles directly to the public. The content of those laws vary from state to state, but behind most of them is the rationale that allowing big automakers to operate their own retail outlets stifles competition. As a result, today's dealerships tend to be independently owned and operated. "
    It's obvious that the dealers want to use a law intended to counter the stifling of competition, want to use them to stifle competition, and keep a superior product from the market place. Boo, Hiss!

  25. What tesla is doing in those malls is simple advertising. I remember when the Hummer first came out, which is decidedly not electric, and they had a few Hummers with models and advertising and even sales people at Yorkdale Mall by 401 hwy in Toronto Ontario. Anyone wanting to see a gas guzzling Hummer just had to drive off the freeway and go ‘shopping’ at Yorkdale mall. It is an immense shopping plaza one of the biggest in Ontario, but no car sales are there. All the car sales, coincidently, are across the street from Yorkdale mall. The same thing happened when the first Lexus model came on the scene. In fact every new model of ford, GM, and all varied and sundry vehicle manufacturers all end up at Yorkdale Mall.

  26. I have had 3 electric vehicles in china. Even though the officials don't understand them the people enjoy having the PWM high speed chargers to charge the electric bike in 10 minutes. very popular.

  27. I am sure Mr. Musk has a good set of lawyers to put this to rest!

    As a 'Tesla Virgin', in that I've never ever seen one in the flesh before, i'm excited to visit a Tesla Store in southern California during our x-mas vacation from Alberta!

    Dodge phoned up the other week looking for more business. I told them that I am now enjoying my converted Prius PHEV with 100+mpg and will only buy electric in the future and wont see me on their lot until they can step up to the plate as they are so far behind already. The response on the phone was, "YOU GET MORE THAN 100MPG"?!?! Gawd that felt good! :)

  28. Sounds more and more like racketeering, the law is archaic, obsolete and stifles interstate commerce. It's the dealers crying not the manufacturers, they (mfg) are scambling to catch up.

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