Will Tesla Try For Federal Rule Permitting Non-Dealer Stores?

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Elon Musk

Elon Musk

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Several thousand Tesla owners have now purchased their cars by ordering and paying for them online after visiting a Tesla Store showroom.

No franchised dealers are involved.

That's a model that Tesla Motors [NSDQ:TSLA] feels is crucial to getting its electric cars into the mainstream.

State and national auto-dealer groups strongly disagree.

Very, very strongly.

Taking it Federal

Now Tesla's ambitious CEO Elon Musk suggests that perhaps the company will attempt to ensure its legal right to sell cars directly at a Federal level.

In an interview last week with trade journal Automotive News, he suggested that two routes might be Congressional legislation or a Federal lawsuit alleging restraint of interstate trade.

He suggested that the company would rather fight "one federal battle" than "20 different state battles."

Musk has been in the forefront of the fight to protect Tesla's store-and-online-ordering model.

Most recently, he testified last week in Texas on a bill that would explicitly permit customers to buy direct from carmakers who sell "only all electric-powered or all battery-powered motor vehicles."

In other words, from Tesla Motors.

State laws protect dealers

Ever since Tesla announced its plans to sell cars directly, with factory-owned Tesla Stores and Tesla Galleries acting only as display showroms, car dealers and their associations have denounced the plan.

They've also sued Tesla for violating franchise laws in several states--Massachusetts, most notably--and gotten laws changed in others to make Tesla's model flatly illegal.

Tesla Store - Portland OR

Tesla Store - Portland OR

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Most states have some variation of a law that says automakers cannot open wholly-owned dealers that compete with franchises selling the same brand.

Dealers feared in the post-war period that automakers would set up their own dealerships and give them preferential financial terms over franchised dealers.

But Tesla Motors has no franchised dealers to protect.

Changing Colorado law

Nonetheless, the Colorado Auto Dealers Association got that state's law changed in early 2010 to forbid direct sales of any car by any maker soon after Tesla opened its first store there.

State auto-dealer groups are viewing the Colorado legislation as a model, and such efforts may pop up in other states as well.

Meanwhile, William Underriner, last year's chairman of the National Automobile Dealers Association, told a group of Detroit journalists in December that the association has "a whole mess of lawyers in Washington" who work on state franchise laws.

NADA could conceivably deploy those attorneys to support state dealer group efforts in every location Tesla seeks to open a store or service facility.

Milan's Tesla Store Opens up

Milan's Tesla Store Opens up

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David Westcott, this year's NADA chairman, called Musk's suggestion a "mistake" and vowed that NADA will "vigorously defend the franchise system."

Auto dealers say that Tesla should use existing dealers who are already operating and know their local markets.

Musk counters that those dealers make the bulk of their profits from selling gasoline cars, meaning that they have little or no incentive to support a disruptive product like the all-electric Tesla Model S luxury sport sedan.

Dealers protect buyers

In an interview last year, Tim Jackson, who heads the Colorado Automobile Dealers Association, detailed three reasons that dealers feel Tesla's online ordering and company store model does not protect the company's buyers:

  • If or when Tesla Motors fails, independent dealers can continue to provide parts and service for the cars;
  • Opening stores is expensive and time-consuming; Tesla should spend its money and resources more wisely; and
  • The reputation of all auto dealers will be hurt if Tesla fails and strands its owners.

Tesla, it's safe to say, likely disagrees with Jackson's arguments.

Petition to White House

The idea of helping Tesla Motors to make its non-dealer stores legal seems to have at least some support among the general public, too.

A petition on WhiteHouse.gov urges the Obama Administration to "overturn franchise laws that limit auto manufacturers from selling their vehicles directly to consumers."

Posted on Tuesday, the petition must reach 100,000 signatures by May 16th to be considered by the White House.

Thus far, it has fewer than 2,000--though we suspect that number may rise as Tesla fans and supporters get wind of it.


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Comments (16)
  1. I signed the petition. I don't see the dealers necessarily providing better support than Tesla.

  2. I don't like the stores because they are not setup to handle each individual buyers needs. And not every one wants to purchase one of our most expensive purchases through a website and a technical support hotline. I know sales people payed on commission can be annoying but dealerships can take care of every aspect of your car. Tesla has all it's services broken up between stores, their website, and service centers. Being that a car purchase is costly buyers need to work on a purchase sometimes, and Tesla's system doesn't have the services, you have to work most of it out alone then go home and click buy it now. I'm a big Tesla fan, but I just don't care for their hands off purchasing process.

  3. @CDspeed - the Tesla service is not broken up at all. If you have a problem, you call their service number and they will diagnose the car via the cell modem. Their Rescue Rangers will come to YOU to make the repair. If its more than the Rangers can handle, they will pick up the car, repair it and deliver it back to your door all under warranty. Their latest refinement is to also deliver a performance Tesla loaner while your car is being serviced. There may be some people out there that require the hand-holding that you describe, but I found the whole experience to be totally satisfying, except for the "wait two years" part. That is no longer a problem.

  4. For some buying something as expensive as a car any car is hard so they need someone to walk them through the process to minimize expense. You can't work a deal in a retail store usually.

  5. When buying a Tesla, there is no deal. The price for the car and options is on the website - take it or leave it.

  6. I've found that building a car on a website is usually accurate with the window sticker at a dealer and dealers can afford to move the price to make a sale. However, ChrisO made a very good point, if the ridiculous dealer protection laws weren't holding Tesla back I guess we would see more services provided at Tesla stores, so if Elon can turn this around we'll see the full potential of Tesla's sales strategy.

  7. I just don't buy your argument, at all. Take out the word Tesla and replace that with Apple and take out the word car and replace that with iPhone and your argument falls apart fast. Apple stores are packed with people buying iPhones and iPads, only one model of each, and EVERYONE wants to purchase it. On top of that, like Tesla, none of the Apple employees are on commission. I think cars need to go toward an Amazon like purchase experience and away from dealers as quickly as possible. They provide little value for the frustration and price gouging that happens every day. Can you imagine getting 3 different prices on the exact same iPhone from "dealers" within a 10 mile radius?

  8. Ok but, a car is one of life's major purchases its not as simple as buying a cell phone in a store. And yes I've seen unnecessary price fluctuations but for the sake of your personal finances it's always best to shop around anyway. And what about your old car, not a lot of people have the time to entertain buyers and opt to trade their cars, Tesla at the moment only takes in pre-owned Roadsters.

  9. If you want a hassle-free experience trading in a used car, take it to Carmax. You get a quote on the spot - no haggling. My experience has been that you will get at least as much as a dealer trade-in, without all the BS.

  10. Note that the only reason the ordering process is separated from the Tesla stores is because Tesla is forced to bypass these protectionist laws. They are just not allowed to sell through factory owned stores which are only meant to inform the public as a result.

  11. Good point, if it weren't for a bunch of antiquated laws Tesla could take you through the process. I guess there true vision for a sales revolution is hard to see because they are being blocked from doing so. Well if Tesla does have a great future plan Elon is the guy who can make it happen.

  12. Signed it!

  13. Musk certainly is a fighter and he needs to be. You don't get to bring disruptive new technology to the market without the old regime putting up a fight.

    I don't think this is about protecting franchise dealerships which Tesla doesn't even have; this is about cutting Tesla down to size. The mall stores are a very important pillar under Tesla's marketing strategy offering low threshold opportunity for the public to get to know this unknown product. Without them Tesla's growth will be severely hampered.

    A welcome prospect no doubt for luxury carmakers that are currently outsold by Tesla and oil companies that are appalled by Tesla's audacity to give away the automotive energy that is making them billions through the supercharger network.

  14. I think Tesla could easily finesse all this. Just simply have product demonstration rooms, walk people through all the fine points, make them happy, help them configure an order then send them an email approval form
    so the actual order is progressed on the internet. At that point, the state is now interfering with interstate commerce. Delivery is made FOB some major city and you go pick it up and drive it back.

  15. The whole experience is already pretty much as you describe except for the "FOB some major city" part. All delivery costs are included in the final price, and delivery is to your front door (or wherever you want).

  16. So, Tesla might "damage the repuation of all auto dealers"? You've got to be kidding. Auto dealers,in general, are the lowest of the low - I HATE CAR SHOPPING with the current secret back room silliness - and the dealers got that reputation without any help from Tesla.

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