Tesla's direct sales to public upsets dealers

  • Article by: ALAN OHNSMAN and MARK NIQUETTE , Bloomberg News
  • Updated: March 10, 2014 - 8:19 PM

Lawsuits accusing carmaker of violating franchise rules have had mixed success.

hide

The Tesla Model S, on display outside the Tesla factory in Fremont, Calif., leads in Consumer Reports rankings as the best car of 2014.

Photo: File photo by Paul Sakuma • Associated Press,

CameraStar Tribune photo galleries

Cameraview larger

 

To hear Ohio car dealers tell it, the sleek Tesla Motors showroom that opened last year in a Columbus mall is a threat to a bedrock U.S. institution.

These businesses are pressing lawsuits that would stop Tesla’s showroom and a second in Cincinnati from letting people order customized Model S electric cars right from the factory. They argue that Tesla’s direct sales violate state automotive franchise rules. After failing in a previous attempt last year, the group also backs legislation pending in a state Senate committee to force Tesla to use franchise dealers if it wants to open more sales points in the Buckeye State.

Car-sellers in states including New York, Minnesota and Georgia have also sought in the past year to block Tesla from directly retailing its models. Texas dealers successfully backed a law setting the nation’s tightest restrictions on Tesla, and Virginia and Arizona also imposed limits on its retail activities.

Dealers fear Tesla’s model would set a precedent that could let other automakers sidestep the way independent franchisees have sold and serviced vehicles for 80 years. If Tesla succeeds in bypassing middlemen, some argue that future startups or entrants from China or elsewhere could sell directly or even create online retail outlets that sidestep dealers entirely.

“I don’t want ‘Hydrogen Motors’ to come along five years from now or some other Mickey Mouse thing to come along and then just jack up the industry,” said Rhett Ricart, president of Ricart Automotive in suburban Columbus and a plaintiff in a lawsuit filed against Tesla in Ohio. “It’s not right.”

Tesla is “building this great car,” Ricart said. “But the reason these laws are in these states is so that it protects the consumer.”

Tesla argues that company-operated stores are necessary as it develops because it has to both sell vehicles and promote a new technology, Diarmuid O’Connell, the company’s vice president of business development, said last week.

“I disagree with the characterization that this is disruptive,” he said. “It’s only disruptive from their point of view. It is logical and pragmatic from our point of view.”

This isn’t the first time that Tesla co-founder Elon Musk, 42, has disrupted established industries. He helped remake online commerce as a co-founder of PayPal and has more recently shaken up the auto, aerospace and solar-power industries. Last month he announced plans to build the world’s largest battery plant to supply Tesla cars and provide flexible power storage that could rattle the power-grid model by letting customers power their homes for spurts.

Tesla’s Model S, which starts at $71,000 and can sell for more than $100,000 with options, leads in Consumer Reports rankings as the best car of 2014. Shipments of the electric sedan from Tesla’s Fremont, Calif., factory are to grow more than 55 percent this year, with sales expanding in Europe and starting in China this month.

The estimated 17,600 U.S. dealers of new cars and trucks had $676.4 billion in total sales in 2012, accounting for almost 15 percent of all U.S. retail activity and generating hundreds of millions of dollars in tax revenue for state and local governments, according to the NADA. The average dealership is worth $3 million and produced a net profit before taxes of $843,697 in 2012, NADA said.

  • get related content delivered to your inbox

  • manage my email subscriptions

ADVERTISEMENT

Connect with twitterConnect with facebookConnect with Google+Connect with PinterestConnect with PinterestConnect with RssfeedConnect with email newsletters

ADVERTISEMENT

Advertisement
Golden Gavel by Star Tribune

Countdown to great deals

Bid Sept. 21-29

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

ADVERTISEMENT

 
Close