Tesla Motors, the electric car company founded by Elon Musk, is in for a bit of fight with the most tenacious of foes: car dealers.
It’s weird, right? You’d think car dealers and car manufacturers would be fast friends. But it’s not so. In fact, Tesla and car dealers are butting heads all over the country. The latest shots have been fired in the New York state legislature. According to AutoBlog:
[T]here are two nearly identical bills being stealthily moved through the New York state legislature (Assembly bill A07844 and State bill S05725) that would prohibit the state from registering any vehicles that had not been sold through an independent third party (i.e., a dealer). The move prompted Musk to Tweet, “Just heard that NY auto dealers are sneaking through a bill to shut down Tesla in NY. Please call your state senator!” He later sent out, “NY Assembly passing bill to shut down Tesla, but Senate holding the line. Appreciate senators resisting influence of auto dealer lobby.”
This effort comes on the heels of a lawsuit filed by car dealers in the state against Tesla last year. Earlier this year a New York court threw out the suit, saying that Tesla’s direct sales model does not violate the state’s franchise laws.
The franchise system is a funny thing. Laws actually restrict where dealerships can operate, and manufacturers have little leverage over the dealer. According to NPR:
What’s more, the laws make it very hard for manufacturers to close existing dealerships. Manufacturers don’t have leverage over dealerships if they want them “to provide good customer service, low prices, nice facilities, or anything else,” says Yale economist Fiona Scott Morton. “That [dealer] gets to stay as long as he wants, and if he does a bad job, that’s just what he does,” she says.
Tesla’s business model doesn’t quite fit in with this well-established franchise system. Tesla operates “galleries” – basically factory-owned dealerships – and sells cars online.
In Texas, the restrictions are even more draconian:
The way things stand in Texas now, the Tesla stores – excuse us, galleries – cannot offer test drives, cannot discuss the price of the car (or any financing terms) and cannot refer potential customers to out-of-state stores to actually order their cars. Tesla employees can’t be on hand when its cars are delivered in Texas and registering a new Model S sounds like a frustrating experience, if Tesla’s description is accurate, with the sales tax not being rolled into the financing payments. Oh, and there’s even a special subsidiary, Tesla Motors TX, with service centers in Austin and Houston that: “cannot advertise that they do warranty repairs nor can they discuss any additional repair needs or concerns with the customer. Tesla Motors TX then bills Texas Motors, Inc. for the work. If customers have additional warranty concerns, Tesla Motors TX cannot discuss them with the customer – the customer would need to call Tesla Motors, Inc. back and go through the process again.”
Texas, incidentally, is one of the several states where the battle between Tesla and the car dealers is raging. In the Texas state legislature, a bill was proposed that would specifically make it legal for electric car manufacturers to sell directly to the public. In Massachusetts, car dealers are appealing a decision that said the dealers don’t have standing to sue Tesla in an attempt to eliminate the manufacturer-owned stores. There were also legislative efforts to keep Tesla out of Minnesota and North Carolina, and in Virginia, the state denied the company a dealer license to open a store.
Why not just bite the bullet and make a deal with the dealers, you may wonder. The argument goes, according to Musk, that traditional car dealers don’t have the expertise or the incentive to truly push electric vehicles. There is a conflict of interest, Tesla argues, between selling gasoline cars and electric cars. You cannot talk up the virtues of going electric without talking down the internal combustion engine, which makes up the bulk of the business.
Musk is hoping to cut off the state by state battle at the pass with a federal lobbying effort to get his company’s own dealerships legalized. Time will tell if he will be effective.
Photo Credit: Steve Jurvetson