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Tesla Motors might make federal case out of dealership fight in Texas and elsewhere

Tesla is fighting in several states for the right to sell its electric cars in the way it deems best, via direct sales to customers, while going against the traditional independent dealership system.

Tesla Motors is now fighting the Automobile Dealers Association in over 20 states, and is mulling taking the fight to the Federal level. A report by Automotive News quotes Elon Musk saying "If we're seeing nonstop battles at the state level, rather than fight 20 different state battles, I'd rather fight one federal battle."

The battle between Tesla and the Automobile Dealers Association is partly over the best model for handling car sales and service, and partly to do with the NADA attempting to maintain control and power. Laws in most U.S. States require that car sales occur through independent dealerships, and make other requirements that in sum result in the format of a modern car dealership. However, Tesla Motors uses a different model for selling its electric cars, a model where Tesla directly sells cars to the public and Tesla is the only organization that can service Tesla-manufactured automobiles.

Last week Elon Musk appeared in person before the Texas Legislature in support of a law, House Bill 3351/Senate Bill 1659, which would carve out an exception allowing companies like Tesla Motors to sell cars direct to the public. The argument made by Musk is that automobile dealers have "an inherent conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars." The reason being that explaining the advantages of electric cars undermines the sale of gasoline cars.

This would result, according to Musk, in automobile dealerships relegating Tesla's electric cars to a second-class position on the dealers lot.

The NADA contends that the dealership franchise laws play an important role in the car market. They point out that Ford and GM tried in the past to undermine independent car dealers, and that the franchise laws were written in response. David Westcott, chairman of the National Automobile Dealers Association, said "The state legislatures have made the determination that selling through independent franchised dealers is in the public interest. The franchise system is the best way to distribute vehicles. It provides significant benefits to consumers such as a reliable network of sale and service, and it's strictly regulated to ensure that the transportation needs of consumers are met."

Musk told Automotive News he sees two options, if Tesla were to take the case to the Federal level. First would be to lobby Congress to enact a law allowing direct sales of electric cars by startup companies like Tesla Motors. The second would be a federal lawsuit challenging the constitutionality of the franchise laws.

Most U.S. states have laws restricting automaker-owned dealerships. Of those twenty states have laws making Tesla's sales process difficult, with six of the states being extremely difficult. In the case of Texas, employees of Tesla's "store" in Houston cannot discuss prices, or make a sales pitch of any sort, and deliveries to purchasers in Texas cannot be made by a Tesla employee.

"Obviously, we don't want to bother Congress at the federal level unless it seems like something that's a common issue across a large number of states," said Musk.

Source: Automotive News


Paul Scott (not verified)    April 16, 2013 - 2:05AM

I sell the LEAF for an LA area Nissan dealer. Musk's statement about the inherent conflict with ICE vehicles is true. I've been saying for years that car dealers would have a problem selling both. My dealership, and a few others, are supportive of the LEAF, but I hear stories all the time about LEAF customers who are told not to get the car by ill-informed sales staff, or people who are against these cars succeeding.

I wish Elon success and hope he prevails at the federal level. It's the right thing to do.

David Herron    April 16, 2013 - 9:47PM

In reply to by Paul Scott (not verified)

Paul, that's close to what was in the back of my mind while writing this. I hear occasionally of car dealerships selling the Leaf or Volt like gangbusters, but how common is that? It's likely the typical dealership owner doesn't care about EV's and just wants to sell the hot thing of the year.

At a car show a couple years ago I met a dealership employee showing the Leaf, who was totally botching things about the car - for example he knew nothing about the CHADEMO port and what it's for - and was spreading range anxiety fear telling people when the battery runs out they'll be stuck.