Tesla battles car dealers over the way cars are sold

Car dealers fight back against Tesla’s business model of selling cars without a middleman

A Tesla Motors showroom in New York

A Tesla Motors showroom in New York


Traditional car dealers say Tesla Motors model of selling electric vehicles without a middleman is upsetting the retail market. US dealers have sought to block Tesla’s operations in New Jersey, New York, Ohio and other states, saying that laws requiring people to purchase from their franchises encourage price competition and give customers an advocate.

Organisations including the Consumer Federation of America and the Center for Auto Safety said manufacturers should be able to sell directly if they want and buyers would benefit from having a choice.

The Tesla dispute highlights a tension between a business model developed 80 years ago to sell Packards and Pierce-Arrows and an era when people can buy everything from books and music to soap and socks online.

Consumer groups say that many customers find buying from dealers an ordeal and that they should be able to experience the same ease shopping as with Apple or Amazon. com. “Direct sales to consumers, especially with the Internet now becoming the go-to vehicle for purchasing, are very important,” Jack Gillis of the Washington-based Consumer Federation of America and author of The Car Book , a consumer guide to buying.

Restrictions on direct sales took hold in the 1930s as the industry matured, with a combination of company-owned stores and franchise dealers, said David Cole, chairman emeritus of the Center for Automotive Research.

Laws were enacted to protect dealers because carmakers could strip franchises from established dealers and give them to new ones without grounds, Cole said. Now, Tesla’s Model S leads in Consumer Reports rankings as the best car of 2014 and traditional dealers are filing lawsuits and trying to persuade lawmakers and governors to block direct retailing by any vehicle manufacturer.

New Jersey’s eight-member Motor Vehicle Commission, composed of members of Governor Chris Christie’s cabinet and others, voted unanimously on March 11th to block Tesla from selling the car. “I have no problem with Tesla selling directly to customers, except it’s against the law in New Jersey,” Christie said at a town hall meeting.

Direct retailing puts dealers and their investments at an unfair disadvantage, and franchise laws protect consumers, said Rhett Ricart, president of Ricart Automotive. He is a plaintiff in a lawsuit against Tesla that seeks to rescind licenses for its two stores in Ohio. Having a manufacturer set the cost eliminates consumers’ ability to shop franchises for the best price, and dealers serve as their advocates on warranty issues, or if a manufacturer goes out of business, Ricart said.

Recent questions about why General Motors waited to recall vehicles with an ignition flaw linked to 12 deaths underlines that point, said James Appleton, president of the New Jersey Coalition of Automotive Retailers in Trenton. “You don’t put the fox in charge of the chicken coop,” Appleton said. “The Tesla business model is patently anti-consumer.”

Gillis of the Consumer Federation questions who is the fox and who the prey. “We walk into a dealership, and we have to match wits with a seasoned professional who is trained and spends all of their days trying to get the highest possible price,” he said. The market would keep manufacturers from overpricing and force them to provide service, he said.

The Center for Auto Safety, a Washington-based consumer group, doesn’t support allowing manufacturers to sell all of their vehicles directly. That could create a monopoly, executive director Clarence Ditlow said. Even so, direct sales are a welcome form of competition, and dealer claims about being champions for customers ring hollow, Ditlow said. “Dealers are not consumer advocates,” Ditlow said. “They’re advocating for themselves, and when they try to put on a consumer mantle, it’s really to disguise their pro-dealer position.”

Tesla owners such as Kent Crabtree of Clayton, Ohio, say they gladly pay prices starting at $71,000 for the Model S that can top $100,000 for what they see as the technology of the future. Crabtree (51) a software engineer, said that “for a computer geek or a technology person, it was like heaven coming to you.”

“If someone told Amazon they have to put a store in every city to sell to somebody, you’d laugh,” Crabtree said. “Why can’t I have the freedom of choice?”

- Bloomberg

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