Tussle Over Tesla Car Sales Plays Out In Mass.

Peter Kirby, of Cambridge, paid $90,000 for his Tesla Model S. Compared to other vehicle purchases, he called the Tesla car-buying process "a much easier experience." (Jesse Costa/WBUR)

Peter Kirby, of Cambridge, paid $90,000 for his Tesla Model S. Compared to other vehicle purchases, he called the Tesla car-buying process “a much easier experience.” (Jesse Costa/WBUR)

BOSTON — The California-based electric car manufacturer Tesla Motors Inc. is hitting a few roadblocks here in Massachusetts. The company sells directly to consumers, much like how Apple sells its iPads straight from an Apple store. But the Massachusetts Auto Dealers Association says that’s against the law; it says Tesla needs to use a middleman, a franchise. Tesla doesn’t agree. So the car dealers are taking the fight to the courts and the Legislature.

A Different Shopping Experience

If you go to the upscale Natick Mall, opposite Victoria’s Secret you’ll notice a store that’s become a sort of tourist attraction.

Grown men fawn over the shiny navy car in the Tesla shop. It’s called a Model S, and it’s an electric, luxury sports car. Motor Trend named it the 2013 Car of the Year.

A salesman touts the virtues of the Tesla to a potential customer, who notices the sticker price on this particular car is $126,000.

“There’s no negotiation at all?” the customer asks.

“That’s correct,” the salesman says. “We wanted to alleviate a lot of the headaches of buying a car these days, get rid of the dealership model, the haggling, the negotiations.”

This isn’t a dealership. It’s a factory store owned directly by the car company, Tesla.

The car-buying experience was a major selling point for Peter Kirby, who’s from Cambridge and works in finance.

“[I] sat in the car in the showroom, and that night I put a deposit down,” Kirby says.

Kirby has owned a Honda, a Volvo and an Audi in the past. And when he bought them, he says he always faced a run-around, “where you’re looking for this and they have something that’s almost that, but it doesn’t have this feature or doesn’t have that, and then they to push something extra on you that you don’t necessarily want.”

Kirby says buying his Tesla was something else.

“I went online, picked exactly what I wanted, knew what the price was — just a much easier experience,” he says.

Kirby paid $90,000 for his car.

Auto Dealers Sue

Tesla executives say a direct sales model is critical to their success. They say they’re introducing new technology and need to persuade customers it’s worth the money. So far, they only have about 19,000 Model S’s out on the road.

“We are not undertaking this model to in any way compromise the existing franchise dealer system,” says Diarmuid O’Connell, who’s in charge of Tesla’s business development.

He insists Tesla never intended to take on traditional car dealerships, but that’s what’s happening.

The Massachusetts Auto Dealers Association says Tesla is breaking the law — specifically Chapter 93B, the franchise law.

“The way the law is written currently, a manufacturer cannot own a store,” says Scott Dube, the president of the association and the owner of a Hyundai dealership in Wilmington.

So because dealers like Dube think Tesla is breaking the law, in the fall of 2012 the association sued Tesla in Norfolk Superior Court. A judge ruled that the auto dealers had no standing to bring the case to begin with because Tesla isn’t like Chevy or Honda — it doesn’t already operate any franchises that are members in the auto dealers association.

But that was not the end of the legal battle. The dealers association appealed and the state’s highest court picked up the case. Oral arguments are expected in February.

Dube says Tesla is creating a model for unfair competition.

“You know, if Tesla was to exist on its own, would that be the end of the world for us? No, it wouldn’t be the end of the world,” he says. “It’s the precedent that it sets going forward that if you don’t like the law, you just ignore it. So Ford, Chevy, Honda, Toyota, whoever it is, just ignore that part of the law, and don’t worry about it, just go in and open a franchise, call it something else, they won’t pay attention.”

Dube worries about Chinese and Indian companies entering the market and selling their cheaper cars directly to customers. He says it could disrupt the entire franchise system.

Tesla is wrestling with similar battles in other states. And, in fact, it’s already lost a fight in Texas. But O’Connell says car dealers need to adapt.

“The dealers are trying to preserve a de facto monopoly they’ve created over the past century,” he says.

Competing State House Bills

As both sides wait for a court decision, they’re also sparring at the State House over competing bills. One would ban Tesla stores, and another would keep their doors open.

“We’ve been warmly welcomed in Massachusetts,” says James Chen, Tesla’s vice president of regulatory affairs and an associate general counsel. “The one exception has been the Massachusetts Auto Dealers Association. They’ve sued us twice, trying to shut down our stores.”

But Robert O’Koniewski, with the dealers association, counters: “They say that they don’t have enough vehicles right now in sales to support a dealer system. I think that’s a lot of hogwash.”*

Massachusetts dealers say they don’t want to put the brakes on Tesla. It’s a savvy car, they admit, the company just needs to go through a dealer.

“When Toyota first started here in this country, it started with a single dealership,” O’Koniewski says. “Nissan, a single dealership. Hyundai, Honda, they all started with single dealerships, and expanded outward.”

The issue is whether Tesla needs to follow that same battered path.

Whatever the Supreme Judicial Court decides, Jeff Schuster, an analyst with LMC Automotive in Detroit, says Tesla faces a long, bumpy road ahead. He says Tesla may win here in Massachusetts, but the big question is how this Tesla tussle plays out across the country. And that could fundamentally change the way we buy cars.

“We could see this meeting somewhere in the middle if we look out into the future,” he says. “I think it could potentially be some sort of a compromise where Tesla has more freedom than what the current structure allows.”

In the long run, Schuster says, a world where both models can exist side-by-side would benefit car shoppers. But that decision isn’t up to him. For now, the government is in the driver’s seat.

*Correction: Due to a transcription error, the online version of this story misattributed two quotations. Tesla’s James Chen offered the first, not Tesla’s Diarmuid O’Connell, and Robert O’Koniewski, of the auto dealers association, said the second. We regret the errors.

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  • Naworb McGee

    All that car dealerships do is leave you with a used and abused feeling.

    • dust truck

      this one wins the comments!

  • rich4321

    Why should Telsa must use middlemen if Telsa doesn’t want to? These so called dealerships, car salesmen are nothing but a bunch of leeches and liars, they serve no purpose but to inflate the price of the car with their bogus “rust proof”, cheating the customers, the customers end up paying more then the true value of the car, this is down right embezzlement and robbery. The AG’s office should outlaw this 20th century practice!

  • Kavita Batra

    I’d drive across state line and buy in CT or NH if MA is dumb enough to ban honest car sellers in favor of dealership crooks.

  • jgeigerphoto

    Whether it’s that run-down place with some flimflam selling a Chevy or a palace with a slick guy in a suit selling a Lexus, they all fall into the same category. This would be a good start to the end of the worthless car dealership scam. Let this be our toss of a hubcap into Boston Harbor.

    • rich4321

      Bingo!. I second that.

  • http://euonymous.wordpress.com euonymous

    The Saturn line advertised itself as “no negotiation” pricing also. It did have its own dealers; and it failed as a product line, possibly for internal GM political reasons. I also prefer not to negotiate with car salesmen. It’s impossible to come away from the experience feeling whole. And this from someone who negotiates prices on a great many things. Cars, however, leave too much room for trickery and misleading the customer. Service guys are usually great, in my experience, but the sales people are slime, second only to the “manager” who finalizes the deal. Give me a break. We’re in the market for a car and now that Mass Buying Power is gone, there are some organizations that give you that “no negotiations” buying experience: AAA, some banks/credit unions, truecar.com, and Costco are what I’ve found.

    • jgeigerphoto

      I have found some of the very best (highly rated and reliable) are sold by some of the very worst and notorious dealerships; think largest Japanese brand and the automile. I believe that someone who helps you to test drive a car and arrange financing should get a set commission but right now cars are sold like airline seats.

    • unionista

      The Saturn I bought represented the best buying experience I had up to that time. Unfortunately, the car was the biggest piece of crap I had bought up to that time. The dealer and the factory were both unresponsive. THAT is why Saturn is no more. The dealer made NO difference. Maybe a factory dealer would be more responsive to their clientele.

      • http://euonymous.wordpress.com euonymous

        Sorry to hear that was such a bad overall experience. As you say, a factory “dealer” is one place that would be hearing about ALL the problems from wherever the cars may be. I would think that would encourage responsiveness.

        • Sam Rai

          of critical importance in this discussion is that the Tesla business model does not seek to make money from servicing the car whereas traditional dealers actually earn the bulk of their money from vehicle service. Electric cars have much fewer moving parts and long term need very little maintenance.(apart from a very expensive battery every 500,000 miles or so) Tesla considers the need for repairs to be a failure on their part and their car…so they seek to fix the problem as reasonably and conveniently as possible. Other car companies…and the dealerships they partner with…see repairs as a money making opportunity

  • alexMass

    I understand that car dealers may need some protections due to the risks of the industry. That’s okay. However, dealership law does need reform, badly. There are major market failures, the most obvious effect being an almost universal experience of getting pressured, manipulated and sold “mysterious” financing packages. The industry needs to be shaken up; Tesla’s model is a good thing. I hope its sales model survives these legal attacks.

  • dust truck

    oh but but but, clearly this is an attempt to harm the Republican Party in MA since a majority of car dealers are GOP.

    • jgeigerphoto

      That and a cup of service area waiting room coffee will keep me up at nights.

    • GCabot

      You’re right. I had forgotten that the Democrats have always been the party against government regulation and state-mandated monopolies that disrupt the free market system.

      • the570z

        Yes, this is exactly why the Texas legislature voted to keep the dealership requirements and prevented Tesla from opening stores in the state. I never knew Texas was run by closet Democrats pretending to be in the tea party… Its not a left/right thing, its a corruption thing.

  • Edward Arthur

    A few things that were missing from the article are that Tesla has said it is not against the dealership model once its volume increases but for the time being they are supply limited. Tesla feels that their sales will be poached by ICE cars once the dealer tells a prospective customer “but you can have THIS car RIGHT NOW instead of waiting a month for a Tesla”.

  • Benevolent

    I frankly don’t like dealerships. Who has the time these days to hop from one to another hoping to find what you’re looking for when you can go online and pick the exact features you want?

  • David F

    “Dube worries about Chinese and Indian companies entering the market and
    selling their cheaper cars directly to customers. He says it could
    disrupt the entire franchise system.”

    I think the franchise system needs to be disrupted. I wholeheartedly welcome having auto makers sell their cars directly to consumers.

  • Fooyoo

    Anyone who disagrees with Tesla’s business model should do the following:
    1- Buy a regular car at a dealer, and pay 15% over the manufacturer price, and haggle for hours in the “let me talk to my manager” hell on earth. Note: they could never sell Teslas, because they wouldn’t be able to sell the rest of the cars on their lot (because Tesla is that much better).
    2- Go to Tesla, pay the manufacturer price at a beautiful department store at the mall, and design your car at their apple computers.
    Any questions?

  • Steve

    dust truck you are an idiot

  • http://www.linkedin.com/in/bobhebeisen Bob Hebeisen

    Why was the law passed in the first place? What is the intent? What is the advantage to the consumer of not allowing vehicle sales direct from the manufacturer? Or was the law put in place to protect the dealers, or to protect the manufacturers? I don’t understand why the law was enacted in the first place. A little additional depth to this reporting would be appreciated.

    • http://www.jeffdurso.com jeffdurso

      The law was passed to make sure that people like Ernie Boch can build massive houses without adding any value to the economy or the customer experience :-O

  • crescentfang

    This article doesn’t give any reason why car manufacturers should not be allowed to sell direct. I have to assume there isn’t one.

  • http://www.jeffdurso.com jeffdurso

    Does anyone dare defend the dealership monopoly in these comments, or is there (as I suspect) no legitimate reason for dealerships to exist?

  • Ronald Bushnell

    I was for many years a victim of the criminal aristocracy in Massachusetts, where we had to pay to or three times what auto insurance was worth because legitimate competition was cut out. I was also poisoned for many years breathing high levels or air pollution in southern California so a small number of people could get rich from the Petrol Dollar at the expense of the human spirit. Organized crime has been closely associated with some dealers here in Worcester, Westbourogh, and many other locations in this state; and they really should just BTFO or they may face criminal allegations and prosecution themselves. Tesla is one of the best things I have seen in my lifetime, and I would go to great lengths to protect a company that is moving humanity in the right direction.

    • Ronald Bushnell

      Sorry for the type error, I meant “two” or three times.

  • westword6

    The dealership system is like a moving floor in a circus funhouse. You pay at the door, and then fall flat on your ass. I would not want a Tesla — too quirky and expensive — but I’d love to buy an economy car direct from a storefront, with no shifting prices and false promises.

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