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NY State Dealers Try, So Far Fail, to Ban Tesla

Dealers group enlists legislature to block factory-owned stores.

by on Jun.24, 2013

Tesla wants to skip the traditional franchise system and set up its own factory-owned dealer network.

Elon Musk  has had a history of trying to do things his way.  In some cases, that has won him friends and customers – but the Tesla Motors founder has also stepped on a few toes – and that includes the New York State Automobile Dealers Association which is now trying to prevent the battery-car maker from selling its Model S sedan in the Empire State.

Tesla is not only trying to prove that it can make a business case for selling electric vehicles – in fact, turning its first-ever profit during the January to March quarter – but it also wants to break away from the traditional dealer franchise system and sell vehicles directly to consumers. That has led to a series of legal battles around the country, including Colorado, Texas, Massachusetts and New York.

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The NY dealers group has so far been stymied in its legal battle, the state’s supreme court recently ruling that it couldn’t use the Franchised Dealer Act to block Tesla’s sales plans. So now the trade organization is hoping to fight its battle in the state legislature.

Two essentially identical bills were sent to the New York Assembly and Senate last week that would prohibit the state’s department of motor vehicles from registering any vehicle not sold through an independent franchisee.  That’s another way of saying a traditional franchisee.

The maker responded with a media statement asserting that, “From the beginning, Tesla’s goal has been to catalyze the market for electric vehicles and selling through intermediaries at this stage of the company will not work. For Auto Dealer Associations to claim that restricting competition is in the best interests of the public is wrong and defies obvious common sense. If we are kept out of New York, it forestalls progress and defeats innovation.”

CEO Musk also took to Twitter, one of his favorite tools, issuing a tweet that said he, “Just heard that NY auto dealers are sneaking through a bill to shut down Tesla in NY”.  The South African-born executive asked his followers to “Please call your state senator.”

The move may have worked.  The bill landed late in the legislative session and lawmakers have now headed home for the summer.  They won’t reconvene until January.

“NY Assembly passing bill to shut down Tesla, but Senate holding the line. Appreciate senators resisting influence of auto dealer lobby,” Musk followed up as the dealer campaign ground to a halt.

That said, few observers expect the battle to have come to an end.  While Tesla appears willing to put up a lengthy fight, backed by billionaire Musk’s fat bank account, dealers aren’t likely to accept a new status quo considering the potential risks if the battery-car maker is allowed to succeed.  And as one of the nation’s most powerful lobbying forces, dealer groups like the NY State Automobile Dealers Association aren’t exactly pushovers, either.

There’s been plenty of talk about a “retail revolution” over the past several decades.  Faced with studies that show that buying a car is one of the most unpleasant experiences consumers have to deal with, a number of manufacturers have struggled to revise the retail system.  In some instances, that means passing new guidelines and, quite often, backing up the rules with financial rewards for those dealers who go along.

A few automakers, including Ford, have taken things further, experimenting with alternatives including online retailing and factory-owned stores.  But faced with significant backlash that included some angry court fights, the major manufacturers have so far all backed down.

Should Tesla break the traditional system, dealers fear that bigger brands could also shift away from the traditional franchise system.

The two New York proposals were intended to “clarify(y) existing provisions of the franchise law to ensure fair dealings between dealers and franchisors.” In other words, maintain the status quo.  They not only would have banned factory-owned stores and online car sales but even forbidden the state from licensing new Tesla showrooms.

The maker currently operates two outlets in the Metro New York City area, one in the borough of Queens, the other in the suburb of White Plains.  It has been planning to add a third facility.

Tesla has already been restricted from expanding its factory-owned dealer network in Colorado, though a bill passed in March 2010 did not shut down already existing stores.

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4 Responses to “NY State Dealers Try, So Far Fail, to Ban Tesla”

  1. Jorge M. says:

    I think that vehicles should be sold only through independent dealers because otherwise the factory has a price advantage that the independnets can compete with even though they have to pay franchise rights and invest heavily to support the brand.

    In Tesla’s case I suspect it’s a moot point as his EV operation may just be another failed Biz in a few years because of the impracticality of EVs for most commuters.

  2. Marty W says:

    While not my choice of buying a vehicle due to our driving from Las Vegas to L.A. I did visit a store and found it to be a high quality, luxurious car. I just don’t want to stop enroute for a battery swap, or pay 100K for a car.

    Unfortunately these GREEDY low life dealer stores are afraid of what….a little competition? Please, give me a break. Go ahead, get your political buddies to fight the competition (like Boeing and the Feds). What are they afraid of?

  3. Jorge M. says:

    Actually there are some dealers who are not greedy, low life retailers. They may be the exception but they do exist. The car makers are the ones who make the greatest profit on a vehicle sale, not the retailer who has a considerable investment they need to recover and significant capital investments required annually just to meet the car makers minimum operational standards.

    I agree however that EVs are totally impractical for any use other than limited city driving.

  4. Marty W says:

    J,

    Sorry, I have to agree with you. I was only thinking on the micro level and understand that like politics, it can also come from the top as well.

    Until we finally transition to Fuel Cell we aren’t really making any advancements to new technology.

    I suppose that if they can sell their EV spam cans for cheap ($20K), and figure out where to put sspent battery’s in someone’s backyard for a few hundred centuries, they are the worlds “biggest llosers.”