Bloomberg News

U.S. Dealer Group Seeks Tesla Meeting on Retail Plans

October 24, 2012

U.S. Auto Dealer Group Leaving Tesla Retail Challenge to States

TeslaMotors Inc. has modeled its network of stores after Apple Inc. ’s outlets. Photographer: Patrick T. Fallon/Bloomberg

The National Automobile Dealers Association, which represents almost 16,000 new-vehicle dealers, said it’s seeking to meet with electric-car maker Tesla Motors Inc. (TSLA:US) about its retail network plans.

“NADA has serious concerns about Tesla’s intentions,” Chairman William Underriner said yesterday in an e-mailed statement. “We are seeking a meeting with Tesla executives, including its CEO Elon Musk, to discuss these concerns.”

Tesla, the maker of the Model S, is defending its retailing strategy against lawsuits by state auto dealer groups. David Westcott, who was elected this month as chairman of NADA for 2013, said earlier yesterday in an interview that the McLean, Virginia-based group would leave it to states to challenge Tesla based on their respective franchise laws.

Tesla, which is using using a company-owned store and service center strategy, has modeled its showrooms after Apple Inc. (AAPL:US)’s outlets. George Blankenship, vice president of sales, is a former real estate executive for Cupertino, California-based Apple who designed that company’s retail sites.

The carmaker was sued this month by dealer groups in New York and Massachusetts, which claimed that Tesla’s strategy violates franchise laws. The company’s strategy is needed to properly educate potential customers about its electric cars, Musk said in an Oct. 22 blog post.

“Existing franchise dealers have a fundamental conflict of interest between selling gasoline cars, which constitute the vast majority of their business, and selling the new technology of electric cars,” Musk wrote on Palo Alto, California-based Tesla’s website. “It is impossible for them to explain the advantages of going electric without simultaneously undermining their traditional business.”

State Dependent

Dealers’ concerns with Tesla are “a state-by-state issue depending on specific franchise laws,” Underriner said in the statement.

“Individual state dealer associations will decide whether to proceed with legal action against Tesla Motors,” he said. “NADA supports the franchised new-car dealer system, and will provide legal support to state dealer associations if necessary.”

NADA has “a whole mess of lawyers in Washington” who work on state franchise laws, Underriner told reporters yesterday at an Automotive Press Association meeting in Detroit.

Tesla’s product specialists can’t sell cars because the Model S is “sold out” several months in advance and there is “no inventory” on site, Musk said in his blog post. “All they can do is get you to consider placing a reservation.”

Tesla has been criticized by officials at state auto dealer groups that have sued the electric-car maker.

‘Outright Scam’

“They claim they’re operating under the guise of a non- sales showroom, and we call that out as an outright scam,” Robert O’Koniewski, executive vice president of the Massachusetts association, told Automotive News, an industry trade publication.

In Massachusetts, the state automobile dealers association filed a lawsuit over Tesla’s recent opening of an automobile showroom in the Natick Mall, about 20 miles west of Boston. The dealership association alleged in its complaint that Tesla didn’t have a license to open the showroom and is violating a state law prohibiting manufacturers from owning a dealership.

The dealers are seeking an injunction preventing the electric-car maker from using the manufacturer-owned dealership model in the state, arguing that it would allow Tesla “financial savings which would not be available to Massachusetts dealers who must spend considerably to conform to Massachusetts law,” according to the complaint.

New York

A New York dealers association filed a similar lawsuit asking the state to cancel a dealership license issued to a Tesla unit for a location in White Plains. The group also argued that state law prohibits factory-owned motor vehicle dealerships.

The two lawsuits are “starkly contrary to the spirit and the letter of the law,” Musk wrote in his blog post. The plaintiffs include a Fisker Automotive Inc. dealer and an auto group that has “repeatedly demanded that it be granted a Tesla franchise,” he said.

Tesla plans to have 19 stores, three galleries and 26 service centers by the end of this year in the U.S. More than 85 percent of all Model S reservation holders in North America will be within 50 miles of one of the company’s service centers, according to Musk.

Tesla fell 3.4 percent to $27.42 at the close in New York.

The Massachusetts case is Massachusetts State Automobile Dealers Association Inc. et al v. Tesla Motors MA Inc. and Tesla Motors Inc., NOCV2012-1691, Massachusetts Superior Court, Norfolk County.

The New York case is Greater New York Automobile Dealers Association and Brian Miller v. Department of Motor Vehicles of the State of New York et al, New York Supreme Court, County of Albany.

To contact the reporters on this story: Craig Trudell in Detroit at ctrudell1@bloomberg.net; Christie Smythe in New York at csmythe1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

TeslaMotors Inc. has modeled its network of stores after Apple Inc. ’s outlets. Photographer: Patrick T. Fallon/Bloomberg

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