Car manufacturer Tesla’s most innovative idea of all might be it’s sales model. But that idea has them embroiled in a fierce legal fight whose outcome will affect every car buyer in Massachusetts for years to come.
Tesla is, of course, the company behind the acclaimed new Model S – a vehicle that’s being lauded by everyone from Motor Trend, which named it their 2013 Car of the Year, to Consumer Reports, which recently gave the Model S it’s highest rating ever for a car. It’s credited for being sleek, safe, fast. And it’s all-electric. It’s also expensive, with a base price of more than $60,000.
But unlike other cars, you won’t find one on a dealer lot in Massachusetts. There’s only one place in the entire state that you can buy a Tesla Model S: the Natick Mall.
As Tesla’s vice president of corporate development Diarmuid O’Connell explained, the car company cuts out the middle man. Rather than sell their cars to an independent dealer who in turn sells it to a consumer, like every other car manufacturer does, it sells the cars that it makes directly to the consumers.
“The franchise dealer model wouldn’t work for us,” O’Connell said. Not only is this sales model better for his company, O’Connell said it’s also better for customers.
“You come into a Tesla store. You talk to a Telsa employee. If you choose to buy a car you transact that vehicle directly with the manufacturer based on a fixed price, no haggling, no negotiations, you know what the price is going in.,” he said. “In all other respects it’s a similar process.”
There’s only one problem. It’s against the law, according to Robert O’Koniewski, the executive vice president of the Massachusetts State Auto Dealer Association. He says not only does the law require you to sell your cars through a dealer, it requires that dealership be independently owned and operated.
Tesla Motors does have a dealer in Massachusetts: Tesla, Massachusetts - a subsidiary of Tesla. O’Koniewski said that’s not good enough. His read of the law is that any dealership must be owned and operated independently of the manufacturer. His organization continue to pursue legal action against Tesla
O’Connell bristles at the suggestion that Tesla is breaking the law.
“We’re not violating any legislation and that’s been testified to by the fact that one, we’ve obtained a license from the Natick selectmen and two a judge has ruled in our favor on this issue in the courts. The dealer’s association claim is rhetorical and specious,”
But as the two sides battle it out in the courts, one question looms large: why is the law written this way? After all- you can buy everything from a piece of artisan furniture to an Apple computer directly from the manufacturer in this state. Why should cars be any different?
Both parties agree that the laws are all about protection. The Massachusetts Auto Dealers argue they protect the car buying public. TESLA argues they are protecting the auto dealers’ economic interest and their monopoly.
O’Koniewski counters this by pointing out that there are more than 400 dealerships throughout the state, each trying to sell more cars than the next guy. The dealers don’t just compete across brand, but because car dealerships have to be independently owned, they also compete within the brand.
Without the laws that are currently in place, the system, which accounts for nearly 20 percent of all retails sales in the state, could crumble, O’Koniewski argued. That could ultimately mean less protection, fewer choices, and higher prices for car buyers.
O’Connell said the Mass Auto Dealers are simply afraid of a fair fight – and a better idea.
“I think it would really be news to the American car buying public that car dealers are in the business of protecting their rights as consumers. Why wouldn’t we, that manufacturers have an even greater steak in serving our customers even better because they are using our product, even better than a middleman?
If others were to pursue direct sales in the fashion we did – if everybody would, they would have to compete on different terms they would have to offer a different value proposition to consumers and this is what they are afraid of.”
Now, both parties are shifting gears, and bringing the battle to Beacon Hill.
Massachusetts State Representative David Linsky represents Natick, where TESLA’s store is located. He introduced legislation that would clarify that TESLA indeed has a right to sell direct to consumers in the Bay State.
“Let’s not have the state step in and decide how cars should be sold,” he said in an interview. “The existing franchise laws were probably necessary back in the early 1900s but they don’t make a lot of sense today.”
State Senator Marc Pacheco, however, whose district includes a stretch of road known as the “Route 44 Auto Mile” in Taunton, has put forth a bill that would make it harder for Tesla to sell direct in Massachusetts. Changes in the law could decimate the car industry in the state- which includes 527 car auto dealers and employs 24,000, Pacheco said.
“That’s a significant part of our economy but it’s less than what it was,” he said. “You could have a section of the state that wouldn’t have a dealership at all if you didn’t have some local laws about the relationship between franchise law and the manufacturers.”
With both pieces of legislation still in committee and the Mass Auto Dealers continuing to pursue their case in the courts, there doesn’t appear to be a quick end to this tug of war.
Despite the fierce fight, both Tesla and the Mass Auto Dealers Association see a future in Massachusetts. Perhaps that’s because in the end this battle isn’t really about TESLA at all. It’s about the future of how all cars will be sold in the state. And who will be in the drivers seat as that path is forged.
