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Report: Dealer Associations Challenge Legality of Factory-Owned Tesla Stores

Report: Dealer Associations Challenge Legality of Factory-Owned Tesla Stores

State laws may put a kink in Tesla Motors’ retail plans, as the EV automaker’s factory stores are being questioned by dealer associations and state regulators, reports Automotive News. Tesla hoped to recreate the Apple buying experience with its factory stores, but dealer associations in a number of states claim those stores create unfair competition for conventional dealerships.

2012 Tesla Model S interior dash and touchscreen 300x187 imageThe main complaint is that Tesla’s stores are in violation of state franchise laws, which bar factory ownership of dealerships. Tesla currently operates 17 stores in the U.S., with most located in shopping malls. Recently, the Secretary of State’s office in Illinois told Tesla officials the company was breaking state law by listing CEO and founder Elon Musk as the owner of its Chicago store. Tesla said it would comply and asked for 30 days to respond.

Elsewhere, dealer associations are challenging the legality of Tesla stores. In defense of its Boston store, Tesla told city officials that the store wouldn’t conduct sales.

“We do what we’re capable of doing, and we do whatever they let us do,” Tesla’s vice president of sales George Blankenship told Automotive News. “It’s unique for each location. If we can’t be a dealer in a mall, we won’t do reservations on-site. We tell people where to go on our website to make a reservation.”

But the Massachusetts State Automobile Dealers Associations has issues with Tesla’s plan, claiming product presentation and directing customers to Tesla’s website is part of the sale.

2012 Tesla Model S rear three quarter 300x187 imageTesla doesn’t face the same hurdles in all states, as the company operates within the limits of the law in California. In the Golden State, manufacturers can operate dealerships so long as they’re more than 10 miles away from a private-capital dealer selling the same brand. Since there are no private-capital Tesla dealers, the company is covered. That same law caused problems for Chrysler Group earlier this year, when the company’s new Motor Village in downtown Los Angeles was investigated for violations of state franchise law.

According to the National Auto Dealers Association (NADA), factory ownership of dealership is restricted or prohibited in 48 states. NADA said in a release:

“Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sales increase, NADA is confident it will re-examine its business model.”

Six Tesla stores are scheduled to open this fall, and if the launch of the Model S is successful, don’t be surprised to see a few more popping up around the U.S. before long.

Source: Automotive News (Subscription required)

By Alex Nishimoto

Hot Items: Chrysler Stops Taking Orders for 2012 Fiat 500 Abarth, Tesla Model S Signature Sold Out

Hot Items: Chrysler Stops Taking Orders for 2012 Fiat 500 Abarth, Tesla Model S Signature Sold Out

It appears hot Romanian model Catrinel Menghia and Charlie Sheen were effective at publicizing Fiat’s hot hatch. Chrysler can’t keep up with all the 2012 Fiat 500 Abarth orders, and the automaker has informed dealers that orders for the 500 Abarth for the 2012 model year are currently not being accepted.

2012 Fiat 500 profile passenger side 300x187 imageThose who place an order now for the scorpion-badged Abarth will be forced to wait until next fall to slip behind the wheel of next year’s model, which won’t begin to ship until next fall. Customers who put their deposits down as early as March will also have to wait until the 2013 batch arrives in September.

By the time the Abarth started trickling into Fiat showrooms in April, The Detroit News reports the company already had more than 1000 cash deposits from customers. The automaker originally planned to build about 1000 vehicles at the company’s factory in Toluca, Mexico, but after receiving a flurry of orders, the automaker bumped up production to the factory’s maximum output of 3000 units a year.

Thanks in part to a small dealer network, Fiat sales didn’t hit the initial target of moving 50,000 cars by the end of 2011, selling only 19,769. The picture appears to be improving, however, as 16,702 Fiat 500s have already been sold through May 2012.

As for the Tesla Model S, the automaker tells us no more reservations are being taken on the Signature model — which has a claimed 300-mile range. The top trim of the Model S which has a claimed 300-mile range. The top trim of the Model S is expected to earn an EPA range rating of 265 miles, and is limited to 1000 units.

Source: The Detroit News, Tesla

By Karla Sanchez

Tesla Boss Hints at New Plant in Texas, EV Truck

Tesla Boss Hints at New Plant in Texas, EV Truck

Tesla Motors is in the middle of a spat with the Texas Automobile Dealers Association, but that isn’t stopping CEO Elon Musk from mapping out his future plans in Texas. If Musk has his way, Texas could be home to Tesla’s second assembly plant, he told Automotive News. And if that weren’t enough, he said the new plant could produce an EV truck, if the company ever offers pickups.

Musk didn’t specify which cities he’s considering for the new plant, but he did say the process could start as soon as three years from now. “When we do establish a manufacturing plant outside of California, Texas would be a leading candidate for that,” Musk 2012 Tesla Model S side profile 300x187 imagetold Automotive News. California is currently Tesla’s biggest market and Texas has the potential of becoming the automaker’s second-largest money maker.

In addition to the logistical benefits for Tesla, the new plant will produce thousands of new jobs for the state. Musk also hinted that the new location could build an EV truck. “I have this idea for a really advanced electric truck that has the performance of a sports car but actually more towing power and more carrying capacity than a gasoline or diesel truck of comparable size,” Musk said.

First, though, Tesla must determine how it will sell cars in the state. As previously reported, only franchised dealers are allowed to sell cars in Texas, which means Tesla’s factory-owned stores (one in Austin and another in Houston) are prohibited from conducting any sales-related activity including test drives, financial transactions, or deliveries. The same applies for service work. Current owners must initiate service-related requests outside of the state before going to a subcontracted garage in Texas.

Tesla is attempting to gain exemption from the state, but is facing resistance from the Texas Automobile Dealers Association. The automaker faced a similar battle in Minnesota, but has temporarily earned an exemption around that state’s franchise law.

Source: Automotive News (Subscription required)

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By Erick Ayapana

Judge Dismisses Massachusetts Dealer Suit Against Tesla

Judge Dismisses Massachusetts Dealer Suit Against Tesla

Tesla and Space-X founder Elon Musk has a well-deserved reputation for being somewhat of an iconoclast, doing things his own way, and not being constrained by convention or tradition. That approach to business also extends to his model of selling cars, taking a factory-owned store approach with Tesla, a relative rarity in the U.S. market, and in some states may be illegal, at least according to car dealer trade associations. The Massachusetts State Automobile Dealers Association was so incensed at the building of a Tesla showroom in the Natick Mall, that it filed a suit against the electric car maker.

But Massachusetts Judge Kenneth J. Fishman dismissed the suit, stating “The court is unconvinced that the 2002 amendment to Chapter 93B expanded the purpose of the statute to protect the motor vehicle franchise system,” according to a Bloomberg report.

Musk addressed the legal victory by Tesla in a statement: “We are delighted by the outright dismissal of this case, and the validation that we are operating our business in compliance with the laws and expectations of the Commonwealth of Massachusetts.”

But the dealer association hasn’t given up its fight entirely, saying it is considering an appeal. “It’s just another bump in the road we have to address,” Robert O’Koniewski, executive vice president of the state dealer association said.

Source: Bloomberg

By Edward A. Sanchez

Tesla Takes on Texas Dealer’s Association

Tesla Takes on Texas Dealer’s Association

Tesla Motors is no stranger to resistance from state dealer associations, which oppose the electric automaker’s factory-owned store approach. The best-documented standoff has been between Tesla and the Massachusetts Dealer Association, but has court or legislative battles happening in several states. The latest state dealer association the company is facing off with is the Texas Automobile Dealers Association, according to Automotive News.

Tesla VP of business development, Diarmuid O’Connell has among the highest barriers in the nation for the operation of a factory-owned store. Tesla currently operates two “galleries” in Austin and Houston, but in order to comply with current state franchise law, representatives cannot initiate or complete a sales transaction or deliver a vehicle on-site. Customers must contact a representative in California to complete the sales transaction, as well as arrange their own transport and delivery arrangements. Even in the area of service and warranty work, requests have to be routed through California, which then sub-contracts the work to the service centers in Texas.

To combat the contorted, Goldbergian work-arounds to sell and service vehicles in the state, Tesla is backing a bill in the Texas legislature that would change the states inflexible franchise laws to make it easier to operate factory-owned dealerships and service centers. But the state dealer association has been actively lobbying legislators and has participated in hearings, claiming that the traditional franchise dealer model is the best way to sell and service vehicles. The association is predicting failure of the Tesla-sponsored legislation that would allow them to operate, calling Tesla’s request for an exemption from existing franchise law “arrogant.”

Tesla continues to battle the Massachusetts dealer association with proposed legislation that would change the state’s dealer franchise law. The state’s dealer association is backing its own separate bill thwarting Tesla’s efforts. The one bright spot for Tesla lately has been Minnesota, where the state dealer association has temporarily suspended its pursuit of franchise law legislation that would have prevented Tesla from opening retail outlets in the state.

Source: Automotive News (Subscription Required)

By Edward A. Sanchez

Tesla Wins Direct Sales Case in New York State

Tesla Wins Direct Sales Case in New York State

Concurrent with its legislative battle in Texas for its right to have factory-direct dealerships, the California-based electric car maker received some welcome news in the form of ruling from the New York state supreme court, in which a justice ruled that franchised dealers could not prove sufficient injury from the presence of Tesla’s factory-owned stores, Automotive News reports.

Naturally, the Greater New York Automobile Dealers Association voiced its displeasure at the ruling, claiming Tesla’s factory-owned model is “clearly prohibited” by state franchise dealer law. The dealer association has not yet said whether it will appeal the case, or seek recourse by other means. Tesla currently operates three stores and two service centers in the state.

The fear of state dealership associations across the country is that an exemption granted to Tesla would open the door to existing automakers to circumvent the independent franchise model and start opening factory-owned stores in competition with independently-owned dealerships. Franchise laws vary from state-to-state, from outright prohibition, to non-compete language preventing factory-owned stores from opening within a specified distance from an independent franchise.

Chrysler was forced to sell its Motor Village concept store in Los Angeles, after area dealers petitioned the DMV, alleging violations of state franchise law. Tesla’s case is unique in that it is creating a network of new stores for an all-new brand, not opening new outlets for an existing brand.

Source: Automotive News (subscription required)

By Edward A. Sanchez