Auto dealers aim to block Tesla’s direct sales

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Tesla’s strategy

Tesla Motors, based in California, has tried to work under a fresh business model for the car industry.

It has only one model in production, Model S, though it has plans to roll out two more models, including a crossover SUV called the Model X.

Tesla doesn’t use independent dealers. It sells direct to consumers online or through small store fronts, including some in malls.

The vehicles are all electric, not hybrids. The current about base price for the Model S is about $70,000, but options can add tens of thousands of dollars more. There is no price haggling, customers say. And each vehicle is made to order, which means customers wait weeks to get the car they ordered.

Upstart Tesla Motors created a stir when it managed to build sleek, speedy vehicles that rely only on electric power.

But it’s how the hip California company is selling cars that upsets auto dealers around the nation and has sparked a growing fight with one of Georgia’s most politically powerful industries.

Tesla sells its new cars directly to Georgia consumers. That’s illegal under state law, with few exceptions, according to the Georgia Automobile Dealers Association, which says it represents more than 500 dealers who handle about 90 percent of new vehicle sales in the state.

Car makers in most states generally are supposed to sell new vehicles only through dealers who are independent franchisees. Georgia legislators put the restriction into law 15 years ago after heavy lobbying by dealers. Major car makers, e-commerce businesses and other industries unsuccessfully fought the move.

In the first big test of that restriction, GADA recently sued to force the state’s Department of Revenue to halt Tesla’s Georgia operations.

Tesla contends the law doesn’t apply to its business and, even if it did, the company would come under exemptions for custom-designed cars sold in relatively small numbers.

The challenge by dealers angers Bob Miller, who recently ordered his first Tesla online.

“It seems unconstitutional,” said Miller, a retired financial services executive who owns a north Georgia winery, Yonah Mountain Vineyards. “If you build a better mouse trap and it’s a better product, the government shouldn’t shut you down.”

The 68-year-old is paying $120,000 for a Tesla with every upgrade. It won’t be delivered until some time next month, after it’s assembled especially for him in California. He was mesmerized after test drives.

“To me it’s not even a car,” he said. “It’s another technology.”

GADA’s legal challenge will be heard by an administrative law judge in December, but the debate is likely to extend beyond that. GADA and Tesla already have lined up lobbyists for a likely showdown in the state legislature this winter.

Tesla’s moves could reopen debate in conservative Georgia about how to weigh consumer desires for innovation and political promises for a free market with regulations that protect traditional local businesses tied to lots of jobs and money.

For some it falls along the lines of fights over other business models, such as ride-sharing services like Uber, that have cut into the regulated taxi industry.

But GADA spokesman Derrick Dickey said the association is simply asking that Tesla not be allowed to violate the law.

“Selective enforcement of the law could jeopardize the current independent new car dealer system that has served consumers well for decades,” he said. “Local franchises ensure important consumers protections and provide the kind of competition that drives down prices for new vehicle sales.”

Powerful voice

GADA already has a powerful voice in state politics. It has helped pump more than $600,000 into state legislative campaigns in recent years. The dealers employ nearly 30,000 Georgians and account for more than $22 billion in annual new vehicle sales.

Tesla already has had to contend with restrictions in many states and is barred from selling cars in a few.

Todd Maron, the company’s general counsel, said curtailing Tesla in Georgia would cut competition and choices for consumers.

“This is purely an attempt by franchise dealers to cement a monopoly,” he said. “It’s pure protectionism.”

But he said, “we are not trying and have never tried to blow up the whole dealer system.”

Georgia’s limits on selling by car makers falls under the state’s Franchise Practices Act.

Tesla argues the act doesn’t apply to it. The law is intended to regulate the existing franchise relationships set up between dealers and car manufacturers, not sweep up businesses like Tesla that never had franchisees, Maron said.

Tesla was launched by billionaire Elon Musk, a co-founder of PayPal. It sells its vehicles online and through its own small company-owned stores.

The company’s only physical presence in Georgia is the one-car showroom that opened in a Marietta business park last year. Tesla is slated to open outlets in Lenox Square mall and Decatur later this month. That expansion and, particularly, the company’s plans to add new models, worries dealers.

Tesla won a dealership license from the state. Georgia law lists two instances that allow car makers to sell new vehicles directly to the public: They are selling custom-designed vehicles built to customer specifications and they sell no more than 150 vehicles a year.

Tesla: We comply

Tesla’s attorney said the company is in compliance with Georgia’s limitations, though he did not disclose how many sales the company has had in the state.

Tesla may not be counting online sales to Georgians in saying it falls within the state’s limits.

“Cars can be sold different ways,” Maron said. “They have different consequences in terms of how they should be categorized…. Georgia can’t regulate sales that are consummated outside the state of Georgia.”

According to the state, 590 Teslas are currently titled and registered in Georgia, but not all of them were necessarily bought new in Georgia.

State Rep. Chuck Martin, a Republican from Alpharetta, co-sponsored a bill earlier this year that would have allowed electric car makers like Tesla to sell as many as 1,500 vehicles in the state annually without going through independent dealers. The bill, added late in the legislative session, got a single hearing but wasn’t brought up for a vote.

Martin said this winter he will try again to change the law. “We have to let the free market prevail.”

“Let them (Tesla) continue to operate while there is a larger conversation about the franchise system, if there is something that needs to be tweaked,” he said.

It would be “ridiculous,” Martin said, if Georgians are forced to buy Teslas in another state, should the car maker be banned from keeping its business model in Georgia.

State Rep. Tom Rice, a Republican from Norcross, chairs the House’s Motor Vehicles Committee. He declined to say whether he thinks Georgians should be allowed to buy new cars directly from car makers.

As for altering the franchise law, Rice said, “Until there is clear evidence that it is good for the people of Georgia, I wouldn’t support a change.”

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