National car dealers fighting Tesla’s direct sales

Car dealers across the United States have taken actions to block the car manufacturer Tesla from selling its electric power cars directly to consumers. Court actions and legislative proposals are attempting to protect the 80-year-old car franchise dealership system which puts independent dealers as the middlemen between automakers and customers.

An estimated 17,600 dealers in the United States had $676.4 billion in total sales in 2012 which accounted for almost 15 percent of all American retail activity. According to the National Automobile Dealers Association, the average dealership is worth $3 million and produced a net pre-tax profit of $843,697 in 2012.

Dealers claim that Tesla could set a precedent allowing other manufacturers, particularly a foreign company, to sidestep the car franchise system. Dealers also argue that consumers may comparison shop and have dealers which serve as advocates on warranty issues.

Tesla’s Model S has a price tag ranging from $71,000 to $100,000 and was among the best ranked cars of 2014, according to Consumer Reports. Factory shipments are expected to grow 55 percent this year with sales to start in Europe and China.

Lawsuits are attempting to block Tesla’s sales in a Columbus mall and Cincinnati consumers from buying vehicles directly from the Tesla factory. Dealers argue that Ohio’s state franchise laws prohibit Tesla’s direct sales to consumers.

Legal actions seeking to block Tesla sales in 2013 failed in New York and Massachusetts courts. Tesla claimed that state franchise laws are intended to regulate manufacturers and their affiliated dealers and were not designed to prevent competition among vehicle brands. The New York and Massachusetts cases are on appeal.

Virginia and Arizona legislatures have imposed limits on Tesla’s retail activities. Washington has tightened its franchise rules but exempted Tesla. New York and Ohio also have legislation pending that would impose restrictions. Texas lawmakers are considering measures that would allow Tesla employees to talk to consumers about electric cars in general but prohibit them from providing information about purchases. Tesla may seek legal relief in federal court if states restrict its sales.

Business disputes and unfair competition claims have significant economic and legal consequences on companies, shareholders and consumers. Expert advice should be sought to protect a party’s rights in business litigation.

Source: Bloomberg Businessweek, “Tesla direct sales spur dealers’ ire from Ohio to New York: cars,” Alan Ohnsman and Mark Niquette, March 10, 2014

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