Auto Dealer Associations Take Tesla to Court

As the company faces lawsuits from two dealers' groups, the electric car company's CEO defends the decision to sell directly to consumers.

Tesla Motors CEO Elon Musk has built a reputation for disrupting industries. But has he met his match with car dealers?

Weeks after numerous dealers’ associations blasted the electric car company’s Apple-store-like model, now Tesla Motors faces lawsuits brought by auto dealer associations in New York and Massachusetts and some of their members, claiming that its stores violate state franchise laws. Tesla avoids calling its stores franchises.

They claim they’re operating under the guise of a nonsales showroom, and we call that out as an outright scam.

In a blog post Monday, Musk directly addressed the controversy, saying his company stood at a disadvantage under the dealer system and that it was not hurting current franchisees by selling directly to consumers:

“Automotive franchise laws were put in place decades ago to prevent a manufacturer from unfairly opening stores in direct competition with an existing franchise dealer that had already invested time, money, and effort to open and promote their business,” he wrote. “That would, of course, be wrong, but Tesla does not have this issue. We have granted no franchises anywhere in the world that will be harmed by us opening stores.”

Musk claims that the plaintiffs in the lawsuits have their own interests in mind: He says that one dealer is upset that Tesla Motors will not grant it a franchise and another is selling a competing electric vehicle brand, Fisker.  “They will have considerable difficulty explaining to the court why Tesla opening a store in Boston is somehow contrary to the best interests of fair commerce or the public,” he claims.

Associations, however, aren’t buying that argument.

“They claim they’re operating under the guise of a nonsales showroom, and we call that out as an outright scam,” Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers, told AutoNews. His group sued Tesla Motors October 16 in an effort to shut down the company’s suburban Boston store.

Tesla could face an uphill battle against the groups, which have successfully prevented Ford and General Motors from opening similar factory-owned stores in the past 20 years. And as AllThingsD points out, another Silicon Valley startup, TrueCar, effectively retreated from its model after dealers’ groups complained to regulators.

Will Tesla Motors will be able to continue selling without involving dealerships? Let us know what you think in the comments.

(photo by Wesley Fryer/Flickr)

Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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