Missouri Dealerships Fight Back Against Tesla, By Suing State

JAN 27 2015 BY STATIK 43

Last May, Missouri auto dealers attempted to sneak in a late addition to a bill (HB 1124) that would have seen Tesla’s direct sales model banned in the state – a move that did not allow public comment, and didn’t provide Tesla with any time to work up a defense.  That is, other than to post a last minute blog post highlighting the fact it was indeed heading to the House floor for a vote.

Turns out that some high profile attention on the proceedings, and some rational thinking, saw “state legislators scrapping a vote on a bill (Tesla’s words), with the issue to be reintroduced in 2015 with full hearings in the state Senate and House.

Insert Franchised Dealer Here?

Insert Franchised Dealer Here?

Apparently, the Missouri Automobile Dealers Association were upset that due process would be seen in the state (irony), and have now filed suit saying that the state’s Department of Revenue (and it’s director – Nia Ray) have violated state law by currently allowing Tesla to sell direct.

Specific to the lawsuit, MADA wants the Missouri Department of Revenue to not renew Tesla’s license for its University City boutique store and to further ban any other dealer licenses for the company in the state.

“For many years, new motor vehicles have been sold in Missouri using a tried-and-true structure: manufacturers do not sell cars themselves, but do so through a network of licensed dealers. This structure of separate roles for manufacturers and dealers is established by statute and reflects wise public policy.” – lawsuit statement via Automotive News

According to the motion, MADA states that Missouri law says automakers can only sell cars through dealers, and by issuing Tesla a permit to operate in the state, the Department of Revenue  “violated both the law and the structure that’s been in place for many years,” according to MADA attorney, Lowell Pearson – who also was the former deputy director of the department of revenue.

“Missouri requires any state agency to change policy through formal rule making process,” Mr. Pearson added, “the department didn’t do any of that here. It created a new public policy for the state by issuing a license to Tesla.”

Unsurprisingly,  Tesla’s vice president of corporate and business development Diarmuid O’Connell has a different take.

“Missouri law is very straightforward in that it prohibits manufacturers that use independent franchisees from competing directly against them.  This has nothing to do with Tesla, which has never used independent franchisees.”

Automotive News, hat tip to kdawg!

Categories: Tesla

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43 Comments on "Missouri Dealerships Fight Back Against Tesla, By Suing State"

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Ed
Guest
Ed
The auto dealers’ attorney was quoted as saying “It disadvantages hundreds of Missouri car dealers who have been doing business for many, many years.” So I’m confused. I thought the dealers’ position was they are so much better for consumers because they provide competition and protect the buyer from the manufacturer. They say their way of selling cars is so much better for consumers, that it should be enshrined in state laws. So how does Tesla selling direct “disadvantage” them? Wouldn’t consumers flock to them instead, preferring all the advantages consumers supposedly have when they buy from a dealer? If it disadvantages the dealers, doesn’t that mean the advantage goes to the consumer? What other party is there in these transactions? In other news, the Missouri Association of Coffee Shops filed suit against Starbucks for opening stores selling their own brand of coffee directly to coffee drinkers. “It disadvantages hundreds of Missouri coffee shops who have been doing business for many, many years,” the coffee association’s attorney said. He added, “If we don’t put a stop to this unfair competition, next thing you know Apple could start opening stores to sell iPhones in competition with the corner cell phone store… Read more »
Someone out there
Guest
Someone out there

Exactly! Car dealerships are sooo good for the consumer… until they actually have to prove that they are.

What happened to free enterprise? Why does everything have to be licensed and regulated now? All this red tape should just be removed altogether.

kdawg
Guest

But they contribute to the local Little League. 🙂

Anon
Guest
Anon

So did the local pub in my town, but they weren’t protected against budweiser bringing a corporate pop-up sales truck to the summer fair.

Brian Henderson
Guest

MADA in suing the state, is actually suing its customers … hard to demonstrate that MADA is doing what’s best for customers if their only option is to sue!

Seems dealers are MAD-A. 🙁

Robert Weekley
Guest

Disadvantaged: Traditional Dealerships – they can’t set up shop in a Mall – since they sell Gasmobiles, and running them in a Mall Store would exceed the pollution levels allowed – so maybe they should sue the EPA to allow higher pollution levels of exhaust so they CAN open up shop in a Mall!

Anon
Guest
Anon

+1

Brilliant. As long as they provide the gas masks for everyone in the malll… 😉

Lou Grinzo
Guest
Lou Grinzo

Not to be persnickety, but dealerships can and do set up in malls. There’s a local (Rochester, NY) huge dealership that sells a gaggle of brands, and they have a store in a local mall for their Fiats.

Nichen
Guest
Nichen

That sounds like Misery to me.

Robert Weekley
Guest

Missouri = Misery (for Car Dealers that can’t manage in a new world, one that breaks old molds and creates new forms of doing business!)

John
Guest
John

Desperation move. Rather than adapting and changing, they’re fighting for the status quo in a world that has already largely moved on. Failure to evolve. Eventually they’ll win a well-deserved Darwin award.

Rick Danger
Guest
Rick Danger

MADA: “WAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA!”

Fishhawk
Guest
Fishhawk

Here’s an example what a dealership can do for you. Yeah, right.
http://carbuying.jalopnik.com/dealership-to-pay-1-6-million-for-bullshit-theft-prot-1681393244

CherylG's_DirtyLittleSecret
Guest
CherylG's_DirtyLittleSecret

Stealerships are nothing more than rats on a ship.

Anon
Guest
Anon

*squeak!*

“Gurgle gurgle gurgle…” 😉

MrEnergyCzar
Guest

Anything to limit consumer choice….

Nix
Guest
Nix

I’m confused. All we’ve heard from the gas car industry for decades is that there is no market for EV’s, and that nobody wants to buy them.

Now they are crying like little boys in kindergarten about how unfair it is that a dedicated EV company would be allowed to sell EV’s without them.

When you sue in court, you have to prove damages. How can a company that sells EV cars that nobody supposedly wants, suddenly damage the business of these traditional gas car dealerships?

Can the automotive sector finally get their lies straight? Stop the lies and the tantrums, and just beat Tesla with a better EV if you don’t like what they are doing, and stop hiding behind one half-ass compliance EV after another.

CherylG's_DirtyLittleSecret
Guest
CherylG's_DirtyLittleSecret

Can anyone get the Missouri law in question and post it verbatim?

Nix
Guest
Nix

Just posting the law would be incomplete. There is also the Case Law regarding the law itself. That is where the Courts have made rulings with regard to the law that are binding upon other courts. You are welcome to armchair lawyer the verbatim verbiage of the law, but that won’t be what the courts will rule on. They will also take into consideration all of the case law that applies.

Every law has a context, they never exist in a vacuum containing just the words written into the law itself. Rule of Law in the US has multiple layers, such as:

1) Constitutional layer
2) Case Law layer
3) Written Legislation layer
4) Legislative Intent layer

Looking at just one layer is why armchair lawyers have such a poor record in predicting court rulings.

Nix
Guest
Nix

Apparently the MADA is relying heavily upon this statute, and are crying that it is unfair that they can’t sell direct too:

407.811. It is declared to be the public policy of the state to provide for fair and impartial regulation of those persons engaged in the manufacturing, distributing, importing, or selling of motor vehicles. The provisions of the MVFP act shall be administered in such a manner that will promote fair dealing and honesty in the motor vehicle industry and among those engaged therein without unfair or unreasonable discrimination or undue preference or advantage. It is further declared to be the policy of the state to protect the public interest in the purchase and trade of motor vehicles so as to ensure protection against irresponsible vendors and dishonest or fraudulent sales practices and to assist, provide, and secure a stable, efficient, enforceable, and verifiable method for the distribution of motor vehicles to consumers in the state.

Nix
Guest
Nix

I don’t really know if it is in the best interest to start talking about the gov’t enforcing a law to:

“protect the public interest in the purchase and trade of motor vehicles so as to ensure protection against irresponsible vendors and dishonest or fraudulent sales practices”

Strict enforcement of that statute would put the majority of dealerships out of business!!

Nix
Guest
Nix

The specific law banning franchisors from owning and operating their own dealerships is this one:

“407.826. 1. (1) A franchisor shall be prohibited from owning or operating a new motor vehicle dealership in this state.

2. A franchisor shall not sell new motor vehicles directly to any retail consumer…”

Tesla is not a franchisor, so this law does not apply to them.

“Definitions. 407.815. As used in sections 407.810 to 407.835, unless the context otherwise requires, the following terms mean:

(10) “Franchisor”, a person who grants a franchise to another person;

(14) “Manufacturer”, any person, whether a resident or nonresident of this state, who manufactures or assembles motor vehicles…”

Tesla is a Manufacturer, and not a Franchisor. The statutes for that state clearly differentiate between the two.

Josh Bryant
Member

+1 Thanks for the analysis.

I am assuming you are a lawyer, as that sounded pretty pro to me.

Anon
Guest
Anon

Suck it, Auto Dealers. Your time has come, the winds of change are upon you…

CherylG's_DirtyLittleSecret
Guest
CherylG's_DirtyLittleSecret

+1!

CSS
Guest

“The electrons are strong with this one”

Waiting
Guest
Waiting

If I can buy almost anything online and the same thing from a brick and mortar store, then why not a car? It’s a piece of merchandise, just like a shirt. Dealerships want a monopoly. Sorry.

kdawg
Guest

Missouri, the “Show Me The Money” State.

MDEV
Guest
MDEV

Why Tesla is taking too long to take this issue with the federal court? Any lawyer here……

Brian Henderson
Guest

No need to yet, Tesla has more than enough markets for all the cars they can currently build. Tesla is being smart by staying focused on growing its engineering and manufacturing facilities vs. being distracted by legal battles.

Time will come when Tesla will need to take on the anti-competitive challenge. By then they will have better demonstrated doing business and built a larger educated customer base.

ffbj
Guest
ffbj

Yes, and I also think that Tesla wants to show good will by addressing each state on a case by case basis. Tesla is probably considering that, with the political conditions in the country, recalcitrant states would not look too kindly on being ordered to allow Tesla to sell in their states.
By various means carrots, incentives such as jobs and construction, at first, Tesla is trying to get a few stores in, later if that does not work they may pull out the big stick. Making a federal case out of it would be a big stick.

TomArt
Guest
TomArt

Agreed – although we all know it will have to come to that, eventually. SCOTUS will hear this before it is all said and done.

Anon
Guest
Anon

Maybe not. They might at some point elect to JV with or sell out to a manufacturer within the existing dealership system and drop the “stores” (and thus eliminate the need for any pending legislation) before it comes to SCOTUS.

Lensman
Guest
Lensman

I’m not a lawyer, but to get a Federal court to address an issue, you need to demonstrate you have federal standing. Basically, you must have a reasonable claim of a violation of either the Constitution or Federal law.

So long as dealer franchises are regulated by the various States, and not the Federal government, then it looks to me like Tesla is going to have a hard time finding a valid reason to sue in Federal court.

Stan
Guest
Stan

Looks like a slam dunk violation of the Interstate Commerce Clause. As TomArt points out that doesn’t mean resolution would be quick or cheap.

Lensman
Guest
Lensman

I’d be interested to see your argument for why this would come under the Interstate Commerce Clause of the U.S. Constitution. As I understand it, that does not in any way prohibit different states from imposing different restrictions on what can or can’t be sold in their state.

For instance, I live near the border between Missouri and Kansas; the two States have different rules for what hours on what days liquor may be sold. I don’t think any Federal court would agree to interfere with the right of either State to impose those restrictions.

TomArt
Guest
TomArt

Furthermore, as I understand the legislative process, the issue would have to start with a single lawsuit between Tesla and some entity, whether the particular State or NADA, whatever. It would have to go through the state’s court system, to the State’s Supreme Court, and then be appealed to Federal Court, and then to SCOTUS. A multi-year, expensive, though necessary process.

ffbj
Guest
ffbj

This lawsuit is merely a joke, and a way to draw attention to the subject. It just goes to show how careless NADA are of taxpayers money, which would have to be used to defend the state, if it ever got to court, which it probably will not.
There is an old saying: “You can’t sue City Hall.” That is pretty much true.

martinwinlow
Guest
martinwinlow

MADA and mader…. by the minute!

Steven
Guest
Steven

Silly question…

Has any “traditional dealership” expressed an interest in stocking Teslas, and in good faith, offering them for sale?

Really now, this goes for all the states where a dealership association is fighting against the Tesla sales model.

If one of those states can demonstrate that x% of their established dealers will legally commit to stocking a fair selection, and offer them for sale in a non-discriminatory manner (having more than one sales person who works on alternate Thursday mornings) then I probably couldn’t object too much.

But, if they can’t get a dealership to make this commitment, then how is the direct sales model hurting anyone?

M Hovis
Guest
M Hovis

Yes, some have gone on record that they would love to sell Tesla. A dealer typically does not make money selling new cars. They make money through financing new cars and through service. An EV has a fraction of service compared to the ICE. Tesla has been successful selling service plans on the luxury Model S and will do so on the Model X. My guess is that will start to diminish with the Model III.
Mostly, Musk does not believe in the dealership model, to which I agree. Some people love to haggle. I personally can’t stand it either.

Ed
Guest
Ed

Your questions imply that car dealers have some inherent right to sell any new company’s product just because it happens to be a car. Tesla wants to sell directly, not through dealers. End of story. If a dealer is hurt by competition, so what? No business is guaranteed success by the state, they have to compete in the marketplace. If I have a store and a manufacturer of a competing line opens a store down the street from me, should I have any legal recourse? Of course not. The state doesn’t guarantee me a profit, I have to earn it.

Lensman
Guest
Lensman

The dealerships are not fighting sales of Tesla cars because of some arbitrary standard of “fairness,” or because it either is or isn’t “hurting’ anyone. They’re fighting it because the Tesla sales model, which cuts out the middleman of the dealership, is a direct threat to their businesses.

Note that legacy auto makers don’t even sell to the public. They sell their cars to the dealers, who in turn sell them to the public. The auto makers’ customers are the dealerships, not the public.

With Tesla, it’s a very different business model. The dealerships are afraid of that, and rightly so. The dealership business model is outmoded, and is based on restricting information, so that the buyer doesn’t know what the dealer pays. But these days, anybody can look up online what the dealer actually pays for a car, and what the average dealership markup is. Arguably, the dealership model is obsolete and should go the way of the dinosaurs.

But don’t expect the dealers to go down without a fight… hence all the lawsuits to keep Tesla Motors from selling in the various States.