Tesla Direct Sales Battle Goes To Supreme Court In Utah

AUG 23 2016 BY STEVEN LOVEDAY 25

Tesla's Fremont Factory Store

Tesla’s Fremont Factory Store

Currently, it is illegal to buy a Tesla vehicle in Utah, along with many other states. This is due to the 100-year-old dealership franchise system. Lawyers at the company are working hard to change this, and now the Tesla direct sales battle in Utah has reached the state’s supreme court.

Inside A Tesla Store

Inside A Tesla Store

Craig Bickmore, executive director of the New Car Dealers of Utah Association, supports the franchise system. He explains:

“If you’re a dealer who has put tens of millions of dollars of capital into your dealership, equipment and inventory, you would have no input with respect to the manufacturer and how they deal with you without the franchise system. That is why it is so very important to have [the franchise system]. It’s no different than the FCC (Federal Communications Commission) with communications or a JOA (joint operating agreement) with newspapers. Those are similar types of circumstances where legislatively they’ve made the playing field somewhat equal and level in different industries. It keeps that manufacturer/dealer relationship workable.”

He provides an example of the benefit of the model:

Tesla Store, Melbourne-Richmond, Australia

Tesla Store, Melbourne-Richmond, Australia

“When there’s a recall, those consumers come into these dealerships. They don’t go to Detroit, Japan or Germany, where the car manufacturers are. They go to the local hometown dealer to get their vehicles serviced and fixed. The dealers become the advocates to get those problems solved and taken care of. They’re the frontline folks.”

While Bickmore agrees with the dealership model, he admits that he would like to see Tesla be able to come up with a plan or a deal to sell its vehicles in Utah. However, he explains that this already happened, and Tesla had an opportunity, but the company turned it down. Tesla found the state’s compromise to be too restrictive.

Utah state representative Kim Coleman advocated for Tesla and tried to work out a plan that would allow Tesla to open a showroom and place car orders in the state. But, the deal held that Tesla would not be able to keep inventory on hand or let consumers drive the new cars off the lot. Tesla, believing this to be unfair, has taken it to Utah’s supreme court. Kim Coleman is hopeful that the ruling works out in Tesla’s favor. She plans to fight again if the ruling is against Tesla. She said:

“I believe this is an unconstitutional restraint on trade. A regulation that says a company can’t sell its own product in its own way is unconstitutionally prohibitive. If I made a product that I believed in and loved and wanted to sell, I don’t know that I would want to give that control over to someone else. Dealerships have a lot of control in selling these cars. It makes sense that a manufacturer would choose to sell that product themselves versus giving it to someone else, who will mark up price. They’ll lose control over the product, how it’s marketed and how it’s sold.”

Tesla has also made it public that selling an electric car through the traditional system is more difficult. Convincing consumers to make the switch is the first task, but then competing against the dealers’ standard motivation to sell ICE vehicles complicates the issue further. The company considers its vehicles to be specialized products, somewhat removed from the “typical” automakers’ offerings.

Source: Utah Business

Categories: Sales, Tesla

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25 Comments on "Tesla Direct Sales Battle Goes To Supreme Court In Utah"

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No-one ever tells these complaining dealers that in all those other states where manufacturers ARE ABLE TO SELL DIRECT… there are thriving dealers.

Tesla is 1ooooooooooooooooo% within their rights to sell their cars anywhere..Utah is an Unconstitutional Dictator..Utah should be fined and Disciplined . These Cry Baby Stealerships Have been on the Gravy Train Too long & now they think they will lose their special Privledges., that they now believe are their God given rights…

Finally the route to the Supreme Court.

They have also applied for a license in Michigan. In Michigan the stakes are bigger, because Michigan also doesn’t allow service Centers. So, Tesla could get a partial win by changing that law.

As far as I know, Michigan made a decision yet. They might be sitting on it.

Utah is in a tough spot. On the one hand the state would like to uphold unrestrained commerce as a core principle of the right. On the other the undeniable power and influence of NADA, with their legions of paid off lobbyist, insiders, and politicians. The implications if Tesla wins are too horrific for the dealerships to imagine, so I think they (Tesla) will lose.
Sadly.

It’s another case of public good, since it is established fact that dealerships add no value, and merely make products cost more around 4% more, vs. established dealership manufacturer contracts and relationships, designed to facilitate the sales of their products by making things supposedly more convenient and at the same time more costly.
At one time, the prior may have been true, though it’s debatable that it is true now. The later has always been true and will continue to be so.
End of (mini) Rant #5

A video clip gets at the point as I would compare car dealerships to the likes of
a Captain Dunsell.

https://www.youtube.com/watch?v=NgO_y57_078

Rite On! Dunsell Money grab …

I beleive some of the dealer laws had a place in time 50 plus years ago when big auto tried to abuse dealers but that time has pased and the dealer laws in varios states have been made much tougher in recent times…

The laws just about amount to legalized extortion. The dealers pay the state legislatures through capaign money to pass laws stating that you can only do business in this state theouh me who will then skim your profits and treat your customers poorly…

And electric cars open up a whole nother can of worms in which the dealers are finicaly motoviated to sell you an ICE over an EV due to the poor reliabilty and maintance needs of an ICE…

With that said I dont blame big auto for fighting Tesla franchise stores every step of they way. Because while big auto is saddled with an archiac system 100 years old they cant escape from their new competion does not have a middle man skiming a couple thousand in profits from every vehicle sold. In the end all things being equal it will not end up very well for big auto…

@ffjb
“The implications if Tesla wins are too horrific for the dealerships to imagine, so I think they (Tesla) will lose.”

and likewise for Tesla. Has Tesla lost in any other state supreme courts?

To my knowledge this is the first state Supreme Court case to be brought. Though there have been cases in lower courts in other states.

It’s remarkable how often these direct sales stories come up, without recognizing there’s an argument that electric cars are cheaper to keep, which means they’re less likely to be sold.

“…the deal held that Tesla would not be able to keep inventory on hand or let consumers drive the new cars off the lot.”

In other words:

1. No test drives allowed

2. Tesla couldn’t sell the cars it used for demos and service loaners

Gee, what a surprise that Tesla didn’t agree to this plan! /sarcasm

State laws were passed with the intention of protecting auto dealers from predatory business practices by auto manufacturers, and there are reasons why such laws were needed, in the past if not today. But it’s a travesty of justice that now these State laws are being misused as protectionism to prevent a new company from directly competing with those auto dealers. That was never the intent of such laws.

@PMPU
“State laws were passed with the intention of protecting auto dealers from predatory business practices by auto manufacturers”

That’s my understanding also. Since Tesla does not operate in the franchise business model then the dealers association has no grounds.

That has been Musk’s legal argument from the start. In fact, such laws in several states were changed/narrowed as a direct result of Tesla’s popularity.

One needs to look no further than all these dealerships that try to steer people away from Leafs and Volts to see that Musk’s concerns are absolutely 100% reasonable and accurate.

I agree. Ideas for Tesla lawyers: 1. Could a federal ANTI-TRUST investigation be brought against the NADA itself, for its actions on several states? 2. Why doesn’t prohibitions against selling a legal substance, a car approved for sale federally, also violate free speech provisions of the US constitution and probably the state constitutions?

If car dealers are so valuable, what are they afraid of? Surely Tesla will fail if they are not using the fantastic dealer model…

What other industry are products of that industry only sold through a 3rd party network of membership franchises?

Note: Dealer franchises have contracts with specific manufactures giving them regional exclusivity to selling and maintenance of new vehicle models … so if laws change these contracts will continue for many years. Any changes will only occur for new manufactures not currently under contract with a dealer franchise(s).

Well, movies (before the recent digital distribution boom); movie theaters and video stores are a good example of a hyperlocal industry that boomed because of another booming industry (movie production in Hollywood), much like dealers boomed before them (car industry in Detroit). Closest analogue we might have today are hospitals, which work quite differently for various reasons.

I think most alcohol has to be sold via middle-man independent distributors, which is also stupid.

“If you’re a dealer who has put tens of millions of dollars of capital into your dealership, equipment and inventory, you would have no input with respect to the manufacturer and how they deal with you without the franchise system.”

What if you were a manufacturer who had put billions of dollars into capital equipment and inventory and were forced to sell your product through an illegal cartel, with no input on how they were being sold?

+1

“I believe this is an unconstitutional restraint on trade. A regulation that says a company can’t sell its own product in its own way is unconstitutionally prohibitive.” Much as I’d love to see Tesla be able to sell its cars anywhere it wants, using any business method it likes, the assertion above is clearly much too broad for the courts to agree with. There are plenty of restrictions on how companies sell their products. Everything from safety regulations on sales of flammable materials (gasoline must be dispensed into a closed container clearly marked “GASOLINE” or “FLAMMABLE”) to “blue laws” restricting sales of liquor after certain hours, and on Sunday, have been approved by the courts, and have survived challenges. Now, perhaps Tesla’s lawyers can make a narrower argument: That in the case of restrictions on how flammables are sold, and in the case of liquor sold after certain hours, the good of the public at large is arguably served by such restrictions; but in the case of restricting Tesla’s sales in a way that dealership sales aren’t restricted, the opposite is true. Not only is the restriction on Tesla not serving the public good, it is, arguably, improperly and unfairly… Read more »

“When there’s a recall, those consumers come into these dealerships. They don’t go to Detroit, Japan or Germany, where the car manufacturers are. They go to the local hometown dealer to get their vehicles serviced and fixed.”

What utter nonsense. Probably never heard of Tesla’s service centers. Plain and simple FUD.

Yep. Total baloney. I’ve had my Tesla serviced every year right here in San Diego, just a few miles from where I work.