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Dealer or no dealer: Tesla's sales model under fire

Tesla'€™s business model of selling cars straight to consumers has prompted lawmakers in 26 states to enact restrictions

ATLANTA – Amid mounting lawsuits filed by auto dealers against Tesla’s sales practices in the United States, executives for the electric vehicle company are firing back at their competition.

“You know, we've been mischaracterized in lot the media and by some of the dealers associations as trying to destroy the dealer system,” said Diarmuid O’Connell, Tesla’s vice president of business development, in an exclusive interview with America Tonight. “What I say is, ‘Look, if the dealer system is that weak in and of itself that it can't tolerate any competition, then it's probably not as good as all these dealers associations who would have us through them argue that it is.”

To understand this conflict and how it could shake up the entire U.S. auto industry, it’s necessary to understand Tesla.

The fully loaded Tesla Model S is a $100,000 modern marvel – all electric, no emissions and able to travel 300 miles on a charge. Tesla was the dream of Elon Musk, the businessman who made a fortune on PayPal and also wanted to change the American car and the way we buy them.

Atlanta resident Arthur Blake bought one of the first 10,000 to roll off the line in California.

“I’m an I.T. guy, so I’m very comfortable with purchasing things online,” said Blake, who added that it was hard to drop that kind of money on a car. “It was a little bit of a stretch for me, but it was something that the more I thought about it, the more I really wanted it.”

As Tesla expands its sales operations across the country, the company has ended up in an ongoing battle with major car dealership organizations. They want Tesla to conform to the traditional model of selling cars through independent, franchised dealerships.

Steven Lang knows the ins and outs of car-buying. The columnist for Yahoo! Auto also runs a small car lot outside Atlanta, which is serving as the latest Tesla battleground.

“In essence, the Georgia Auto Dealers Association is trying to run them out of the state,” Lang said. He added: “They want every single vehicle sold through a new car dealership, and they’ve more more less set up this patchwork of laws throughout the decades in order to create what is, in essence, what I would term a ‘legalized theft cartel.’”

In Marietta, Georgia, the city’s Tesla showroom is in the crosshairs of that state dealers association. Since Tesla sells direct to consumers – bypassing franchised dealerships – an unusual state regulation bans more than 150 Tesla sales a year. The auto dealers' lobbying group claims Tesla exceeded the limit, so they’ve filed a petition with the state to force the showroom to shut down.

But O’Connell, one of Musk’s right-hand men, said that it’s his clear understanding that Tesla has “not sold directly in Georgia beyond our maximum.”

“I would love to be spending my time doing other things than traveling to state capitals and arguing before legislatures, and our lawyers submitting briefs to courts,” he said. “But you know, on the flip side of it, it’s probably allowed us to get the word out. I mean, you’re here to learn about Tesla and I’m telling you about the dealer issue.”

That issue has touched every corner of the U.S. Iowa recently stopped Tesla from offering test drives. Tesla has been banned from selling any cars from showrooms in Texas, Arizona, New Jersey and Maryland – and legal battles are brewing in other places.

Atlanta resident Arthur Blake tells Adam May he'd buy another Tesla down the road – if he can afford it.
America Tonight

The Georgia Auto Dealers Association refused to take part in an on-camera interview with America Tonight. The group, however, did offer an emailed statement: “Franchise car dealers offer protection and competition.”

Additional interview requests made to the National Auto Dealers Association were also declined.

Jim Appleton, who runs the New Jersey Auto Dealers Association, said that Tesla chose to “enter the marketplace in violation of the law.” New Jersey is another state that’s battling Tesla in court.

“Many people think that those franchise laws, which prohibit manufacturers from direct retail to consumers were enacted to protect dealers [and] local businesses,” Appleton said. “They were enacted to protect consumers, because the franchise system is an incredibly efficient way of distributing vehicles and promoting competition.”

Appleton claimed that safety also comes into question, especially without traditional car dealers looking out for their customers.

“Let’s face it,” he said. “Everybody does what’s in their interest; dealers’ economic interest is to serve consumers and carry out recalls and maintenance.”

With auto dealers associations criticizing Tesla for cutting out the franchise dealerships, O’Connell offers another point of view.

“Arguing that it’s only dealers in a recall situation that will stand up for the customers, which is an interesting position and one that’s worth exploring,” O’Connell said. “If this were the case, one would expect that the dealers, perhaps in the case of this recent problem at GM, to have raised the red flag.”

Despite the legal battles playing out in a number of states, Tesla is expanding. In addition to their factory in Palo Alto, California, they’re breaking ground on a new facility in Nevada, banking on a federal resolution to this dealer dispute.

“It would be certainly more efficient to do this in one fell swoop at the federal level, either through Congress or through the courts,” O’Connell said.

Car buyers such as Chris Sanna are caught in the middle of all of this. He’s waiting for his custom-ordered Tesla to be delivered to Georgia.

“It was the best car-buying experience I’ve ever had and I’ve bought over a dozen cars in my lifetime so far,” Sanna said. “It was, ‘Here’s your car. There are the options you’ve selected. This is the price. Here’s where you sign.’ And we signed and it was tremendous.”

Sanna went online to design his car. He took it for a test drive at the Georgia showroom and put down a deposit. Yet, he’s still not sure how the unsolved issues between Tesla and state regulators will affect delivery.

“I’ll do whatever I have to do to get the car, obviously,” Sanna said.

As Tesla, which has yet to sell 100,000 cars, continues to grow, traditional dealers predict that Tesla will have to conform to their standards.

“I think once Tesla gets supply ahead of demand, they will run to establish franchisees,” Appleton said.

In the meantime, die-hard Tesla fans proudly show off their cars, hoping to spark a car-buying revolution – one vehicle at a time. For Blake, he has little doubt about whether he’d buy another Tesla.

“Absolutely, without hesitation,” he said. “As long as I can afford it.”

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