Ohio auto dealers fight Tesla over sales model (Update)

Mar 17, 2014 by Julie Carr Smyth
Tesla representative John Van Cleave, right, shows customers Sarah and Robert Reynolds, left, and Vince Giardina, a new Tesla all electric car, Monday, March 17, 2014, at a Tesla showroom inside the Kenwood Towne Centre in Cincinnati. Ohio auto dealers are sparring at the Statehouse with the California-based Tesla, which is selling it's next generation electric cars from three Ohio storefronts. Lawmakers in Ohio and other states are trying to block Tesla direct sales on grounds they undercut traditional auto dealerships. (AP Photo/Al Behrman)

Ohio auto dealers are sparring with California-based automaker Tesla, which is selling its electric cars from two Ohio storefronts.

Ohio is among states proposing to block Tesla from setting up additional direct-sales galleries on grounds they undercut traditional auto dealerships. Last Tuesday, New Jersey officials approved a regulation effectively prohibiting automakers from going straight to customers. Tesla vice president Diarmuid O'Connell visited Ohio legislative leaders that same day to try to discourage them from passing similar restrictions.

"The bill would shut down our ability to grow in the Ohio market and, frankly, it's just a first step to them shutting down our existing businesses," O'Connell said. "This is the pattern we see in other states."

The administration of Republican Gov. John Kasich, through the Bureau of Motor Vehicles, issued a license to Tesla authorizing the company to open its own stores in Cincinnati and Columbus.

Joe Cannon, a lobbyist for the Ohio Automobile Dealers Association, told lawmakers in testimony last week that the decision means Ohio's longstanding licensing rules "have been thrown upside down."

The association filed unsuccessful legal action against Tesla's two existing Ohio stores, so now is fighting for passage of a bill that would prevent Tesla from expanding to other locations.

Ohio dealers—with 830 dealerships, 50,000 employees and $2 billion in payroll annually—say their businesses can only prosper when the law separates manufacturers and dealers. They view the license Ohio granted to Tesla as opening a Pandora's box.

O'Connell argues the several hundred vehicles Tesla has sold in Ohio represent a fraction of the market, which averages about 500,000 cars annually.

Customers check out a new Tesla all electric car, Monday, March 17, 2014, at a Tesla showroom inside the Kenwood Towne Centre in Cincinnati. Ohio auto dealers are sparring at the Statehouse with the California-based Tesla, which is selling it's next generation electric cars from three Ohio storefronts. Lawmakers in Ohio and other states are trying to block Tesla direct sales on grounds they undercut traditional auto dealerships. (AP Photo/Al Behrman)

The decade-old car company is based in Palo Alto, California, and sells two models—the two-seat sports-style Roadster, at about $100,000; and the Model S sedan, at about $75,000. It would like to eventually offer a $35,000 economy model, he said.

O'Connell said the cars can be difficult to sell so direct-sales are needed to jumpstart electric-car technology and drive down prices.

He said many dealers refuse to sell Tesla cars yet their associations are fighting to limit the company's ability to sell them itself across the country, including in Ohio, Georgia and New York.

At what it calls galleries operated in Maryland, Arizona, Texas and Virginia, consumers can view vehicles but aren't able to discuss price, take test drives or place orders. An Arizona lawmaker has introduced legislation that would overturn a sales restriction in place there.

O'Connell said no U.S. auto manufacturer with an existing franchise dealership has ever sought to follow such a direct-sales model so threats from auto dealers are specious.

Robert and Sarah Reynolds, left, check out a new Tesla all electric car with Tesla representatives John Van Cleave and Raven Rivera, right, Monday, March 17, 2014, at a Tesla showroom inside the Kenwood Towne Centre in Cincinnati. Ohio auto dealers are sparring at the Statehouse with the California-based Tesla, which is selling it's next generation electric cars from three Ohio storefronts. Lawmakers in Ohio and other states are trying to block Tesla direct sales on grounds they undercut traditional auto dealerships. (AP Photo/Al Behrman)

"The dealers are simply flexing their muscles, exerting their power to lock down the market and create a de jure monopoly," he said.

Cannon argued to Ohio senators that dealerships play an important watchdog role that is lost through direct sales.

"Dealers act as advocates for their customers as it relates to warranty, recall and other service-related issues with the manufacturer," he said. "The distinctly different roles of dealers and manufacturers act as a system of checks and balances to ensure that warranty and other service issues are administered fairly."

Explore further: NJ OKs new car dealer rule Tesla calls 'affront'

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Eikka
5 / 5 (5) Mar 17, 2014
"The distinctly different roles of dealers and manufacturers act as a system of checks and balances to ensure that warranty and other service issues are administered fairly."


That doesn't happen with the dealerships in bed with the manufacturers anyways.
henry_fernandez_712714
5 / 5 (4) Mar 17, 2014
My grandson works for a dealership as a saleman - these are some of the words he picked up in working for the dealership and the customers - "they pounded the customer", "they loaded the customer up on the back end (finance) telling them they saved $20, while in fact it cost them thousands", "they slammed them on their trade in", "these people were lay downs because the dealership could tell them anything and they believed it" - this is what the newbees, the green peas are taught to do when dealing with their customers - yep, we certainly want to keep that model of doing business in place - one example - lady buys a used car and is handed the keys and remote, next day comes back and says remote doesn't work, she is told "did nayone tell you the remote worked or did you just assume it" - sorry, we are not doing anything for you - sad but true
IamVal
1 / 5 (1) Mar 17, 2014
this new business is coming into town and we can't sell our inventory for 10x what we paid for it anyome!!!

if this shit flies, than any company in existence has a feezable legal argument against wal-mart.

as much as I dislike the 'free' market religion, it has literally no chance if options are maliciously legislated against at the behest of their competition.
ForFreeMinds
5 / 5 (5) Mar 17, 2014
"on grounds they undercut traditional auto dealerships"

Crony crapitalism at work, inhibiting competition for the benefit of entrenched incumbents who use government to keep the competition at bay, rather than superior products at better prices. On the other hand the electric car industry is also getting direct government subsidies.

Consumers are the losers. And politicians are the winners (along with their crony friends, at least for awhile until the competition spends more for favors than the entrenched crony crapitalists).

If politicians weren't selling favors, there wouldn't be any cronies trying to buy them. The politicians are the real crooks here. They've turned government from an institution that protects our liberties, to one that steals from us.
alfie_null
3.7 / 5 (3) Mar 18, 2014
Dealers act as advocates for their customers . . .

Boy, that's a ponderous load. He manage to say that with a straight face?

Auto dealers and politicians making back room deals (as happened in N.J.) has got to be the antithesis of "in the best interests of the community".
antialias_physorg
4 / 5 (1) Mar 18, 2014
Dealers act as advocates for their customers . . .
Boy, that's a ponderous load.

Ain't that the truth. You just need to remember: Dealers/middlemen are an unneccessary part of the transaction. They provide no service which the customer wants to pay for.
Proof: Think about the state after the purchase. Did going throug the middleman add value to what you received in any way? No.

So any profit they make has to made by way of duping the customer (and the supplier) into thinking that they serve some purpose.
COCO
not rated yet Mar 18, 2014
is it true the dealers have an Olympic flame outside each to indicate potential downrange opportunities for rapid egress?
TheGhostofOtto1923
1 / 5 (1) Mar 18, 2014
Ain't that the truth. You just need to remember: Dealers/middlemen are an unneccessary part of the transaction. They provide no service which the customer wants to pay for
They do provide warranty service. I wondered about tesla. Seems they have dedicated service centers.
http://www.teslam...m/findus

-So I ask myself - why don't they combine stores and service centers and call them a dealership?
Eikka
1 / 5 (1) Mar 21, 2014
-So I ask myself - why don't they combine stores and service centers and call them a dealership?


Because they have many more cars to be sold than cars to be serviced.

TheGhostofOtto1923
1 / 5 (1) Mar 21, 2014
-So I ask myself - why don't they combine stores and service centers and call them a dealership?


Because they have many more cars to be sold than cars to be serviced.
Other brands have the same problem. I'm suggesting that in order to sell cars in these restricted states they could combine the functions as regular dealerships do. But is suppose it has something to do with privately-owned dealership vs company store.

Maybe they could sell franchises.

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