Tesla continues to fight direct sales bans in several states, including Michigan and Connecticut. Both prohibit an auto manufacturer from selling its cars directly to the public. Instead, they must sell through franchised dealers.
The reasons for such antiquated laws go back to the beginning of the auto industry, when car companies had virtually unlimited power to control the dealers selling their products. If a dealer angered a carmaker in any way, the company could arbitrarily shut off its supply of cars and open a competing dealer across the street. To protect dealers from manufacturer abuse, many states enacted laws designed to limit the power the automakers had over them.
That was then. This is now. Today, dealer groups have become mammoth corporations with enormous profits that they can use to buy influence in state legislatures. They have built a fortress around themselves that is virtually impregnable. Auto manufacturers no longer dictate to them. Instead, they ask them politely to please consider suggestions from the mothership, which the dealers are pretty much free to accept or reject.
A few years back, Tesla opened what it called a “gallery” in Greenwich, Connecticut, one the trendiest, chichi-est cities in America. People were free to come, look around, sit in a Tesla, take one for a test drive, ask questions — everything but buy one. For that, they were directed to the internet or to a store across the state line in New York. Delivery of the car had to take place out of state as well.
The state’s franchised dealers objected, saying Tesla was illegally selling cars from the Greenwich location. In December 2018, a state judge agreed and ordered the gallery closed. Tesla appealed to the Connecticut Supreme Court, vowing to eviscerate the Connecticut Franchise Act. There was hope among the Tesla faithful that the company would win an important victory, one that could be used to attack franchised dealer laws in other states such as Michigan and Texas.
The wheels of justice grind slowly, so they say. Too slowly for Elon and his Musketeers. Last month, the company quietly withdrew its appeal. Instead, it began leasing Tesla automobiles from its service center located in Milford, Connecticut, an hour east of Greenwich, according to a report by Westfair. It says Tesla posted the following statement to a website for Tesla owners:
“A Tesla leasing location can offer leases but cannot conduct any activity related to the sale of a motor vehicle. Because it is a manufacturer, Tesla is not eligible to apply for a dealer license under state law, but Tesla is eligible to hold a leasing license, and thus is authorized to offer leases in Connecticut.”
The newly elected governor of Connecticut claims to be a free market advocate, and Tesla is continuing its efforts to have the franchise law amended by the state legislature. In the meantime, sales of the Model 3 have changed the electric car landscape and taken Tesla from a curiosity to a significant force in the marketplace. The Connecticut Supreme Court could have ruled against the company, which would have strengthened the hand of the dealers.
Sometimes, the way to victory is not by storming the front gates but by sliding in the back door — a tactic the residents of Troy once exploited quite successfully. The whole idea of franchise laws today is archaic. If nothing else, Amazon has taught us what customers want is a one-stop, one-click shopping experience. Soon, car dealers will be consigned to the dustbin of history along with buggy whip manufacturers and itinerant peddlers.
Musk and his minions have decided to play the long game. The success of their assault on conventional auto makers and franchise dealers is as inevitable as the change of seasons. In the struggle between Tesla and car dealers, the smart money is on Tesla.