Dealers oppose Tesla push for Virginia outlet
DON Hall, president of the Virginia Automobile Dealers Association, was making the hard sell.
Staring directly into the camera, using the language of war, he urged car dealers to unite against a force that he said threatened their livelihoods: electric-car maker Tesla.
“For the last 29 years, I have fought as a gladiator to protect the rights of Virginia auto dealers and their franchise system,” he said in a video distributed to dealers this past fall. “This system is under attack by the likes of Tesla and many others out there who believe the franchise system is a dinosaur and no longer works . . . Let’s all strap on whatever it takes to win.”
The reason that Hall was sounding the alarm: Tesla, which sells its cars directly to consumers rather than through franchise dealers, is trying to open a second outlet in Virginia.
Car dealers in Virginia and across the United States have been fighting Tesla, seeing the company’s direct-to-consumer sales model as a threat to the franchise system that they say protects consumers as well as businesses.
In Virginia, as in most US states, it is generally illegal for manufacturers to sell cars directly to consumers, partly to prevent carmakers from undercutting their franchisees. But there are exceptions to that rule. And Tesla says those apply, in part because its cars are so unconventional that traditional car salesmanship will not work.
Tesla, which already operates a retail showroom in Northern Virginia, is seeking the state’s permission to open a second in the suburban Richmond shopping mecca of Short Pump Town Center. A decision from Richard Holcomb, the Department of Motor Vehicles commissioner, is due by midDecember. But the matter is unlikely to end there. Tesla and the dealers’ association, known as VADA, have shown a willingness to take their fight to court.
The battle pits a significant political donor – over the past decade, VADA has given Virginia politicians $4 million in campaign contributions and $27,000 in gifts – against the kind of green, emerging technology championed by Governor Terry McAuliffe. Before running for governor in 2013, McAuliffe led GreenTech Automotive, a struggling electric car company.
“The Governor supports the expansion of new technologies and high growth industries in Virginia,” McAuliffe spokesman Brian Coy said by email. “He has not announced a position on this particular issue as it is currently subject to the review of the Commissioner of the DMV, who will determine whether this proposal complies with Virginia law.”
Tesla has argued that dealers who are used to quick sales, price markups and profitable maintenance work could not shift gears to its cars. With new, highly sophisticated technology, Teslas are more time-consuming to sell. Tesla offers the cars at set prices whether they are purchased at a retail outlet or through the company’s website, leaving no room for markup. And with few moving parts or oil, they offer little opportunity to profit from service – an important source of revenue for many conventional dealers.
Holcomb was not persuaded by those arguments in 2013, when he rejected the company’s original plan to open a Northern Virginia outlet. But Tesla filed a lawsuit, ultimately winning the right to open its Tysons Corner outlet under a settlement brokered by then-state attorney-general Ken Cuccinelli II. Tesla also operates a “gallery” in McLean, where potential customers can learn about the vehicles. But staff there cannot discuss sales or allow customers to test-drive a car.
Tesla, which is licensed to sell cars in 23 states and the District of Columbia, has outlets in Annapolis, Bethesda and Maryland. The company is free to open a gallery in Short Pump, but it needs the state’s permission to open another retail outlet.
“Tesla wants to bring its award-winning vehicles and provide its industryleading service to Virginia consumers,” Will Nicholas, a Tesla government rela- tions manager, said by email. “Since the company’s inception, Tesla has directly sold its vehicles to consumers in over 23 states in the US and around the world. We have never franchised our distribution in Virginia or anywhere, and are committed to an educational shopping experience that ensures consumers learn [and appreciate] the benefits electric vehicle technology and sustainable energy.”
State law allows manufacturers to sell directly to customers if no one is available to serve as a dealer in a certain area. No dealers expressed interest when Tesla sought its first Virginia outlet. This time around, 11 auto dealers sent the company letters expressing interest. In a court filling, Tesla dismissed those as brief form letters orchestrated by VADA – not serious expressions of interest.
Tesla questions whether anyone would be able to sustain a dealership if there is no room for markup.
“A dealer who cannot stay in business is not ‘available’ in any real-world sense,” company lawyers wrote in filings with the state.
Anne Gambardella, VADA’s director of legislative and legal affairs, said five of those dealers took the time to testify in hearings on the matter.
“They certainly expressed more than a form-letter interest,” she said.
She said the state law prohibiting direct sales protects not just franchisees but also consumers. She said prices go down and service improves when customers can shop around.
“There are reasons you don’t want the distribution chain controlled from top to bottom,” she said. “You can go to any number of Honda dealers, competing on price and service.” That would not be the case, she said, “if Honda controlled it all”.
Recently, Tesla has invited lawmakers from across the state and the political spectrum to visit its Tysons Corner outlet, to learn about its cars and even to test drive them. They intended to convey how fully electric cars differ from conventional gas-powered cars.
“It’s not a Ford versus a Toyota versus a Hyundai. It’s a whole different product,” said Delegate Marcus B Simon, who took a test drive in September. “It’s more like buying a computer than a car.”Simon said he will keep an open mind about any legislation.
“I think there’s a lot of merit to the arguments that Tesla is making,” he said. “All they’ve asked for is that we keep an open mind, not reflexively adopt the auto dealer’s position.”