Tesla’s company-owned stores create controversy

Motors in the mall: Tesla hawks electric cars like Macbooks with dedicated retail spaceShopping at the mall is a much more pleasant experience than schlepping to a car dealer, which is why Tesla Motors decided to sell its electric cars exclusively through Apple Store-like retailers in America’s consumer temples. Now, Tesla is under fire because the company-owned stores violate certain state franchise laws, Automotive News reports.

In some states, including Tesla’s home state of California, manufacturer ownership of dealers is restricted or outright illegal. That’s why nearly every car dealer in the United States is an independently owned franchise that buys its merchandise from the factory.

The rules vary state to state. In California, manufacturer-owned dealerships aren’t technically illegal, but they cannot be within 10 miles of an independent dealer. In New York, where Tesla opened its first retail store earlier this year, manufacturer-owned dealerships are completely illegal.

Consequently, Tesla is attracting heat from dealer associations and one state government. On September 28, the Illinois Secretary of State’s office told the company that its listing of CEO Elon Musk as the owner of a Chicago store was a violation of state law.

Dealer associations in New York, Massachusetts, and Oregon are also complaining, saying that the Tesla stores represent unfair competition. They are also afraid that mainstream carmakers will try to open their own dealers if Tesla is successful.

“If a manufacturer sees that Tesla is successful with this kind of business model, who’s to say they don’t break out their own EV product lines and create a separate system that bypasses dealers?” Bob O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association, told Automotive News.

Manufacturers do like the idea of owning their dealerships. Last year, Chrysler opened Motor Village in Los Angeles to sell Fiats. However, a California DMV investigation found that it was in violation of the state’s 10-mile rule, and Chrysler sold the store to a local franchisee.

George Blankenship, Tesla vice president of sales and the mastermind behind the Apple Store, said the EV manufacturer is in compliance with all local laws.

“If we can’t be a dealer in a mall, we won’t do reservations onsite. We tell people where to go on our website to make a reservation,” Blankenship said.

When Tesla first unveiled its mall store concept, Blankenship said the company was looking for more publicity than sales. The stores are bound to attract curious shoppers, but serious buyers will have to leave the mall to take a test drive, and there is a no-haggle policy on the cars, which start at $57,400.

Tesla owners will not be going back to the mall for servicing, either. That will take place at a separate service center.

Tesla currently has 17 stores in 10 states and the District of Columbia, with another six scheduled to open soon.

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