Auto dealers reach a truce with innovative Tesla
Working with the governor and state lawmakers, New York auto dealers recently struck a hard-achieved agreement with an electric car manufacturer in California whose innovative direct-sales model has put it on a collision course with franchised dealers here and in other states.
In a deal announced by Gov. Andrew Cuomo, Tesla Motors Inc. will continue to operate its five licensed retail stores in New York, including two in Westchester County, but cannot open more sales and service centers outside the state”™s long-existing dealer franchise system. Any additional Tesla stores in New York must be owned and operated by an independent dealer.
The protection for auto dealers was included in an amended franchise reform bill introduced in the state Senate and Assembly in late March. A grandfather clause protecting Tesla”™s existing retail businesses in the state would apply only to manufacturers of zero-emission vehicles. Legislators have not voted on the bill.
Tesla Motors opened its first Westchester sales showroom in 2012 at The Westchester mall in White Plains, where it also operates a service center at 18 Beltway Place. The Palo Alto-based company last month opened its second location in the county at 115 Kisco Ave. in Mount Kisco.
The electric car maker”™s detour around franchised dealers to sell directly to consumers and service its luxury vehicles in Tesla-owned garages has pitted it against auto dealer trade groups and some politicians in several states.
In New Jersey, where Tesla operates two stores, the state motor vehicle commission last month imposed a regulation that requires auto companies to sell through dealers and would force Tesla to close its annually licensed stores there. Elon Musk, chairman and CEO of Tesla Motors, on the company blog claimed the commission”™s action was the result of a “backroom deal” between New Jersey Gov. Chris Christie and the state”™s auto dealer lobby, which Musk said had pressured state officials “to protect its monopoly.”
The electric automaker now has until April 15 to close its New Jersey sales showrooms. However, a bill recently sponsored by a New Jersey assemblyman would exempt electric car makers from dealership laws and allow Tesla to continue and expand its direct sales operations in the state.
The president of the New Jersey Coalition of Automotive Retailers, however, told CNN Money his lobbying group will not support a permanent exemption from franchise requirements for Tesla.
CNN Money reported that Tesla”™s direct sales operation is in dispute in 14 states including New York. The manufacturer”™s retail stores have been banned in Texas and Arizona and are allowed in California, Colorado and Virginia.
The New York agreement is expected to resolve a dispute between Tesla and the New York State Automobile Dealers Association and the Greater New York Automobile Dealers Association. The latter group represents 400 dealers in the metropolitan area, where Tesla also has opened three stores in New York City and on Long Island.
Cuomo, when announcing the agreement, said it “reaffirms New York”™s long-standing commitment to the dealer franchise system, while making sure New York remains a leader in spurring innovative businesses and encouraging zero emissions vehicle sales.” He called the deal “a win-win” for consumers, franchised auto dealers and manufacturers and cutting-edge companies like Tesla.
Established auto dealers, though, appear to have benefited more from the compromise deal than their automaker.
Officials at the state auto dealers association hailed the agreement as “a great victory” after “very difficult” negotiations with the electric car manufacturer. In an announcement to members on the association”™s website, they said Tesla”™s insistence on being able to sell its vehicles outside of the franchise system was the “sticking point” in negotiations.
Westchester auto dealer Lou Roberti was involved in the negotiations as chairman of the 1,000-member New York State Automobile Dealers Association. Roberti, owner of Arroway Chevrolet Cadillac in Mount Kisco, in a statement said the agreement “will serve as a model for other states as they consider how to accommodate Tesla and a distribution system that has served the public well.”
Roberti did not respond to a call for further comment.
Assemblyman David Buchwald, the Democrat representing Westchester”™s 93rd Assembly district, held a March 21 press conference at the Tesla showroom in White Plains to oppose the state bill outlawing the automaker”™s direct sales to the public. The ban would “stifle environmental innovation, limit consumer choice and impact jobs,” he said in a press release.
The compromise agreement, which amended the franchise reform bill to allow Tesla to continue operating its existing sales centers, was announced one week after Buchwald was joined by White Plains Mayor Thomas Roach and business and environmental leaders in public support for the automaker. Buchwald said the compromise saved 35 jobs at Tesla”™s White Plains and Mount Kisco facilities.
At Tesla Motors, Diarmuid O”™Connell, vice president of corporate development, said the compromise “protects franchise dealers”™ existing business while allowing Tesla to continue to pursue its mission of catalyzing the market for sustainable transportation.” He said the company plans to “continue to create jobs and invest in New York”™s economy.”
Roberti in the announcement from the governor”™s office made the argument for the existing system of dealer-owned sales and service centers in the auto industry.
“Franchised dealers provide price competition, a ready source of trained technicians and parts for repairs and recalls, and create a market for trade-ins,” he said. “Franchised dealers also provide thousands of good paying jobs in communities throughout the state.”
Musk, Tesla”™s founding chairman and product architect, on his company blog explained why the electric carmaker has steered clear of franchise dealerships in its startup business.
Auto dealers “have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none,” he wrote. “Moreover, it is much harder to sell a new technology car from a new company when people are so used to the old. Inevitably, they revert to selling what”™s easy and it is game over for the new company.”