Tesla can still sell cars in New York, but loses argument over franchised dealer requirements

Last week, Tesla Motors and New York State reached an agreement under which Tesla would be able to continue selling the Model S through the stores they currently operate in New York.  Sigh of relief, yes?  One state in which Tesla has won out over the Auto Dealers Associations?  Not so fast, because the deal  actually represents a loss for Tesla Motors.

The agreement reaffirms the existing New York laws requiring car sales to be conducted through franchised dealerships.  Tesla’s existing stores will be allowed to continue to operate, and sell cars, but any further outlets must be a franchised dealership.

In short, Tesla lost.

For whatever it’s worth, Tesla Motors has repeatedly said electric cars cannot be effectively sold through franchised dealerships.  The EV, according to Tesla, negates the whole sales pitch of the gasoline powered cars that would be sold by that same dealership, putting traditional car dealerships into a conflict of interest whenever they try to sell an electric car.  An example of that conflict of interest might be Rep. Mike Kelly (R-PA), a Western Pennsylvania Congressman who is also owner of a GM Dealership.  In early 2012 he pushed to have electric car tax credits abolished, and reportedly fired an employee of his dealership who agreed to let GM send a few Volt’s to the dealership.

On the other hand, the Nissan Leaf is sold through regular Nissan dealerships and is selling just as strongly as the Tesla Model S.  That factoid makes one wonder whether Tesla’s contention really holds water.

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Whether or not Tesla is correct – they drew the line in the sand and have been doing their best to maintain the right to sell cars directly, through Tesla-owned stores.  But they’ve run into challenges in several states, with some of the states denying Tesla the ability to sell cars, forcing Tesla’s customers to jump through extra hoops.

What’s happened is that Tesla argued for a position, that they had to be able to sell electric cars through company-owned stores.  In New York, they lost the argument.  And it’s clear from the press release that the Auto Dealers Association (ADA) is going to take this win to other states and present it as the model to be followed elsewhere.

I’m of mixed opinion about whether or not Tesla’s position is sound.  As I noted the other day, buying a car could be similar to how we buy computers and other things through online websites.  Most of the car manufacturers host most of the car sales process on their websites, and then direct the prospective buyer to local dealerships to complete the sale.  While Tesla does make a good point about conflict of interest at regular car dealerships, the Nissan Leaf sales rate does negate that argument – some dealerships obviously are able to handle sales of both gasoline and electric vehicles.

I do worry about, if Tesla Motors can maintain a monopoly over sales and service of their cars, whether Tesla would ever become evil.

Let’s go over the press release to look at some details…

GOVERNOR CUOMO ANNOUNCES AGREEMENT WITH AUTOMOBILE DEALERS AND TESLA MOTORS

Agreement encourages innovation and strengthens auto dealer franchises

Governor Andrew M. Cuomo today announced an agreement between Tesla Motors, the New York State Automobile Dealers Association and the Greater New York Automobile Dealers Association to resolve a dispute concerning how auto manufacturers can sell their products to consumers. Under the agreement, Tesla Motors will maintain their five currently licensed retail locations in New York State. Additional Tesla retail locations will be established under a strengthened dealer franchise law. Legislation to implement the agreement will be introduced with the support of leadership in the Senate and Assembly.

“Today’s agreement 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” said Governor Cuomo. “The agreement is a win-win for consumers, for the franchised auto dealers and manufacturers who play such a vital role in New York’s economy, and for cutting edge companies like Tesla. I want to thank Lou Roberti of the New York State Automobile Dealers Association, Neale Kuperman of the Greater New York Automobile Dealers Association, and Elon Musk of Tesla for their willingness to work together to reach this agreement.”

Let’s be clear, the winner here is the “dealer franchise system”.

Lou Roberti, Chairman of the New York State Automobile Dealers Association said, “I am delighted that we have been able to come to this agreement. I want to thank Governor Cuomo for the leadership that he provided that brought this agreement together, as well as the leaders of the Senate and Assembly for their commitment to passing the necessary legislation. This 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. Franchised dealers provide price competition, a ready source of trained technicians and parts for repairs and recalls, and create a market for trade-ins. Franchised dealers also provide thousands of good paying jobs in communities throughout the State. I know I speak for NYSADA’s more than 1,000 franchise dealers and their hard working employees when I say that this is great achievement for all involved.”

Neale Kuperman, Chairman of the Greater New York Automobile Dealers Association said, “On behalf of the more than 400 dealers and our roughly 33,000 employees, the Greater New York Automobile Dealership Association and I want to thank Governor Cuomo, Speaker Silver, Majority Leaders Skelos and Klein, and our sponsors, Senator Libous and Assemblyman Gantt for their commitment to a strong franchised dealer system. This reaffirms the State’s long standing goal that cars sold through the dealer-franchise system serve the consumer and their best interests. This legislation will assist the Greater New York Automobile Dealers Association and our commitment to providing strong customer service while we continue to grow the market for environmentally friendly zero emission vehicles.”

These are the ADA talking points – that the dealership system is good for consumers.  That may be, but it’s also a power structure owned and maintained by the ADA’s in each state.  This agreement preserves that power structure.
How many car-buyers actually like car dealerships?  I’d guess that not many do, and that most car buyers would appreciate major changes in the ways cars are sold.
Reading between the lines, the ADA is now going to take this win and go to every other state and attempt to make the same deal.

Diarmuid O’Connell, Vice President, Corporate Development, Tesla Motors, said, “We’d like to thank Governor Cuomo for his leadership in architecting an agreement whereby Tesla will be able to continue to sell vehicles in its five retail stores in New York State. Under the Governor’s leadership, Tesla, the New York franchise dealers and other interested parties were able to engage in a productive dialogue which resulted in a compromise that protects franchise dealers’ existing business while allowing Tesla to continue to pursue its mission of catalyzing the market for sustainable transportation. We also appreciate that many members of the Legislature were open to our message and supported a constructive solution. In particular, we are grateful for the support of Assemblyman David Buchwald, who represents a district in which three Tesla facilities are located. Tesla looks forward to a future in which it can continue to create jobs and invest in New York’s economy while accelerating the transition to sustainable transportation.”

Tesla is of course going to put their best face on this, which is what Diarmuid O’Connell does here.  But, really, Tesla just lost the argument.

“The country and New York need more clean energy solutions for transportation,” said Richard Schrader, the political and legislative director for NRDC NY. “It’s good for New York’s economy, consumers and environment that this legislation is keeping an electric car innovator in the state.”

Senator Tom Libous said, “It’s important that we protect auto dealers and their thousands of employees across New York but also welcome Tesla into the business community. I’m glad we could come to an agreement that works for Tesla, the New York State Automobile Dealers Association and the Greater New York State Automobile Dealers Association. As the Senate sponsor of this legislation, I appreciate their willingness to compromise and come to a resolution.”

Senator Joe Robach said, “I am happy to see that all involved parties were able to come to an agreement. The important thing, as with any major purchase, is that policies are in place to protect the consumers while allowing access to products. I applaud Governor Cuomo, Tesla Motors, the New York State Automobile Dealers Association and the Greater New York Automobile Dealers Association for reaching an agreement that will benefit all parties, including the people of New York.”

Assemblyman David Gantt said, “This agreement is a great step forward not only for Tesla and the State’s auto dealers, but for the State’s consumers as well. Thanks to the collaborative effort of the Assembly, Governor Cuomo, Tesla, the New York State Automobile Dealers Association and the Greater New York Automobile Dealers Association an agreement has been reached which benefits all New Yorkers. I will continue working with my colleagues to ensure the successful passage of this legislation.”

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

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