With Model 3 On The Way, Tesla Faces Roadblock From Charlotte-Area Dealerships

May 5, 2016

In late March, fans of Tesla's luxury electric cars swarmed its website and stores to reserve the new Model 3. It’s a lower-priced design aimed at the mass market.  But delivering those cars next year could be a problem: Traditional auto dealers are fighting its plan for new showrooms, including one in Charlotte.

The Tesla Motors "gallery" on East Independence Boulevard in Matthews isn't your typical car dealership.  There are few cars on the lot, no lineups of shiny new models along the road, and no pushy salespeople waiting at the door.

Inside, it’s as quiet as Tesla's electric cars.  And you can't actually buy a car there -- yet.

The product specialist – they’re not salespeople - said he couldn't be interviewed. But he did tell me the store was all about education – not orders or sales.

That’s because Tesla doesn’t have a dealer’s license .... You have to go online or visit stores in Raleigh or out of state to buy a Tesla. And at least four Charlotte-area dealers – Hendrick, Capital, Sonic and Keffer - want to keep it that way

A few miles down the road this week, Tesla and the dealers duked it out for two days in a fluorescent-lit conference room. A high-stakes DMV hearing at a highway maintenance center.

“The law is very clear in what it says,” Shawn Mercer, a lawyer for the dealers, said during Tuesday’s session. “It says that you would have to determine that there is not an independent dealer available in the relevant market area to serve the Tesla brand in the public interest.”

He says existing dealers are eager to sell Tesla's cars. Or, it could be a new dealer. Tesla just can’t sell cars itself.  

“The arguments that they're going to make here should be better made on Jones Street to the General Assembly,” he said.

North Carolina isn’t alone restricting auto dealer competition. Since the 1950s, nearly 40 states have passed laws that ban or make it difficult for automakers to sell directly to consumers. Some now even limit online sales.

Direct sales aren’t illegal in North Carolina, but new dealerships need DMV permission. If other dealers object, there’s a courtroom-style hearing. To approve a new license, the DMV has to determine existing dealers can’t do the job and that the new dealership is "in the public interest."

Three years ago, Tesla opened a Raleigh dealership in Raleigh without a hearing. This time around, dealers in the Charlotte area have organized for a fight.

CHANGING THE BUSINESS MODEL?

It's not just about Tesla and a new technology, it's about what could be a dramatic change in the nation's current auto sales model.

Dealers say the current system works just fine, saving money for buyers. Consultant Maryann Keller argued the point at a January forum in Washington hosted by the Federal Trade Commission.

“What promoters of the direct sale model fail to recognize is that same-brand dealers vigorously compete with each other for the benefit of consumers,” Keller said.

The FTC is quietly lobbying for a change. In blog posts and letters to state lawmakers, FTC officials argue that car buyers should be able to choose both the car they want, and the way they buy it. Nobody at the FTC was willing to comment for this story.

South Carolina lawyer Steve McKelvey agrees with the FTC. He represents automakers in disputes with dealers, and also spoke at that January forum.

“The problem is the overreaching motor vehicle laws that prohibit the traditional manufacturers from having even the option to respond to consumer demands, market needs, or competition in any way other than through the traditional channels,” McKelvey said.  

HISTORY OF THE LAW

So why do so many states restrict direct sales?

You have to look back at the auto industry’s early years. Automakers needed local dealers to get their cars to market. Most were mom and pops. They were at a disadvantage during the Great Depression, when automakers forced them to buy cars they didn't want - to keep production lines running. And there were other frictions. So dealers fought back. Relying on their close ties with local lawmakers they won passage of state dealer protection laws.

The rise of e-commerce and the Great Recession a few years ago ... not to mention Tesla ... have brought new fears. So dealers are fighting change.

They think Tesla should let them do the selling. Tesla says they won’t sell cars the way it wants - with lessons on how electric vehicles work, no haggling over prices, and no high-pressure sales of upgrades and car loans.

That’s part of Tesla’s argument. “There's a compelling public interest in being able to not only be educated in the store here in the Charlotte-Matthews area, but also to be able to buy this car in the store,” Tesla’s lawyer, Daniel Petrocelli, said while laying out his argument at the start of this week’s hearing.

It was like a courtroom, with lawyers and expert witnesses. Other than WFAE, no reporters were there. No public comments were allowed, but Leilani Munter of Cornelius was there.

“What’s happening in there, that is the result of for the last hundred years, the oil companies and the auto dealers and the internal combustion engine car manufacturers, have absolutely no competition,” Munter said.

She’s a race car driver, environmental activist and Tesla agitator. She says everyone should own an electric car and calls her Tesla a “technological marvel”

“It’s not like you’re having to give up speed and performance to drive an electric car. You’re getting all those things. Oh, and by the way, I haven’t been to a gas station since September 2013,” she said.       

For Tesla, this week’s legal battle is critical. Since March 31, nearly 400,000 reservations have come in nationwide for the $35,000 Model 3, a car that won't even be available until sometime next year.  

Somehow it has to get all those cars to buyers. It’s going to need showrooms like the one in Matthews.  

The DMV has no timeline for a decision on Tesla’s application.