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Natick Tesla store still facing lawsuit from Mass. dealerships

Posted by Clifford Atiyeh  November 26, 2012 09:38 AM

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Tesla-Natick-Mall-real.jpg

The Tesla store in the Natick Mall the night before its opening on Sept. 28.

(Tesla)

Despite a Superior Court judge denying an injunction against Tesla Motors, the Massachusetts State Automobile Dealers Association says it will not drop its month-old lawsuit against the electric automaker.

At issue is Tesla's small store in the Natick Mall. Well before it opened next to Victoria's Secret in late September, MSADA and its national arm, the National Automobile Dealers Association, had threatened to sue Tesla for running company-owned dealerships, rather than using independently-owned franchises. Massachusetts law, for example, outright bans automakers from owning their own dealerships.

MSADA and NADA both contend that Tesla is deliberately skirting dealership franchise laws, which require dealerships to hold special licenses and guarantee repair work for the cars they sell, among other rules. Tesla, by opening showrooms in shopping malls and other traditional retail areas, says it is merely doing what Apple has done. Since the company doesn't have the production capacity to stock any of its 22 U.S. stores with inventory, customers can only get on a wait list. They can't buy a Tesla on the spot and drive off like at a regular dealership.

None of that has satisfied the dealer associations. In mid-October, MSADA filed suit against Tesla for illegal trade practices. The Natick store backed off, refusing customers reservations or test drives like at some of its other stores.

"It is impossible for [dealers] to explain the advantages of going electric without simultaneously undermining their traditional business," Tesla CEO Elon Musk said in an October post on Tesla's website.

Tesla was also sued in New York state for similar reasons, and NADA, which has called for negotiations with Tesla, has said it would back state associations like MSADA with legal funding. MSADA said that it would allow Tesla nothing more than an "unstaffed display of a locked automobile."

That hasn't happened.

Tesla-Natick-Mall.jpg

"They claim they're operating under the guise of a non-sales showroom, and we call that out as an outright scam," Robert O'Koniewski, MSADA vice president, said to Automotive News.

MSADA also cites difficulties for customers obtaining service (Tesla's service center is scheduled to open in Boston in March, but it's not at the same Natick showroom, as would be required for a franchised dealer). It says Tesla customers may not be under the state's lemon law, either.

However, beyond the requirement for warranty repairs and access to parts and service, the dealer franchise law in Massachusetts does not exist to protect consumers. It exists to protect dealerships from manufacturers and distributors, who might otherwise force dealerships to buy cars they don't want or cut contracts without notice.

The biggest concern among state franchisees are manufacturer-owned dealerships, which if allowed could cut out dealerships entirely from the auto business. But franchise rules vary by state. In New York, Ford and Mercedes-Benz both run company-owned dealerships in Manhattan.

Even without franchise laws, most automakers would not be able to run a nationwide network of dealerships. The costs of buying and maintaining real estate, employing thousands of additional full-time staff, and facing liability for every purchase or repair would drive them out of business. No one is debating that.

However, Tesla and its outspoken CEO see themselves as industry pioneers intent on shaking up the business -- a Silicon Valley tech company among "legacy" gas-powered automakers. It's that very thought that has dealers up in arms, especially if other new automakers from China or India decide to follow Tesla's example, as NADA has repeatedly said.

Right now, Tesla isn't a huge threat. Its electric cars are prohibitively expensive, produced in limited quantities, and face virtually no nationwide infrastructure of charging stations. Without any dealerships, Tesla sold fewer than 2,000 examples of its first car, the Roadster, from 2008 to now. While reservations for its newest car, the Model S sedan, have exceeded 10,000, the automaker has only built about half that number this year. As a comparison, even Suzuki -- which is quitting the U.S. market -- was able to sell more than 20,000 cars this year.

But the more Tesla expands its business and tries to become a serious automaker, the greater the likelihood it will lose in Massachusetts, and elsewhere. Will Tesla succeed by fighting a longstanding industry rooted in firm, government-sanctioned protection, or will it simply be run out of town? We love its cars, but we're not placing bets just yet.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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Clifford Atiyeh is an automotive writer and car enthusiast . He has spent his entire life driving cars he doesn't own.
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