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15 Sep, 2014 23:19

Tesla can sell cars directly to customers – Mass. high court

Tesla Motors earned a significant victory over traditional automakers and their system of franchise dealerships on Monday. The Massachusetts Supreme Court ruled that the electric car company can sell its products directly to consumers.
Tesla can sell cars directly to customers – Mass. high court

Auto dealers and an allied trade association in the Bay State previously sued to stop Tesla from selling its luxury electric cars from a store in the Natick Mall, saying Tesla was essentially operating its own dealership. The Massachusetts State Auto Dealers Association (MSADA) argued that a 2002 change in state law, called Chapter 93B, barred manufacturers from owning dealerships, WBUR reported.

The Massachusetts justices were unanimous in their decision that the car dealers ‒ which have franchise licenses with traditional automakers including Chevrolet and Fisker ‒ and the MSADA lacked standing to block the revolutionary business approach in the commonwealth.

“Chapter 93B is aimed primarily at protecting motor vehicle dealers from injury caused by the unfair business practices of manufacturers and distributors with which they are associated, generally in a franchise relationship,’’ Justice Barbara Lenk wrote. “We therefore affirm the judgment of the Superior Court dismissing the plaintiffs’ action on the basis of lack of standing.’’

At a traditional car dealership, like those belonging to the plaintiffs, the franchise serves as a middleman between the automaker and the customer. The dealership buys a car from the automaker with which it is associated, then turns around and sells the car to a customer. Tesla, though, sells its cars directly to consumers, using the storefront as a way to get the information to potential purchasers, design their customized version of the car and buy the vehicle on their own time and terms.

Nurun, a Tesla partner, described the retail experience as letting the company “interact with and educate potential customers in a less formal, more experiential environment.” The stores focus on technology. “We utilized technology to deliver a variety of informative experiences in a small space. A remotely managed network of interactive stations introduces visitors to Tesla vehicles and how they work,” the website said.

A man looks over a pair of Tesla Model S electric automobiles at a Tesla Motors showroom (Reuters / Robert Galbraith)

In the ruling, Justice Margot Botsford noted that Tesla Motors MA is not affiliated with the plaintiffs, nor is it a member of MSADA, and that none of the plaintiffs have ever sold or distributed Tesla vehicles. In November of last year, when the suit was filed, Robert F. O’Koniewski, MSADA’s executive vice president, told the Boston Globe that Tesla should fall in line and play nice like all the other car dealers.

“This has nothing to do with trying to prevent them from doing business in the Commonwealth,” O’Koniewski said. “It has everything to do with following the law, like the other 412 dealers have to do and the other 25 manufacturers have to do.”

But the Massachusetts high court opted for innovation over historical norms and following the crowd. Before Tesla can declare a total victory, however, it must win a similar court case in Georgia, where dealers are trying to revoke its dealer license, the Wall Street Journal reported.

Yet Tesla Motors said it’s gratified by the ruling. “The mission of this company from the very beginning has been to evangelize for electric vehicles,” said the company’s deputy general counsel Todd Maron, according to WBUR. “Massachusetts is a key market for that; it’s very progress. So we are looking forward to getting on with business now that the legal situation has been clarified.”

O’Koniewski said his organization is disappointed, but looked to continue the battle against the company owned by Elon Musk.

“We as an association are going to have to look at what the decision says and try to assess whether we need to go back to the Legislature and ask them to fix that,” O’Koniewski said, according to Boston University’s NPR affiliate.

"We obviously feel the law says one thing and others feel it says something else,” he said, WGBH reported. "Whatever you think about the standing issue, we would still argue that the Tesla situation is violating the prohibition on factory store ownership."

Diarmuid O’Connell, Tesla’s vice president of corporate development, disagreed, saying that the prohibition O’Koniewski referred to was a misinterpretation of the law’s intent.

"If the dealers believe there is a law that stipulates that then they probably should have brought their case according to that aspect of the law rather than this one because that would be then the stronger one,” O’Connell said.

The court said Natick has since given Tesla a license to operate a sales office at the Natick Mall.