Tesla vs. Auto Dealers: Who Wins?

If there's one way that Tesla makes traditional automobile dealers mad, it's how it wants to sell its vehicles.

For instance, Tesla and its CEO Elon Musk want to sell the company's Model S electric sedan directly to consumers. That is, they want to take independently owned dealerships like the ones used by the likes of Ford, Toyota and General Motors out of the picture.

"We want to cut out the middleman," Diarmuid O'Connell, vice president for business development at Tesla, said. "We're a bad fit for the dealer system."

But the National Automobile Dealers Association, one of the most powerful lobbying groups in Washington, is fighting back.

At the heart of the battle between Tesla and American car dealers lies Tesla's showrooms. There are 37 Tesla showrooms across the country, mostly in shopping malls. But they aren't like traditional dealerships. There are only enough vehicles in the showrooms for display and test drives. And there's no haggling, since every car is sold at full sticker price.

"If Elon Musk wants to have a showroom in a mall, that's fine," Bill Wolters of the Texas Automobile Dealers Association said, "but he can't own it."

The battle comes down to the state level, where most car sales are regulated. For instance, while Tesla can sell vehicles in many states, it is restricted from doing so in Texas.

Wolters argues that private car dealerships are essential because they promote price competition, something unavailable while Tesla is the only one selling its vehicles.

Others, like Jack Gillis of the Consumer Federation of America, disagree. They argue that consumers don't like to haggle over prices and that a one-price system is more fair. Tesla itself worries that car dealerships won't represent its electric vehicles fairly, given the number of gasoline vehicles to sell.

"Why is it the [dealer franchise] market needs to be protected in this absolutist fashion?" O'Connell said. "There's a future out there where we might sell our product through a franchise dealer, but we're not there yet."

There have been efforts at compromise but, according to Wolters, Musk has been unwilling.

"He's just determined to do it his own way," Wolters said.

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