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  • William Maley
    William Maley

    Massachusetts Dealer Association Denied Injunction Against Tesla

    William Maley

    Staff Writer - CheersandGears.com

    November 21, 2012

    Last week, the Massachusetts Superior Court denied a request from the Massachusetts State Automobile Dealers Association for an injunction against Tesla to stop them from running a store in Boston.

    The lawsuit filled on October 16th argued that Tesla violates Massachusetts' licensing, consumer protection and franchise laws since the company runs their own stores. If granted the injunction, Tesla could only use their storefronts as a place showing a locked vehicle with no staff.

    “Tesla looks forward to continuing to focus on advancing the knowledge of EVs in a convenient, accessible environment. We remain hopeful for a positive outcome of this case,” said Tesla spokeswoman, Shanna Hendriks.

    Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association tells Automotive News they are far from giving up.

    "Dropping the lawsuit is not an option at this point. We feel very strongly that Tesla is operating a factory store outside parameters of our franchise law and our license law, and they are operating that store illegally," O’Koniewski said.

    O’Koniewski goes onto say that the group is currently considering an appeal and other judicial remedies.

    Source: Automotive News (Subscription Required)

    William Maley is a staff writer for Cheers & Gears. He can be reached at william.maley@cheersandgears.com or you can follow him on twitter at @realmudmonster.

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    This is a problem only in Massachusetts and a few states with laws designed specifically to protect dealer franchises. Basically, the law (93B in Massachusetts) is an anti-competitive ordinance which prohibits automobile manufacturers from also owning a dealership. Or at least that is the Dealer's Association reading of the law. The law does not actually say that. It says that an automobile manufacturer cannot own a dealership and get into direct competition with its own franchise dealerships.

    The law came into being to protect dealers who had invested in their dealer franchises from being out competed by manufacturer owned dealerships -- which presumably will have an unfair pricing and/or inventory advantageous owing to their factory ownership. For instance, if Ford has 23 dealer franchises in Massachusetts and each one had invested considerable time and money in their premises and operations, Ford buying up a few of those dealerships or opening a dealership in direct competition with its franchise dealers may potentially make those business nonviable and unfairly threaten the investment the dealers made into their businesses. The law prohibits that.

    However, Tesla does not have any dealers in Massachusetts, does not intend to franchise any dealerships and there does not currently exist any "investment" by anyone outside of Tesla to the marketing, inventory, sales or support of Tesla products. Hence, the protection of commitment and investment argument is ludicrous. And in Tesla's view, it is not buying any up any dealer franchises, it is not competing with any of its own dealer franchises (they don't exist) and it is not planning to operate factory stores in parallel with franchise dealers. Hence, the franchise law does not apply simply on the ground that the franchise system does not exist.

    Basically, if the dealers win. A precedent will be set that says that automobile manufacturers cannot sell direct to customers and that only a middle man system, with non-manufacturer owned dealerships acting as the go between, will be the ONLY legal business model for the sales of automobiles.

    • Agree 1
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    This is similar to Chrysler's situation in California correct? Their manufacturer owned "Flagship" store was too close to other franchised dealerships...otherwise it wouldn't (or shouldn't) have been a problem...

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    Cubical-aka-Moltar, on , said:

    Dealer franchising laws made sense in the 1910s...they have no place today.

    +1

    Actually, I kinda agree with the premise of the law, but not the extension of it to require manufacturers to sell cars through dealers.

    I'll rewrite the laws to clearly state that:-

    (1) An automobile manufacturer may sell directly to consumers by any means it deems fit, but only if it does not have any franchise dealerships in the state.

    (2) If it does decide to have franchise dealership(s), it may not operate a factory store or market directly to the consumer in direct competition with its franchised dealers unless all franchise agreements are nullified or terminated, and suitable termination notice and compensation are made.

    In short, you can sell direct or utilize dealers. You cannot do both. If you already have dealers, need to buy them all out. You cannot simply operate a competing factory store and uncut them out of business and skirt franchise termination compensations.

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    How would you address a new brand sold by an old company. What if GM wanted to bring out a brand, we'll call it Jupiter, and sell it only in factory direct stores?

    Another grey area, except even greyer. One argument is that the dealership franchises are GM dealerships, hence GM marketing a direct sales model on a new brand is still pitting factory direct GM vehicles against dealer sold GM vehicles. The counter argument is that Jupiter brand vehicles are a differentiated product from Chevy and Cadillac Vehicles, so the dealers' claim that it out-competes them and is unfair to their investment into the franchise of selling Chevies or Cadillacs is as bogus as saying that Hyundai out competes them because their vehicles have a lower price or they offer their dealers better terms.

    With my bias, I'll say that the court rules that the manufacturer cannot do that only if it's the same brand, and that in the case of Jupiter its OK unless GM also franchises Jupiter Dealerships in parallel to factory stores. But, that's me. It'll be fought over in the courts for sure.

    Forget about factory outlets and company owned stores. Just think of it this way. Do you think it's fair to an owner of a car dealership who has put up 5 million dollars of his own money, 10 years of his time and assumed all the financial risks of operating a Chevy dealership, only to have GM decide to sell Chevies on Chevrolet.com at DEALER INVOICE price with free delivery? His business and investment would be totally compromised overnight, and GM has acted to put him out of business through (unfair) competition rather than going through the (expensive) compensatory process of terminating his franchise per their franchise agreement. I believe that illustrates the spirit of the law and what it is trying to prevent.

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    Well then another question... does this only apply to cars? It seems to. There are Corp owned McDonalds and Franchise owned McDonalds. There are corporate owned Marriots and Franchise owned Marriotts. There are corporate owned cell phone dealers and franchise cell phone dealers and big box cell phone dealers (which has further confusing model of stores within stores)

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    on a certain level, there would be some benefits to factory direct sales. One that i can think of, it may allow manuf's to develop a more beneficial custom order and special order process. one reason so many makes and models have color and trim problems is the dealer's misinterpretation of what customers really want.

    but having worked at a dealer, you do see the effects that those dealers who do make the investment in the land and facilities pay off. And the dealers that do well do their best to be competitive on price and leading on service and experience.

    A lot of the features of factory direct sales could be realized if the dealerships would come into the new era and be open to new ways of providing the cars. But they are skeptical of change like everyone else. The internet already has changed the game so much in the last 15 years, but their are still customers out there that would not be able to function in a factory direct manner. There also would be problems selling factory direct without the factory basically duplicating so many functions that already exist at dealer level.

    Manuf's need dealers, and vice versa. I would like to see a more factory direct option for those who want it, but too much of it would erode the whole experience for everyone else who still treat the process in a more traditional way.

    I would like to see 'test drive centers' where you can go drive new iron, no questions asked, no sales pitch.

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    Well then another question... does this only apply to cars? It seems to. There are Corp owned McDonalds and Franchise owned McDonalds. There are corporate owned Marriots and Franchise owned Marriotts. There are corporate owned cell phone dealers and franchise cell phone dealers and big box cell phone dealers (which has further confusing model of stores within stores)

    Not this particular law. 93B pertains exclusively to automobile franchises.

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