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Think you can buy a car without going to a dealer? Think again

Posted by: Bell Performance

buy a car without going to a dealerThat's what the state of North Carolina is telling people who want to buy a Tesla all-electric car, which recently got a near-perfect rating from Consumer Reports. 

At first glance, this seems kind of strange. We live in the USA, the land of opportunity. If we want to go buy a car without buying it from a dealership, what's the big deal? It's probably a lot cheaper to do it that way, anyways. But the state of North Carolina is going to court to prevent car-buying consumers from doing just that.

Tesla has been making all-electric cars for a few years now, but differs from more well-known models like the Chevy Volt in that Tesla specializes in high-end luxury electric cars. They decided to differentiate themselves from the rest by making cars with all the bells and fancy whistles that luxury models have, but which happen to be electric. And their cars aren't just for "hippies" or old ladies. Their Roadster model was the first all-electric vehicle to have a range of more than 200 miles per electric charge, tops out at 125 mph (it can go faster but the top speed is electronically controlled), and goes 0-60 in 3.7 seconds with 248 horsepower.

Despite years of unprofitability, Tesla kept plugging along until the first quarter of this year when they posted their first quarterly profit in the company's ten year history. So this appear to be looking up for them. While Chevy and Nissan lose money on electric models that aren't very popular, Tesla's reputation for high quality gains more and more traction.

So now we come to legal action that threatens to derail Tesla's momentum. At issue here are state laws that generally restrict a car maker's ability to sell cars outside of an established dealer network. Such laws exist in multiple states and are designed to restrict the possibility of an automaker circumventing an agreement they have with their own dealers and going around them to sell directly to the public. Dealer Associations across the land argue these laws are necessary to protect the businesses that these dealers are. After all, if Honda could just sell directly to the public on Ebay, all the Honda dealers would go out of business.

Tesla tends to operate on a different model, however. Tesla doesn't have car dealerships in the traditional sense. They operate "stores and galleries" in 14 different states and Washington D.C. A consumer can order a car at any Tesla store, but not at a gallery, which functions strictly as a display showcase. Why do they need galleries - isn't that redundant? In this case, Tesla opened these special galleries only in certain states - states where legal action is pending against Tesla to tell them they can't sell cars the way they do.

Confused? What's the difference, you ask? The key difference here is that when a buyer goes to a Tesla store and tries to buy a car, they don't buy the car at the store. They buy it online, on the spot, and the transaction is legally executed in the state of California. Which circumvents all the state laws that prohibit such practices. And those states aren't happy about it. Colorado, Virginia, New York, Minnesota and Massachussetts have file suits against the practice.  Virginia's suit was temporarily successfully; Colorado had to resort to passing legislation against it; the rest of the states all lost in court. So now, it's North Carolina's turn.

It's Not Fair?

When you first hear the story, it sounds like government overkill. Unless you're a car dealer, of course. But it isn't a case of Tesla trying to go around dealers with which they have an exclusive business agreement. What this is are all the other auto dealers - Honda, Toyota, Nissan, Ford, GM - all saying "this isn't fair. They've got to sell cars like everyone else". That doesn't sound very savory to us. Instead of competing on the merits of their product, the big boys are trying to use their legal friends to muscle an upstart out of business (while contributing to the campaigns of the politicians trying to pass legislation to get Tesla out of business). Now, the Big Boys might say "we're just looking out for the consumer. You need dealers to provide service". Maybe you do, to a certain extent. But shouldn't that be the consumer's choice? Tesla car aren't cheap by any means, and anyone who buys one knows exactly what they are and aren't getting. I doubt any Tesla  buyer would stand up and say "thanks, Ford, for looking out for me".

Kind of makes us want to run out and buy an electric car. We could still put X-tra Lube in it.

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This post was published on July 11, 2013 and was updated on November 19, 2013.

Topics: Cars and Light Trucks