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Environment

For Tesla, a Fight in Connecticut to Open Stores and Sell Cars

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Creative Commons
A Tesla Motors Store in Toronto, Canada. Currently, Tesla is not allowed to sell its product directly to consumers from storefronts in Connecticut.
Tesla has a world-wide policy of selling directly to customers.

When Art Linares wanted to buy a Tesla, it wasn't as easy as walking into a store and taking a test drive. Instead, he had to go to New York -- because in Connecticut, it's illegal for a car manufacturer to sell directly to a customer.

"It prevents companies like Mercedes and BMW from creating their own stores, so they have to go through a dealership," said Linares, who's no ordinary customer -- he's a state senator for the 33rd District.

Linares wants to change those dealership laws for at least for one company, Tesla, which has a world-wide policy of selling directly to customers. "What we're trying to do here in Connecticut is make an exemption for Tesla to be able to open up their own stores and sell their cars," he said.

It's an idea that's getting resistance from traditional car dealerships. James Fleming is president of the Connecticut Automotive Retailers Association, which represents about 270 new car stores in the state. He said franchise laws exist, in part, to protect locally-owned "Mom and Pop" dealerships.

"There's a disparity between manufacturers and small businesses, which are franchise dealerships," Fleming said. "Initially, manufacturers, which are so large -- there was no fair bargaining position between the two."

Put another way, if a car manufacturer didn't like how a small business was operating, they could just stop selling them cars.

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Tesla makes a variety of cars, including the Roadster Sport 2.5, an all-electric sports car.

Fleming said requiring car manufacturers to sell through a franchise dealership is in the best interest of consumers. He said dealerships often service multiple types of cars, so if a new company goes out of business, there's still a support network for customers when their car breaks down.

"A good example would be when Saab went out of business, there were lots of Saab dealers who had other franchises besides Saab," Fleming said, "They were here. They continued to take care of those customers."

So why does Tesla want to sell directly to customers? 

"It's essentially a consumer issue," said Diarmuid O'Connell, Vice President of Business Development. "Consumers should have the opportunity to choose whether or not they want to buy directly from a manufacturer or through an intermediary."

Tesla, which was co-founded by PayPal and Space X entrepreneur Elon Musk, is pushing a new technology: battery-powered cars. O'Connell said traditional dealers, who are in the business of selling gasoline-powered vehicles, would have little incentive to push that technology to customers. That's bad for Tesla's bottom line.

"We believe that in order to give life to electric vehicle technology, we are in the best position to represent this technology to the customers," O'Connell said. "To tell them about the technology, the company, and the car itself."

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Robots construct the Tesla Model S at the company's factory in Fremont, California.

O'Connell said Tesla can sell directly to consumers in about 35 other states, but the company is still fighting direct-sale battles in several: including Arizona, Texas, Michigan, and New Jersey.

"We've said that once we are a high-volume-manufacturer we may choose to expand our presence through franchise dealerships, but that's not where we are right now," O'Connell said. "We don't have a car that's selling at hundreds of thousands of units a year. We don't need parking lots to offload our inventory, and we're not trying to expand our geography as broadly as we might through third parties."

Fleming, the car dealer advocate, said he has local vendors waiting to sell Tesla cars right now. "I disagree strongly with Tesla when they say it's difficult for a startup company or a new technology to be sold through the franchise system. I think it's easier," he said. "The dealers are picking up millions of dollars in capitol costs in stores. In advertising, in service, in training. I mean, dealers all pay for that."

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A Tesla showroom in Munich, Germany.

"We're more than happy to sit down with the Connecticut Auto Dealers Association, and with Jim Fleming, and try to work something out," said Jim Chen, Vice President of Regulatory Affairs at Tesla.  

In the meantime, Tesla does operate a service center in Milford. But O'Connell said you can't buy or test drive a car there. That's forced the 500-or-so Tesla owners in Connecticut to purchase their cars online or, like State Senator Art Linares, travel to Massachusetts or New York, which allow direct sales.

"Obviously, the car is great for the environment. It goes 300 miles on a single charge without any pollution," Linares said.

Linares said more people driving electric will also drive down gasoline costs. His proposal is now before the transportation committee. A public hearing on it is planned in the coming weeks.