(Repeats with no changes to headline or text)
By Andy Sullivan
March 22 On President's Day last month, about 40
electric-car advocates gathered under the rotunda of the state
capitol in Olympia, Washington, where a lobbyist for Tesla
Motors Inc urged them to rally against a bill that would prevent
the carmaker from opening new sales offices in the state.
By the time the legislature finished its work last week, a
coalition of environmentally friendly Democrats and free-market
Republicans had stripped the restrictions from the bill. Tesla
would be free to sell its cars through its own sleek
showrooms rather than relying on the dealer networks that have
dominated the industry for decades.
It was a welcome win for Tesla after setbacks in Arizona,
New Jersey and Texas, where state officials have blocked the
startup from selling directly to consumers. But auto dealers
were happy with the outcome as well, because the bill carved an
exception for Tesla while strengthening rules that require other
automakers to sell through their stores.
The outcome in Washington, which must still approved by the
governor, shows that the battle between the Silicon Valley
startup and Main Street dealers, currently playing out in states
like New York and Ohio, isn't necessarily a zero-sum game.
Where there is a ban, Tesla can show off its cars in
"galleries" and sell them online. And dealers may be able to
co-exist with Tesla in states where it sells directly, so long
as bigger players don't try to follow its lead.
"Our issue is not with Tesla itself, it's with the model,"
said Tammy Darvish, a vice president at Darcars Automotive Group
in Silver Spring, Maryland who bought a Tesla of her own. "How
can we as auto dealers compete with manufacturers in the same
market when we are completely dependent upon them for our
The clash pits a billionaire engineer, Elon Musk, against
17,000 businesses, often family-owned, which are engines of
their local economies, and which made substantial investments
based on ground rules that require automakers work with dealers,
not compete against them.
Over the years, dealers have sponsored Little League teams,
supported local charities and forged strong ties with the state
officials who regulate auto sales.
The conflict came to a head last year after Tesla introduced
its Model S, a $60,000-plus sedan that aimed for a wider
audience than the two-seat, $101,000 Roadster sports car it
introduced in 2009.
Texas and Arizona have blocked Tesla from selling its cars
directly in their states, while regulators in New Jersey ruled
last week that the company must stop direct sales by April 1.
Colorado, Virginia and Georgia have imposed restrictions.
Tesla successfully fended off limits in North Carolina,
Massachusetts and Minnesota last year. The two sides are
currently battling in Ohio and New York.
Tesla currently operates 116 sales and service operations
globally and aims to add another 90 or so by the end of the
year, according to its most recent annual report. Sales are
rising fast from last year's 22,477, but it is a niche player so
Tesla, which declined to comment to Reuters, argues that
dealers don't understand its technology and have little
incentive to sell an electric car that does not require its
owner to return periodically for maintenance.
Chief Executive and founder Musk, whose charisma evokes
comparisons with Apple's Steve Jobs, acknowledges the investment
in local dealerships.
"Franchisees ... invested a lot of their money and time in
building up the dealerships. That's a fair deal and it should
not be broken," he wrote in a blog post last week.
Musk has said that he is not interested in overturning the
existing franchise system, but he doesn't want to participate.
Dealers, however, see direct sales of any sort as an
The franchise system was set up in the first half of the
20th century by automakers who did not want the expense of
building up their own sales force.
Dealers say the existing system encourages competition that
keeps car prices low and ensures that customers can still get
their cars fixed if a manufacturer goes out of business. They
point out that electric cars like the Nissan Leaf and the
Mitsubishi i-MiEV are already in their showrooms.
"There are rules in place, and they're working," said David
Shepherd, president of Shepherd Team Auto Plaza in Fort Scott,
Kansas. Dealers have periodically rebuffed attempts by
U.S.-based automakers to sell themselves, but relations have
been good in recent years, he said. "Do you want to run risk of
having something change when it's not broken?"
Dealers are also politically active. Auto dealers and their
employees donated more than $15.1 million to state and local
candidates in the 2011-2012 campaign cycle, according to the
National Institute on Money in State Politics. That's about the
same amount contributed by real-estate agents, insurance agents
and other influential groups that rely on state franchise laws.
Tesla employees, by contrast, donated $500 to state
candidates during that period.
Tesla counters with its customers, a wealthy group who see
themselves as defenders of planet-saving technology. Those
involved in the Washington state effort say the visits, calls
and e-mails from Tesla owners forced the auto dealers to back
"They realized they had a problem and very quickly began
negotiating with Tesla," said state Rep. Reuven Carlyle, a
Seattle Democrat who helped forge the compromise. He expects
Governor Jay Inslee to sign the bill, although an Inslee
spokeswoman declined to comment.
In New Jersey, about 20 Tesla owners took part in a
last-ditch effort to stop the Motor Vehicle Commission's
proposed sales ban. The group next will appeal to Gov. Chris
Christie to overturn the decision.
"I think it's far from over," said Michael Thwaite, a New
Jersey telecommunications executive who is leading the effort.
'GALLERIES' VS. SALES OFFICES
Even so, Tesla has found a way to minimize the impact of the
direct-sales bans that are in place.
In states where sales are banned, Tesla employees show off
cars in "galleries" and tell customers to complete the sale over
the phone or online. Current Tesla owners can take test drives
to prospective customers, said Mark Rohde, a psychologist active
in the Arizona Tesla Motors Club.
"I see this as the future of how we buy cars," said Rohde,
who estimates Tesla has sold 500 cars in his state.
Analysts say any lost sales from a direct-sales ban are
likely to be minimal. Customers interested in the pricey,
cutting-edge cars won't mind completing their purchase online or
in another state, they say.
"Does it matter? No. It's really just a lane diversion,"
said Craig Irwin, an analyst with Wedbush Securities.
Still, electric-car advocates worry that the restrictions
may hurt other start-up companies that follow Tesla or don't
have its resources.
Since Washington state's new legislation would prevent other
startup vehicle makers from selling directly even as it carved
out an exemption for Tesla, advocates say they have work to do.
They will try to remedy the law in the next legislative session.
"It's crazy, but that's the current mixture of business and
politics that we have," said Lee Colleton, a Seattle resident
who lobbied to allow direct sales.
(Additional reporting by Deepa Seetharaman in San Francisco,
editing by Peter Henderson)