Tesla strikes deal to keep Ohio stores open

Facing state-by-state opposition from traditional car dealers, the company notches a small victory that could have broader implications.

By Benzinga Mar 27, 2014 1:47PM

Tesla Model S sedans outside of the Tesla Factory on August 16, 2013 in Fremont, Calif. (© Justin Sullivan/Getty Images)By Jim Probasco

Two weeks after New Jersey banned Tesla Motors (TSLA) from selling its vehicles there, Ohio said the company could keep its two existing company-owned stores open and move forward with plans to open a third in that state.

The agreement, which banned Tesla from opening additional stores beyond the three, also prohibited other automakers from selling their automobiles in company-owned stores as Tesla has.

An Ohio Senate panel passed Wednesday's deal, according to The Associated Press. Based on the arrangement, Tesla showroom-stores in Columbus and Cincinnati would remain open and plans for a storefront in Cleveland would be allowed to proceed.

Ohio's dealer association had tried to block Tesla from selling directly to consumers. The company said it felt it had to do this in order to educate the public about its unique all-electric vehicles.

Local dealers said Tesla's business model threatened consumer protection laws and cut independent franchised dealers out of the retail pipeline. As of next week, New Jersey, Texas, Arizona, Colorado and Virginia will all have laws on the books prohibiting Tesla from direct sales of its vehicles in those states.

The state of New York might be next, making the Ohio deal all the more important. New York is home to five Tesla stores, one of the largest footprints the company has outside of California.

The Wall Street Journal reported that Tesla's vice president of business development, Diarmuid O'Connell, said the compromise in Ohio could serve as a model in other states, including New York.

"I do think the Ohio solution points to a way dealers and Tesla can resolve this issue for the present, while letting both sides see how this develops," O'Connell said. "While on the margin it's disappointing that we don't have the ability to grow freely in Ohio, the compromise we achieved in the past 24 hours is sufficient for now."

The Ohio Automobile Dealers Association, through vice president, Joe Cannon, said the agreement amounted to "a very fair proposal that is helpful to both sides."

Meanwhile, Tesla said it believed that to grow, the company had to be allowed to implement its direct-sales model everywhere. The ongoing state-by-state battles have become a distraction for Tesla, as the company has tried to focus on plans to build a "gigafactory" to mass produce batteries for its vehicles -- a far more important component to the company's growth plans.

The sponsor of the Ohio legislation, Sen. Tom Patton of Strongsville, told The Cleveland Plain Dealer that the bill provides protection for more than 60,000 Ohioans employed by auto dealerships across the state. Patton added, "If it turns out this is a good business model for the consumers, we can revisit it."

At the time of this writing, Jim Probasco had no position in any mentioned securities.

More from Benzinga

Mar 27, 2014 2:45PM
Wouldnt the employees of a dealer ship still have jobs if the auto company owed it directly? This bill is about the wealthy dealership owners association and has nothing to do with the number of jubs people have at dealerships!
Mar 27, 2014 3:33PM
Car dealers are as much useless middlemen as health insurance companies are, and they know it. Of course they don't want Tesla selling directly - all that unearned profit would just disappear into the consumer's pockets, and the dealers can't have that! Go, Tesla, you are heading in the right direction.
Mar 27, 2014 2:46PM
Mar 27, 2014 3:57PM
"consumer protection laws"...
More like "existing business protection laws"
The rampant cronyism in this country needs to end. It stifles progress and hurts the economy. Most of these laws & regulations exist soley to protect the business models highest political donors and keep newer, more innovative business from entering the marketplace. If you need to have a law passed to protect your business, you don't deserve to be in business.

Mar 27, 2014 4:03PM
Wow, perfect example of crony capitalism.  Politicians writing laws to pick winners and losers instead of the consumers.  As if dealerships and politicians needed more reasons to be despised.
Mar 27, 2014 3:46PM
POliticians want to support car dealerships because they need somebody out there that is more seedy than they are.
Mar 27, 2014 4:24PM

Companies should be free to choose whether they choose to use distributors and francises, or if they want to own their stores directly.  Automakers have avoided this traditionally because it would require more working capital as well as the cost of owning buildings, more employees, etc.  


However, for a modern start-up, I see no valid reason why they shouldn't use this model.


I don't see anyone protesting Apple owning their own stores.  Mcdonalds is allowed to have both corporate and franchises.  Goodyear used to own most of it's stores.


In reality with such a unique, product such as this, I'd rather have them sold directly to ensure sales people and technicians are properly train to educate consumers.  I think the opposite is being argued.  Most auto salespeople I've met don't really know their products, but know how to manipulate people.


Its pretty clear that this is about weather dealer owners wanting their piece of the pie, and automakers happy to keep a start-up down.  I think they are honestly a little scared that this might work out. 

Mar 27, 2014 3:45PM

 "If it turns out this is a good business model for the consumers, we can revisit it."


IF it isn't then there would be no reason to revisit it as they would go out of business.  But hey, this is politician logic.  IT doesn't have to make sense as long as there is a good narrative.

Mar 27, 2014 4:25PM
Car dealers have been screwing the public for years with their "cut throat" tactics.. There time is done. Great competition from Tesla..
Mar 27, 2014 3:32PM
Let me guess, too big too fail. I think I have heard that before.
Mar 27, 2014 3:27PM
Does anybody remember when Ford was in the retail business and sold direct!!!!!
Mar 27, 2014 5:00PM
Over the next quarter century these electric type vehicle and the technologies behind them have a chance of revolutionizing our planets means of transportation and evenyually even our industrial capabilities.
Business owners always preach "market economics" until the market develops a model unfavorable to them. The owners then cry and have their rented politicians provide relief…such as banning the direct sale of Tesla vehicles. If consumers are willing to buy a Tesla online, the market is speaking. I just wish all the capital hypocrites would just shut the f*** up.
Apr 3, 2014 4:15PM
New or different ways of doing things are often met with a lot of resistance. Some may remember back in the day, the dairy industry didn't want any competition from makers of non dairy based butter and so the makers had to include a coloring packet if the consumer wanted the yellow look. 
Mar 30, 2014 8:11PM
It's the epitome of special interest influence in government. How can we stand by and let our representatives in public office impede "free market enterprise".........I don't understand how these folk can possibly justify preventing Tesla from selling direct to the consumer. The auto dealer business model is outdated and auto manufactures should have the option to open their own stores and service departments. The benefits would not only be to the manufactures but to the consumer through more completive pricing and services.
Mar 27, 2014 5:18PM

If we are still driving any kind  of car a Century from now, we have made little headway in travel.

Of course a Century from now there may not be roads or humans either...??

Mar 27, 2014 5:15PM

I don't know, but I'm not really sure I have heard about a lot of people getting excited about buying a Tesla yet ?

At least not in my neighborhood...

We still like the roar of a big old V-8 in a pick me up truck...

Mar 27, 2014 5:36PM
I was right again. Tesla will not be able to establish a monopoly in the US. The states will not allow it. Monopsony is actually the correct word instead of monopoly. Though it amounts to the same effect.
Mar 27, 2014 4:43PM
You folks are so naive thinking cutting out the middleman would mean savings in your pocket. Once the dealers are out of the equation the automobile manufacturer's direct sales offices will RAISE their prices. They are NOT going to LEAVE MONEY ON THE TABLE. They will have to function much like a dealership because they will have to get rid of the trade in vehicles. Not many new car buyers purchase a vehicle outright, they usually trade in a vehicle. This translates into overhead for operations YOU will pay for.
Mar 27, 2014 3:58PM

I wonder if UPS or the USPS makes a big enough box to mail back a Tesla to the Factory, when they have a recall....???

Dealers anyone...?

Seems when I hear all the whining, bitching and crying on here is when someone buys a piece of crap on-line...Then has all kinds of hassles, getting it fixed, repaired, returning it or getting their money back....

Just keep buying some of this stuff like that, and the only argument you will have someday will be with your computer....

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