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Tesla Battling Ohio Dealerships to Sell Directly to Customers

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The market for all-electric vehicles is expanding and one company in particular, Tesla Motors, is making waves with its unique sales model. But as Statehouse correspondent Andy Chow reports, legislators are considering a bill that would effectively ban such a strategy.

Friday, March 21, 2014 at 6:38 pm

David Dennis of Columbus is president of SBC Advertising and the proud owner of a Tesla Model S electric car.

“I wasn’t going from like another small, economical car to this," Dennis said. "I was going from an SUV, a big SUV, to this car -- so it’s a huge difference.”

I visited Dennis to get an up-close look at the vehicle that Consumer Reports dubbed the Best Overall Car of 2014. I wanted to look under the hood and hear the typical rev of the engine, but I was in for a surprise.

"It’s on -- it’s always on," he said. "It’s just like a golf cart. I mean when you turn a golf cart on, it’s just on.”

You could say that buying a Tesla is just as unique as the car itself. Dennis bought his online, but now there are two Tesla stores in Ohio. A customer can walk in, talk to a salesperson, and build a customized car through a computer program. Then Tesla makes that car and delivers it to the customer in about one to three months.

Tesla says the process connects the manufacturer to the customer while bypassing a typical car dealership.

James Chen is Tesla’s vice president of regulatory affairs. He says this system is vital to their brand due to the high-tech nature of their cars.

“There’s a certain level of education that’s involved with consumers," Chen said. "Tesla sells directly -- don’t sell through franchise dealers -- because of this need to focus on education.”

But not everyone is happy with this manufacturer-to-customer sales model. To open their two stores, Tesla obtained sales licenses from the state of Ohio without using an independent dealer.

Joe Cannon, vice president of government relations for the Ohio Auto Dealers Association, believes this sets a dangerous precedent.

“What that does is open the door for any manufacturer then to obtain a license to sell at retail," Cannon said. "And my dealers, 830 strong around the state, have made significant investments not just in their dealerships but in their employees and in the communities in which their businesses are located.”

Cannon defends the current dealership sales model by claiming that it’s been the usual practice for decades and it’s proven to work.

Republican State Sen. Tom Patton of Strongsville is sponsoring a bill that would stop Tesla from creating any more stores and force manufacturers to stick to the dealership method. Several attempts to talk to Patton went unanswered.

Cannon says the dealership method is not just the norm in Ohio but it’s the process that best protects customers because they’re able to shop around at various lots.

“At the end of the day that’s very beneficial for consumers as it relates to vehicle pricing, parts pricing, service pricing," he said. "It’s a very competitive nature.”

Similar bans have already passed in Virginia, Texas, Arizona, Maryland and now New Jersey. National media outlets have cited the political power that many dealerships can have in the community.

If Ohio were to join these states, then the two current Tesla stores would be allowed to continue operating. But if the company wanted to expand, they could only open what’s known as a gallery, where a prospective customer can come in and look at a car, but employees at the gallery can’t talk about prices or give a sales pitch.

“It would essentially stop Tesla in our tracks," Chen said.

Chen notes that this is a lot of work to fight against his company which accounted for well under 1 percent of the total auto sales market in 2013.

“Tesla’s not out to upend the entire franchise system," he said. "We are there, again, to catalyze the market for EV’s.”

Back in the parking lot of SBC Advertising, Dennis says he’s in favor of Tesla’s sales model and hopes state leaders can reach a deal.

In the meantime, Tesla continues to roll out plans for growth. The base price for a Model S is $70,000, but in 2017 the company hopes to put out a new product starting at $30,000.

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