Musk Blasts Texas Auto Dealers Opposing Tesla Store Model

Tesla has fought numerous battles against auto dealer associations as it defends its retail store model, and most recently, a pointed internal e-mail aimed at issues deep in the heart of Texas written by CEO Elon Musk was leaked.

Tomorrow Musk plans to attend a Texas House committee meeting to support Tesla-backed legislation that could allow the company to do business the way it wishes, and free it from present laws now putting it in a stranglehold.

To raise support, Musk has tweeted followers asking for them to publicly rally and otherwise show solidarity, and his internal memo titled “Subject: Winning in Texas” had some choice wording not meant to be publicly aired:

• “The Texas auto dealer association is trying to stop us from selling cars in the state and they have way more money and power than we do with legislators, so we need to rally the people pronto to stop them from winning.”
• “If the people of Texas knew how bad this was, they would be up in arms, because they are getting ripped off by the auto dealers as a result (not saying they are all bad – there are a few good ones, but many are extremely heinous).”
• “For everyone in Texas that ever got screwed by an auto dealer, this is your opportunity for payback.”

A Tesla spokesperson confirmed to Automotive News the e-mail was from Musk, saying “unfortunately” the memo was not meant to be seen by other than Tesla personnel.

The issue at hand is by now a fairly familiar one: Presently, Tesla is hamstrung by Texas franchise laws preventing it from discussing price or servicing its own cars in Texas. The Texas Automobile Dealers Association opposes legislation endorsed by Tesla to the contrary, and says allowing it to pass will hurt dealers and consumers.

Regarding the accusatory e-mail by Musk, the Texas dealer association’s general counsel, Karen Phillips, said it was “inappropriate” and said Texas lawmakers should see past popular support Musk and company are trying to rouse and focus on issues at hand.

“We know he’s incorrect, and we know that name calling is not constructive,” Phillips said. “It shows the type of person we’re dealing with.”

Last week four Texas dealers including the Texas association’s chairman argued against Tesla-shaped proposed legislation saying that Tesla is trying to create a monopoly for itself with a revision to the Senate bill’s language.

The proposed changes to the law would allow an exemption only for current U.S.-owned makers of electric vehicles that have never before sold through franchised dealers. This narrow language was said by Tesla’s vice president of business development Diarmuid O’Connell to open the way for Tesla to do business and allay concerns that foreign makers could later follow shielded by the same franchise law exemptions.

O’Connell decried “gymnastics” Tesla customers in Texas have to go through that are “expensive, time-consuming and just ridiculous.”

The way the law is now structured, Tesla staffers at its Houston and Austin galleries are forbidden to talk about pricing or take orders.

To buy a Tesla in Texas, consumers must contact Tesla representatives outside of Texas, and the same is true of having Tesla approve warranty repairs or service.

While the virtual shootout of words and wills in Texas is among the most poignant, it is only the latest in a series of confrontations in which Tesla has found itself against both the National Automobile Dealers Association and various state-level auto dealers associations.

In short, dealer associations have seen their franchise model threatened, and have tried to tighten franchise laws to oppose Tesla’s retail store model.

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In turn, Tesla has aggressively pursued lobbying with policymakers and to rouse its supporters to its cause.

In Minnesota last month Tesla scored a win – that may only be temporary – as the state dealer association withdrew support from a bill that would have stopped Tesla from operating stores in that state.

Similarly, Tesla is facing lawsuits by dealers in New York and Massachusetts and the Massachusetts state dealer association and Tesla are backing two separate bills that pertain to Tesla factory owned stores in that state.

Tesla has faced opposition of one form or another also in Oregon, Colorado, and in fact franchise laws in 48 states have not particularly smiled to one degree or another upon the maverick company’s retail store model based in part on how Apple operates its retail stores.

In response, Tesla has continued on a case-by-case basis to do what it can to pursue its agenda to revolutionize not just automobiles but how they are marketed and distributed.

At the core is a threat to the established way of doing business, and dealer associations have argued manufacturers should stick to manufacturing and leave the sales end of it to franchisees.

Obviously, much money rides on this decision. Both sides have argued the consumer is best served by their respective take on how things should be done. Whether this is the truth, and where the balance lies, is in debate, and bottom-line profits are riding on these questions.

By cutting out the middleman, Tesla does stand to control the sale, and take what profits it can in the sale. In question is whether it shrinks the bottom line by reducing mark-ups dealers might impose. If it does win out, in question also is whether in the future Tesla might have an unfair advantage and control all profits as dealer associations contend.

These profits are what dealers have traditionally counted upon, and dealer associations in general do not like the precedent being set, and aim to nip it in the bud even if Tesla is yet a small organization that only just became profitable last quarter.

Last October, in a statement, Montana dealer and NADA Chairman Bill Underriner said Tesla would need to learn the error of its ways.

“Tesla may not yet recognize the value of the independent, franchised dealer system, but as its sales increase, NADA is confident it will re-examine its business model,” said Underriner. “Other companies such as Daewoo did. All companies should be complying with existing laws in the same way dealers are required to.”

Tesla store locations.

Tesla store locations.

In public, Tesla typically phrases its intent in benign language.

“Tesla is revolutionizing the auto purchasing experience. Unlike traditional car dealerships, Tesla said in a previous statement, “Tesla stores are designed to be stylish and inviting.”

And Tesla’s previous statements by its VP George Blankenship regarding dealer association opposition indicates Tesla is determined.

“We do what we’re capable of doing, and we do whatever they let us do,” said Blankenship. “It’s unique for each location. If we can’t be a dealer in a mall, we won’t do reservations on-site. We tell people where to go on our Web site to make a reservation.”

Elon Musk’s latest statements add a moral and ethical dimension to Tesla’s protracted battle against the establishment.

He phrased Tesla’s intent as being part of a righteous cause against “heinous” opponents, and among other things said, “For everyone in Texas that ever got screwed by an auto dealer, this is your opportunity for payback.”

But the opponents appear determined also, and this story is far from over.

The next episode will be tomorrow in Texas.