January 8, 2013–Boston, Massachusetts–Tesla, the little car company with the big attitude, recently won a victory when a Massachusetts judge dismissed a lawsuit based on its sales protocols, according to The Car Connection.
The company was faced with legal trouble after other car companies became enraged by what they saw as Tesla’s unorthodox sales techniques. Lawsuits were filed in Oregon, New York, Illinois and Massachusetts, claiming that Tesla was violating franchise laws which prohibit direct sales from auto makers to the public without using a middleman dealer.
Tesla manufactures high-end electric vehicles that replace gasoline-consuming cars and are reputed to achieve driving ranges similar to those of internal-combustion engine vehicles. The company’s sales model was designed by George Blankenship, the author of Apple’s successful iStores outlets. Interested customers can go to outlets to learn about the vehicles and view computer simulations but must to go elsewhere to test drive the vehicles.
The Lawsuit and Decision
The lawsuit in Massachusetts was brought by the Massachusetts State Automobile Dealers Association. The Association claimed that Tesla was violating franchise laws applicable in that state by selling directly to the public through its “showrooms.” The basis of the lawsuit was that these so-called showrooms were actually information centers that supplied potential customers with data about the cars but used no dealers to sell the vehicles. Instead, customers were directed directly to company sales representatives rather than a middleman who would make a profit on the sale.
The judge ruled that the Association had no standing to bring such a lawsuit and dismissed the case in its entirety. Unfortunately, this ruling does not address the legal issue of whether Tesla has a right to sell its products in this manner; that ruling will have to be made in another action, perhaps one brought by the governing body that controls auto sales in the state.
It is possible that the Association will appeal the ruling. It is also possible that it will put pressure on state agencies to bring a parallel suit against the auto maker. What the Association must battle against is the widespread belief that auto dealers are acting as protected middlemen, making huge profits by providing a service that many see as unnecessary.
Is it possible that Tesla’s innovative sales strategy will change the entire face of auto buying and selling? With laws in place to protect auto dealer franchises, a global change in car marketing is unlikely at this point. However, the Massachusetts ruling may be the first step in a sweeping change in how people buy and sell cars.
If Tesla is unsuccessful in protecting its sales model, the question may arise as to damages already incurred by potential dealers. If the dealers are successful in suing Tesla, the company could be responsible for thousands of dollars in damages to these dealers based on sales made directly to the public.
However, if a judge rules that Tesla is not bound by the normal franchise rules, the company may escape liability. The question of Tesla’s future in sales is currently unanswered, but further litigation may clarify the issue for automakers, dealers, and Tesla.
About the author: Bisnar Chase Personal Injury Attorneys auto product liability attorneys of Newport Beach, CA serve victims of auto recalls and product liability.