Auto Dealer Groups Escalate Battle Against Tesla Stores
Tesla’s retail store concept
HI-RES GALLERY: Tesla’s retail store concept
Tesla’s retail store concept
If we had to pick one word to describe Tesla Motors, “audacious” would be at the top of the list.
Not only did founder Elon Musk decide to build a car company, which in itself is pretty gutsy. He chose to create a car company that builds nothing but electric cars — pricey, high-end electric cars that hold their own against some of the best luxury models on the market.
Say what you will, the man knows how to make an entrance.
Then again, should we have expected any less from the guy who took on the banking industry by creating PayPal? The man who said, “Space travel? Oh, yeah, I can make that happen.” Musk isn’t known for going with the flow — or for losing.
So it should be no surprise that Tesla Motors [NSDQ:TSLA] may be single-handedly changing the way that automakers sell cars. Nor should it be a surprise that the competition is miffed.
Showrooms vs. dealerships
Back in July, Bengt Halvorson attended the opening of Tesla’s showroom in Portland, Oregon. He was lucky enough to speak with George Blankenship, the man behind Apple’s hugely successful retail stores and Tesla’s growing chain of showrooms.
Blankenship summed up what makes Tesla’s sales approach so unusual: “The [traditional] model is that they do a bunch of research, hold a bunch of focus groups, and they decide that this is a car we should build; they design that car, they engineer it and manufacture it, and then they sell it to some dealer who then tries to sell it…. That’s just not how we’re doing it.”
Instead, Tesla has created a new kind of showroom. So far, there are 17 of them scattered across 10 states and the District of Columbia. And like Apple stores, they’re often found in shopping malls.
That’s a great way to attract attention and to raise brand awareness, but it may not be such a great way to sell cars — at least, not if Tesla wants to stay on the right side of the law.
The problem, according to the National Automobile Dealers Association, is that in 48 states, franchise laws forbid or severely restrict the ability of automakers to sell vehicles directly to the public. The content of those laws vary from state to state, but behind most of them is the rationale that allowing big automakers to operate their own retail outlets stifles competition. As a result, today’s dealerships tend to be independently owned and operated.
And this is where Tesla finds itself in trouble, because Tesla showrooms are owned by Tesla. In fact, as AutoNews reported, in some cases, business documents even list Elon Musk as the showroom owner.
Blankenship insists that Tesla understands the nuances of these franchise laws and operates according to the restrictions of each state. In most places, for example, Tesla showrooms don’t actually sell or even take reservations for vehicles. Instead, they share information about Tesla cars, then refer shoppers to the Tesla website, where they can customize and reserve a vehicle of their own.
Dealers think that’s a load of semantic baloney. They insist that even though Tesla’s showroom workers don’t take money in exchange for vehicles, they’re still part of the sales process. And that puts Tesla in violation of the law.
Tesla’s retail store concept
As we reported earlier this week, Tesla now faces lawsuits in four states, and as the company’s network of showrooms expands, we’d expect to see a few more dealer networks calling up their armies of legal experts.
Ahead of the curve
Tesla and Musk surely understand that they’re pushing the boundaries of what’s acceptable in these showrooms. After all, being audacious is part of their M.O.
But unlike today’s attention-starved pop stars, Tesla isn’t just pushing boundaries for the sake of being edgy. They’re exploring new ways of communicating with customers, and in doing so, they seem to be part of a larger trend of soft-sells and conversations, rather than old-school, stereotypical car sales techniques.
Think of social networking, think of Facebook and Pinterest and Instagram. This is how a growing number of us get our information and how we communicate with friends, “friends”, businesses, and brands. Successful marketers on social networks aren’t the ones who shout offers at potential customers, Mad Men-style; they’re the ones who share information, engage consumers, give the public a sense of what they’re about, let shoppers peek behind the green curtain.
That, in essence, is what Tesla is doing. Its showrooms are more like information hubs than traditional car lots — that’s why they’re located in malls. The company’s front-line workers are like Apple Geniuses, answering questions and explaining what makes Tesla different from its competitors.
Basically, Tesla has reimagined the auto shopping experience, removing the two things that customers hate most: haggling and buying. Creating a space for the public to window shop for cars, without pressure from sales personnel? That’s pretty smart.
In fact, it’s so smart that Audi recently riffed on the idea with its new Digital City showroom in London. Will Audi run into the same legal problems as Tesla? We’ll know soon: the company plans to add another 19 of its showrooms over the next three years.
There’s little question that Tesla’s showrooms are skating on thin ice when it comes to legal issues. The real question is: are state franchise laws outdated? Are the laws that Tesla is flouting in need of revision?
And just as importantly, will Tesla’s soft-sell sway shoppers?
Let us know your thoughts on Tesla’s unique techniques in the comments below.
By Richard Read