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Automaker Tesla takes fight to North Carolina

Monday - 5/27/2013, 10:40am  ET

CHRIS KARDISH
Associated Press

RALEIGH, N.C. (AP) -- Tesla Motors is fighting a bill in North Carolina that would effectively ban the company from selling its electric cars in the state, pitting it against auto dealers who say the car maker has an unfair advantage selling directly to consumers online.

It's the latest such battle for California-based Tesla, which like other car manufacturers must navigate a patchwork of state laws dictating how its vehicles can be sold. Nearly all states -- 48 -- require manufacturers to sell their vehicles through dealerships to ensure the companies don't undercut their own network of franchised dealers, according to the National Automobile Dealers Association.

Tesla says it is cutting out the middleman by allowing people to view different options in a showroom, but then ordering the car direct from the company online rather than buying from a salesman. That approach also allows it to bypass state laws regarding franchised dealers, which have been in place for decades. However, lobbying groups say franchise dealers invest more locally and provide customer service that Tesla cannot.

The bill in North Carolina was mostly routine, simply updating the law governing the relationship between automakers and dealers. But it also changes the law to subject electronic sales to the same scrutiny. It has been unanimously approved by the Senate; the company is set to sit down with the state lobbying group for dealers, the North Carolina Automobile Dealers Association, to discuss a compromise that both sides say is unlikely to be reached. .

Tesla doesn't yet have a showroom in North Carolina, where it has sold about 80 cars to date. The company recently announced the first quarterly profit in its 10-year history, around the same time Consumer Reports gave its Model S electric sedan a near-perfect rating.

Tesla currently operates 29 stores and galleries across 14 states and Washington, D.C. Customers can order a car online at a sales location or at home but not at galleries, which exist purely to showcase cars in states where auto dealers have launched suits or state law restricts the company from discussing sales in person.

Colorado was the first state to take action against the manufacturer's stores, passing legislation in 2010 that halts their expansion. Since then, Minnesota lawmakers unsuccessfully pushed for a similar measure. In New York and Massachusetts, dealers have unsuccessfully sued to shut down the dealer's stores. In Virginia, a judge recently rejected Tesla's request for an exception to laws that prevent manufacturers from operating dealerships in most cases.

But the automaker can sell in every state because transactions legally take place in California. The North Carolina law, however, prevents customers in the state from making electronic purchases directly through manufacturers, said Diarmuid O'Connell, Tesla's vice president of business development.

"This would be the first place to my knowledge that Internet-based communications with our company would be circumscribed," he said.

The argument from dealers in North Carolina has mirrored those from the national association and in other states: franchise dealers invest more locally, showing commitment to communities and customer service that Tesla can't match.

"It's a consumer protection," said Bob Glaser, president of the NCADA, "and why we say that is a dealer who has invested a significant amount of capital in a community is more committed to taking care of that area's customers."

Tesla has stepped up its advocacy in North Carolina with a Web campaign and a recent showing of its Model S just outside the legislature. The demonstration drew lawmakers, their pages and passersby, who almost uniformly marveled at the touchscreen dashboard and sleek design of the car.

Sen. Ellie Kinnaird, D-Orange, lauded the ingenuity of the car after watching it automatically start up when she sat down, but she said she doesn't regret joining the 47 other senators who voted unanimously for the bill.

"Dealerships are one of those basic industries that are the roots of a small town," she said. "The model convinced me that, while this is visionary, the reality is it has to evolve to a local presence."

Some have suggested a compromise that would allow Tesla a certain quota of direct sales without going through franchised dealers. But that isn't fair to other manufacturers, said Sen. Tom Apodaca, R- Henderson and the bill's sponsor.

"You can't cut out a category for a brand new company when you've got Kia, Hyundai -- they're in here full blast -- (but) Maserati, Ferrari (and) Rolls-Royce?" he said. "They have dealer presence in North Carolina, and I know they probably don't sell 80 cars."

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