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Virginia Gives Tesla’s New Sales Model a Faint Green Light

Andrew Rudin | Dec 5, 2016 211 views No Comments

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Earlier this month, I visited friends in Beverly Hills, California, and rode in their new Tesla Model S. The car accommodated six adults. Two sat up front, and four snuggled into a back seat designed to hold three. I loved the quiet, and especially the acceleration. If there were celebrities milling about, I didn’t see them. The scenery was all a blur. But it was a blast getting to the country club.

When I returned home, I initiated an online search, How to buy a Tesla in Virginia. The top result, Edmunds.com, gives some up-tempo prose. Kudos to the writer:

“If you are in the market for a new Tesla car or truck, your search should begin at Edmunds.com. Our expansive network of Virginia Tesla car dealerships gives car buyers the ability to start shopping for their new or used vehicle from the convenience of their desktop. Once you locate Tesla car dealers in Virginia, you can compare online price quotes to find the lowest possible rate. Whether you are interested in a car, truck, SUV, wagon, or minivan, the comprehensive listing of Virginia Tesla car dealerships at Edmunds.com is a great place to start.”

The first hint of weirdness, though, comes in the first sentence from the word truck. Tesla doesn’t yet have one available for purchase. The “expansive network of Virginia Tesla car dealerships” is impressive. The list covers much of my state, making an alphabetic span from Alexandria to Woodbridge. There’s even a link to find Tesla dealerships in Lynchburg, located in Campbell County, which voted 71% for Trump and 24% for Clinton. Not a superb target demographic if you’re selling an all-electric vehicle. Strange . . . why put a dealership there?

Then, my website peregrinations guide me toward an answer. Each time I click a link, I receive an identical result:

Sorry, there are no car dealers in your area. Please try a selection below.

The online experience proceeds downhill. The try-a-selection-below path demonstrates what happens when software gets flummoxed. Edmunds.com simply coughs up a different list. One that shows makes of cars from Acura to Volvo. Fail!

Other sites are no better. “No Virginian should buy a new Tesla without being fully informed about the new car market. TrueCar shows you the average price other people are actually paying for new cars at Virginia Tesla dealers.” Please! Now you’re trying to play me.

Of course, there are no Virginia Tesla dealers. My suspicions are confirmed – online car buying services just re-use the same copy for all vehicle makes. “Change Toyota to Tesla . . . ” I can hear the Marketing Director saying it now.

Evidently, Edmunds and TrueCar have teed up their websites in preparation for the first franchised Tesla dealers, broken links, be damned! When – or if – that day will come remains unclear. “In Virginia, as in most states, it is generally illegal for manufacturers to sell cars directly to consumers, partly to prevent car makers from undercutting their franchisees. But there are exceptions to that rule. And Tesla says those apply, in part because its cars are so unconventional that traditional car salesmanship will not work,” Laura Vozzella wrote in a November 29 Washington Post article, Tesla’s Bid for Second Store in Virginia Draws Fire.

Tesla, which is licensed to sell cars in 23 states, wants to open its second store in the Old Dominion, just outside Richmond. Tysons Corner, Tesla’s current Virginia location, is called a Gallery. Staff are allowed to talk about the vehicles, but cannot discuss sales or arrange test drives. But Don Hall, president of the Virginia Automobile Dealers Association (VADA), doesn’t want even that to happen. “For the last 29 years, I have fought as a gladiator to protect the rights of Virginia auto dealers and their franchise system. This system is under attack by the likes of Tesla and many others out there who believe the franchise system is a dinosaur and no longer works . . . Let’s all strap on whatever it takes to win.”

Some sales advice for Gladiator Don, which I’ll throw in, no extra charge: if you want to convince Virginians to support the business model you cherish and aspire to protect, mention a few feel-good phrases like dealer value-add, consumer rights, buyer protection, and excellent customer experiences. And describe how crushing Tesla’s direct-to-consumer sales innovation brings benefits to car buyers, and not just to your association members.

For Don, a full-frontal sales pitch should be familiar territory. He espouses the same go-for-the-jugular approach that made auto dealers notoriously unpopular with consumers. Something he likely feels he must do to bolster an industry that holds not one, but two spots in the Better Business Bureau’s (BBB’s) top 10 industries for customer complaints. In 2014, Auto Dealerships – New placed 4th on the BBB’s list. Auto Dealerships – Used placed 6th. And while I’m at it, Auto Repair and Service ranked 10th. Not all of that complaining was directed toward dealership repair facilities, but no doubt, some of it was.

Checkered customer satisfaction ratings possibly explains why over the past 10 years, VADA has found it necessary to invest over $4 million in campaign contributions and gifts to Virginia politicians to maintain its hegemony in auto sales. Their effort seems to be working. Achieving Tesla’s strategy is far from assured. “If [Tesla] wants a carve-out, it better be such an incredibly compelling argument,” Republican Del. Jackson H. Miller said. “And I’m not sure Tesla has that.” The commissioner of Virginia’s Department of Motor Vehicles will rule on the matter in December (author’s note: see the update at the end of this article).

“Tesla has argued that dealers, who are used to quick sales, price markups and profitable maintenance work, could not shift gears to its cars. With new, highly sophisticated technology, Teslas are more time-consuming to sell. Tesla offers the cars at set prices whether they are purchased at a retail store or through the company’s website, leaving no room for markup. And with few moving parts or oil, they offer little opportunity to profit from service – an important source of revenue for many conventional dealers,” according to The Washington Post article. “It’s not a Ford versus a Toyota versus a Hyundai. It’s a whole different product,” said Marcus Simon, a Democratic state delegate from Fairfax. “There’s not many moving parts to the thing. It looks different, works different, smells different . . . It’s more like buying a computer or electronic device than a car.”

Tesla’s management knows what dealers would have to do to make a profit selling their cars, and it wouldn’t be pretty. Would dealers gouge customers with unnecessary add-on fees, as they did with undercoating and “appearance packages”? Would they steer them to more profitable gas-driven models? And would an intermediary injected into the sales process destroy Tesla’s carefully cultivated customer trust?

It’s understandable that Tesla wants to drive away from the franchise sales model. As a prospective car buyer, I hope they succeed in navigating that road, not only in Virginia, but throughout the US.

Update: On November 30, Richard Holcomb, Commissioner of the Virginia Department of Motor Vehicles, allowed Tesla’s petition to open a second Virginia store. “After careful review of the entire record, I find that there is no dealer independent of Tesla in the community or trade area of Richmond to own and operate a Tesla franchise in a manner consistent with the public interest,” he wrote.

In an email, Tesla’s VP of Business Development, Diarmuid O’Connell responded, “Tesla applauds the Commissioner’s decision to allow us to open our new store and service center in Richmond, Virginia. . . This decision will allow Richmond-area consumers to learn about and purchase their Tesla vehicles in closer proximity to their home. We intend to swiftly begin construction.”

As of December 1, 2016, a search of the Virginia Automobile Dealers Association website yielded no response to Holcomb’s decision.

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