No test drives, no dealerships: Trendy Tesla’s tricky Arizona proposition - East Valley Tribune: Business

No test drives, no dealerships: Trendy Tesla’s tricky Arizona proposition

State law makes trying out, getting permanently behind the wheel of all-electric brand harder to navigate

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Posted: Saturday, June 22, 2013 3:17 pm | Updated: 7:31 pm, Wed Jun 26, 2013.

Want one of those new Tesla all-electric cars that Consumer Reports has been raving about?

If you’re an Arizona resident, you’re going to have to jump through some extra hoops, all because of a state law designed to protect car dealers.

Yes, you can go take a look at the cars, which start at $70,000, at what the company calls its “gallery” at Scottsdale Fashion Square mall. You can kick the tires, sit behind the wheel and ask questions.

But you can’t buy one there. And you can’t take it for a test drive.

In fact, the employees in Arizona really can’t even talk much about price.

Instead, you have to either drive to California or decide you like it so much that you’re willing to place an order online — with a $2,500 refundable deposit.

It’s not by choice, explains company spokeswoman Shanna Hendriks.

“In order to sell cars in Arizona, you need to have a dealer’s license,” she said. And Tesla does have some dealerships elsewhere. But not here.

“A manufacturer cannot be a dealer in this state,” said Bobbi Sparrow, president of the Arizona Automobile Dealers Association. More to the point, Arizona law prohibits manufacturers from selling directly to Arizona consumers.

And that, she said, is by intent.

“We put that in law in 2000,” Sparrow said.

One purpose, she said, is ensuring that buyers have dealerships available should a vehicle be recalled or need service. And Sparrow said since most areas have multiple dealerships, that ensures competition for customers which, in turn, keeps prices down.

“If you’re the manufacturer, you have one set of pricing,” she said, with no incentive to knock down prices.

But Sparrow acknowledged the law is also there to protect dealers who have invested money in setting up a franchise for a specific manufacturer. Allowing a manufacturer to sell directly to consumers, Sparrow said, would allow them to financially squeeze out the dealers, leaving them with buildings, car lots — and nothing to sell.

She said most other states have similar laws.

“They’re trying to buck the system,” Sparrow complained.

So far, Tesla has gotten around the laws in Arizona and most other states because the transaction technically occurs in its home state of California. That has led legislators in places like North Carolina to propose tightening their dealership laws.

Hendriks said Tesla is fighting new legislation, and, in some states, challenging their existing laws.

“It’s a huge hindrance to customers who want to buy or vehicles,” she said.

Hendriks said Tesla is managing to work within the existing Arizona laws to sell vehicles to Arizona residents despite the hurdles created by the franchise law.

“It’s a great market for us,” she said, though Tesla would not disclose specific Arizona sales.

The publicly traded company’s most recent quarterly report showed $555.2 million in sales.

But with a cost of the vehicles of $461.8 million, coupled with nearly $102 million in research and sales costs, it still posted a $4.6 million loss from operations.

It also says Tesla is receiving orders at a rate of more than 20,000 cars per year worldwide.

“Would our sales be higher if you could test drive a car by going to the mall and kicking the tires there?” Hendriks said. “Possibly.”

There are options for would-be buyers who really want to do more than sit behind the wheel in a storefront at Scottsdale Fashion Square in a gallery and pretend to drive.

“You have to go to Southern California,” Hendriks said. “Or if you find yourself in southern Colorado, you could test drive there.”

The law in New York allows test drives at company stores.

Once or twice a year, Tesla brings one of its vehicles for Arizona — but not to the gallery location.

“We pick a route around Scottsdale or whatever city we come to,” Hendriks said.

“People sign up for a test drive,” she said. “They get in. They test drive. And they leave.”

And Hendriks stressed that, because of Arizona law, no one can talk price or take orders.

Tesla could get around that by having even a single dealer, not owned by the manufacturer, to do the sales and provide the service. She said the company seems quite content to keep things the way they are now.

In prepared comments, Elon Musk, the company’s chairman, chief executive and product architect, said he sees no benefit to that, saying it would put sales people in the position of explaining the advantages of an all-electric vehicle while trying not to undermine their traditional business of moving gas-powered cars and trucks.

he believes by the time most people head to a dealership, they’ve pretty much decided what car they want to buy.

Most often, Musk said, it’s the same brand as they now drive.

“At that point it is largely just a matter of negotiating with the dealer on price,” he wrote.

Musk said that Tesla, which has no built-in owner base, would be at a disadvantage in its ability to educate customers if it were located at dealerships. He said that’s why the decision to position stores and galleries in areas of high foot traffic and visibility “that people regularly visit in a relatively open-minded buying mood.”

None of that, of course, precludes Tesla from having their galleries and contracting with existing car dealers to also sell their vehicles. But Musk said he sees no benefit to that, saying it would put sales people in the position of explaining the advantages of an all-electric vehicle while trying not to undermine their traditional business of moving gas-powered cars and trucks.

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