Tesla wins round in court with auto dealers

A judge has denied a bid by Massachusetts auto dealers to block Tesla -- whose products include the Tesla Model S, shown here -- from operating a mall display store near Boston.

Tesla, the maker of high-end electric cars, has won its first round in court with auto dealers who have challenged its factory stores as violating state franchise laws.

A judge denied a bid by the Massachusetts State Auto Dealers Assn. to get a temporary restraining order and an injunction preventing Tesla from operating a mall display store near Boston, according to Tesla and the association.

Though Tesla sells in low volumes, dealers nationally fear the Palo Alto automaker could set a precedent allowing other automakers to sell directly to the public. Currently, about 18,000 new-car dealers nationally get a cut of every one of the 12.8 million new cars and trucks sold in the U.S. last year.

At the store in question, in the Natick Mall, Tesla shows customers display cars and answers questions, then directs them to the company website to complete the sale. That allows the automaker to bypass state consumer protection laws governing contracts, window stickers and other aspects of the sale, said Robert O’Koniewski, executive vice president of the Massachusetts dealers association.


“We feel very strongly that these laws exist to protect the consumer,” he said, adding that the association plans to continue its legal fight.

Judge Kenneth Fishman, of Norfolk County Superior Court, ruled earlier this month that the plaintiffs – the dealers association and two nearby dealers of Fisker and Chevrolet cars – had no standing to request the court action, O’Koniewski said.

Tesla applauded the ruling. “Tesla looks forward to continuing to focus on advancing the knowledge of EVs in a convenient, accessible environment,” said spokeswoman Shana Hendricks in a statement.

The franchised new-car dealership system dates back to the start of the U.S. auto industry, when hundreds of manufacturers fought over market share. To avoid the expense and hassle of setting up showrooms, some automakers sold other entrepreneurs the right to market their cars in specific cities.

Over time, car dealerships became crucial sources of employment and tax revenue for local communities. To prevent manufacturers undercutting neighborhood dealers, states developed laws to enshrine franchising and keep carmakers out of retail sales.

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