Missouri Auto Dealers Sue State For Letting Tesla Sell Directly To Consumers

While many states have essentially banned the sale of Tesla vehicles, Missouri appeared to welcome the electric car company with open arms. Of course, not everyone is as pleased to have the car maker tallying sales in the Show Me State. And so to show its displeasure, the Missouri Auto Dealers Association filed a lawsuit against the Missouri Department of Revenue and its director for allowing the electric car company to sell vehicles directly to consumers.

The St. Louis Post-Dispatch reports the Missouri Auto Dealers Association (MADA) alleges that the state’s department of revenue was in violation of state law when it issued a dealers license to Tesla in 2013.

MADA, which represents 381 franchise car dealers, asserts that state law requires manufacturers to sell motor vehicles through dealers holding a valid franchise agreement with the manufacturer.

For those not initiated with Tesla, the company eschews the traditional dealership model and instead sells its pricey cars directly to consumers through store fronts or online.

According to the Post-Dispatch, Tesla, which has sold about 200 Model S cars in Missouri, opened a $2 million service center in University City, MO, in 2013 after it was issued a dealer license by the revenue department. The company has since added numerous charging stations and a store in Kansas City, MO, last month.

MADA claims that by allowing Tesla to sell cars without a proper dealership, the revenue department and director Nia Ray have “created a non-level playing field were one entity – Tesla – is subject to preferential tremens and all bona fide dealers are discriminated against.”

Lowell Pearson, MADA’s attorney and former revenue department deputy director, says Missouri “disadvantages hundreds of Missouri car dealers who have been doing business for many, many years.”

He says the group is asking the court to bar the revenue department from renewing Tesla’s license for the University City location and bar it from receiving other dealer licenses elsewhere in the state.

“It’s quite well established that a car manufacturer cannot sell vehicles directly to the public and they must be sold through a licensed dealer,” Pearson tells the Post Dispatch.

A spokesperson for the revenue department tells the Post-Dispatch that the department does not comment on pending litigation.

However, last year the department’s acting director, John Mollenkamp, said in a statement that automakers with existing franchise agreements with dealers are barred from competing directly with them, however the law does not apply to companies that never had such agreements – such as Tesla.

Thursday’s lawsuit isn’t the first time MADA has attempted to end direct-to-consumer sales by Tesla. Last year, an amendment to a bill in the Missouri Legislator would have banned the sales, however that provision was ultimately pulled from the bill.

Still, that setback wasn’t enough to make those opposed to Tesla’s practices pack up and go home.

“We feel it’s a violation of the law,” MADA’s president and CEO, Doug Smith, says of the electric car company’s sales model. “The law … clearly states that a manufacturer cannot sell vehicles to consumers.”

Tesla vice president of corporate business development Diarmuid O’Connell tells the Post-Dispatch that the Missouri lawsuit is an attempt by dealerships to limit consumers’ ability to choose.

“The goal of both this lawsuit and anti-Tesla legislation is to create a distribution monopoly that will decrease competition, hurt consumer choice, and limit economic investment in Missouri,” he says.

While Tesla has drawn the ire of many in the auto sales business for its refusal to use traditional franchised dealership models, the company’s CEO Elon Musk admitted last week that the company might not always employ the same sales practices.

Musk said Tesla might consider franchised dealers at some point in the future when the company has increased its production and sufficiently educated consumers about its products via storefronts.

But Musk cautioned that the company would only enter into partnerships with dealers that haven’t been “jerks to us.”

If the MADA lawsuit is successful in banning Tesla sales in the state, Missouri would join Michigan, Texas, Arizona, Colorado, North Carolina and Virginia on the list of states with laws banning the direct sale of automobiles.

In September, the Supreme Judicial Court of Massachusetts threw out a lawsuit aiming to block Tesla from selling directly to customers and using a retail storefront to display model vehicles.

Last summer, the Georgia Automobile Dealers Association filed a complaint with the state’s Department of Revenue, claiming that Tesla sold too many through its one retail store in the state.

While most states don’t have active bans on direct sales, a recently passed law in New Jersey expressly allows Tesla and others to sell directly to consumers.

Auto dealers sue Missouri over Tesla car sales [The St. Louis Post-Dispatch]