Tesla's electric cars a tough buy in Arizona

State law keeps company from selling directly
2013-06-24T00:00:00Z Tesla's electric cars a tough buy in ArizonaHoward Fischer Capitol Media Services Arizona Daily Star
June 24, 2013 12:00 am  • 

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

If you're an Arizona resident, you'll have to jump through some extra hoops, 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.

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." Tesla has 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. Arizona law prohibits manufacturers from selling directly to Arizona consumers. "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. Since most areas have multiple dealerships, that ensures competition for customers, which in turn keeps prices down, Sparrow said.

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

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 would allow them to financially squeeze out the dealers, she said.

She said most states have similar laws. Tesla is "trying to buck the system," she 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 dealership laws. Tesla is fighting new legislation and, in some states, challenging laws that are "a huge hindrance to customers who want to buy our vehicles," Hendriks said.

But she said Tesla is managing to work within Arizona's laws - and manages to sell vehicles to Arizonans 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 $55.2 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 operations loss.

The report said 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 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." Also, New York law allows test drives at company stores there.

And once or twice a year, Tesla brings one of its vehicles to Arizona for test rides - but not to the gallery location. "We pick a route around Scottsdale or whatever city we come to," she said.

She stressed that, because of Arizona law, no one can talk price or take orders. But she said the company seems quite content to keep things the way they are now.

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