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Does a Rare Tesla Win Signal a Sea Change?

By: Bridget Clerkin December 13, 2017
Legal victories against dealership networks in a number of states have been unsuccessful for Tesla, until the carmaker won the right in December to sell its electric cars straight to consumers in Missouri.

Auto dealerships have ruled the car-buying landscape practically since there have been cars to buy, but their once-adamantine authority over the industry may be showing some signs of splintering.

A Missouri court of appeals declared earlier this month that Tesla could sell its vehicles directly to consumers in the state, allowing the California-based auto manufacturer to circumvent the prevailing dealership model.

The ruling represents a rare blow against dealerships, which enjoy some form of lawful protection in all 50 states. The legal arrangements typically eliminate the opportunity for carmakers to sell their own products. Like those in many other states, Missouri state law dictates cars can only be sold by a licensed dealer holding a franchise agreement with an auto manufacturer.

For their part, Tesla argued that’s exactly what they are, with the company’s Missouri dealership application stating “Tesla Motors . . . authorizes Tesla Motors” to sell its vehicles. The state’s Department of Revenue agreed with that outlook in 2014 and 2015 when it issued licenses for the electric carmaker to sell its autos in Kansas City and the St. Louis suburb of University City—and the department continued to defend that standpoint in court after it was sued by the Missouri Auto Dealers Association (MADA) in 2015.

While the state lost the initial legal challenge, its appeal was successful in part due to the argument that MADA sought to limit competition, rather than defend the public interest. The dealership organization has countered that the decision throws the entire licensing process into question by cutting off the ability to challenge the Department of Revenue, and has vowed to continue pursuing a legal fight.

Although Tesla was not specifically named a defendant in the lawsuit, the ruling also represents a major—and rare—victory for the California company, which has been pushing for a straight-to-customer business model across the country, and so far has garnered little success. The corporation has lost legal appeals for its business model in Connecticut, Michigan, Texas, and Utah, and a New York ruling capped the number of stores it could open there.

Still, the Missouri decision could prove just another element in the perfect storm of widescale disruption. The auto world has been under fire from all sides, with new-age technology threatening each aspect of the industry, from the way cars are made to how they’re sold.

A projected future trend toward autonomous vehicles will further chip away at the collective power of dealerships, as the shift is anticipated to sharply reduce individual car ownership.

With an already powerful force like Tesla gaining strength through the Missouri ruling, that future may become the present sooner than we think.

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