"Prototype" Chrysler Store Under Attack

Every state in the union has its own laws regarding a manufacturer’s ability to sell cars, with some states banning the practice outright and others merely preventing OEMs from competing with their own dealer networks. California falls into this latter category, as the California New Motor Vehicle Board bans manufacturers from owning dealerships within ten miles of other same-make independently owned stores. But that apparently did not stop Chrysler from opening a dealership in Los Angeles which, according to a petition filed by the California New Car Dealers Association, is within ten miles of not one, but three independent Chrysler stores.

Automotive News [sub] reports:

The store is Motor Village L.A., which Chrysler established as a prototype to showcase its brands and test new retail concepts. The company said in November that it plans to open more such stores in partnership with dealers.

The fact that Motor Village L.A. (formerly LaBrea Chrysler Jeep) is a partnership with an existing dealer is relevant here because there exists a exemption to this rule that allows OEMs to

own stores near other dealers for one year or in partnership with dealers who have made substantial investments in the operations and agree to buy out the factories.

But, argues the CNDA, Chrysler’s partner in Motor Village has no skin in the game. According to the petition

Chrysler Realty owns the $30 million-plus building that houses Motor Village L.A. and is charging no rent for the first six months. The monthly rent is scheduled to rise gradually from $50,414 in May 2011 to $90,000 in 2015. The market rate for rent is more than $200,000 per month.

The CNDA wants to see Chrysler’s “retail laboratory” either shut down permanently, or have its business license suspended. Meanwhile, with Fiat only just rolling out and Alfa Romeo coming soon to the US, Chrysler’s need to test new retail concepts won’t be going away. And because both of those brands are going to target urban consumers, it will be nearly impossible for Chrysler to set up more of these “dealer labs” without running afoul of restrictions on OEM-owned dealerships.

Meanwhile, Chrysler is hardly the only manufacturer to struggle with state restrictions on manufacturer-owned dealerships. Tesla has said it has no plans to create a franchised dealer network, and has hired the man behind the Apple Store concept to develop its own in-house retail network, a move that inspired a warning in that firm’s IPO prospectus. And then there’s the issue of factory-direct online sales, a largely uncharted model that Tesla has also said it hopes to pursue. And as attractive as “retail labs,” OEM-owned dealer nets and online sales might be, a state-by-state legal and/or legislative campaign will be ruinously expensive for any one auto manufacturer to pursue. And, as the fallout of the GM-Chrysler dealer culls proved, pissing off your franchisees has major political risks.

Chrysler spokesfolks say they are “looking forward to discussing the matter” of its “retail lab” with the CNMVB, but don’t expect them to convince the dealer group to let this one slide. After all, if even the smallest cracks in state franchise laws start to appear in California, it could unleash a flood that might wash the entire franchise system away. Whether or not that would be good for consumers is open to debate, but the fact that it would be devastating for existing dealers is not.