By on September 17, 2013
Tesla store in Newport Beach, California

Tesla factory owned store in Newport Beach, California

In the continuing battle between Tesla, which wants to sell cars directly to consumers, and car dealers, who are using state laws to keep the EV startup from opening factory outlets, the California New Car Dealers Association has asked that state’s DMV to “investigate and remedy several egregious violations and advertising and consumer protection laws” by Tesla.

 

According to Automotive News, dealers say that Tesla advertising that includes “packed external savings” like fuel costs, incentives and federal tax credits, in calculating the cost of ownership is misleading. For example, the dealer group says that the available $7,500 U.S. federal tax credit should not be included in Tesla’s advertising since only 20% of taxpayers pay enough taxes to qualify for the tax credit.

The CNCDA membership is comprised of 1,100 franchised new-car and -truck dealerships in California, which is the largest individual state or provincial market in North America. In an interview, Brian Maas, president of the dealer association said, “We don’t have any quibble with Tesla’s ability to sell cars, it’s how they are selling cars that is the problem.” Tesla declined to comment on the suggested investigation.

Tesla has run into problems trying to sell cars directly to consumers in Texas and New York but California law permits car manufacturer direct sales as long as they follow advertising guidelines and other consumer protection regulations imposed on traditional dealerships.

“The general thrust is that Tesla is misleading consumers into thinking the monthly cost that you’re going to pay for one of their vehicles is substantially lower than the actual money” that consumers will have to pay, Maas said.

“It’s misleading,” Maas added. “If you checked every box on their true cost of ownership series of inquiries, they claim you can get a Model S for $114 a month, which is lower than the cheapest [new] car available in the United States, the Nissan Versa — which would cost you, with a lease deal, about $139 a month.”

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47 Comments on “California New Car Dealers Seek DMV Probe Into “Egregious” Tesla Advertising...”


  • avatar
    aristurtle

    >> “$7,500 U.S. federal tax credit should not be included in Tesla’s advertising since only 20% of taxpayers pay enough taxes to qualify for the tax credit.”

    What percentage of people seriously considering the purchase of a $70,000 luxury sedan pay enough taxes to qualify for the credit? I’m guessing it’s closer to 100% than 20%.

  • avatar
    Felix Hoenikker

    This is rich!
    Everyday, I have to drive with one hand on the radio presets to keep the inanae and misleading car commercials to a miminum. But, I never head a Tesla commercial. Also, the bill boards advertising great deals such as a 2014 Honda Accord for $139/month are totaly honest. As they say people who live in glass houses ……..

    • 0 avatar
      igve2shtz

      Agreed. Ever seen the footnotes in the newspaper when it comes to new car “deals”? I’ve had college level essays that were shorter than the footnotes section. College grad rebate, military rebates, return customer rebates, AARP rebates (which actually conflict with the miltary rebates and only 2% of uniformed officers qualify for, but that doesn’t stop them from combiging the discounts). Not to mention the outrageous fuel mileage claims and lease offers. Are you really advertising the Hyundai Elantra and Chevrolet Cruze as 40 MPG cars, great for commuting, and then imposing a 10,000 mile per year lease cap? How many commuters drive that short of a distance?

      In the past 5 years, American car companies have made fantastic strides in the quality, design, and engineering of their cars. But their old, tired dealer system is hurting them in the long run. I would love to be able to walk into a Ford showroom with the same detail and customer focus that Tesla seems to offer.

    • 0 avatar
      LeMansteve

      Totall agree. Asterisks, fine print, speed talking at the end of ads, it’s all part of the game. Haters gonna hate.

      “For example, the dealer group says that the available $7,500 U.S. federal tax credit should not be included in Tesla’s advertising since only 20% of taxpayers pay enough taxes to qualify for the tax credit.”

      If this is the best complaint the dealers can come up with, their days are numbered.

    • 0 avatar

      I’m sure there are lots of people who qualify for the current vehicle owner, competitive vehicle owner, college grad, military, and employee discounts all at the same time. And there’s nothing shady about deducting the value of their trade or their down payment from the cost.

    • 0 avatar
      SomeGuy

      I was about to post the same comment. This is absolutely laughable. Pot, Kettle, Black eh?

    • 0 avatar
      Beerboy12

      + Advertising, for the most part, for all industries is quite misleading.

  • avatar
    CJinSD

    Columns, columns! Get your columns here! Ionic, Doric, Corinthian! Put a few columns in front, turn any hovel into a showplace! Columns!

  • avatar
    Pch101

    The dealers have a point. Tesla’s “true cost of ownership” calculator is a joke. If it was used to market some other consumer product, the FTC would probably be sending hate mail to corporate HQ re: the misleading advertising on the company website.

    Tesla begins by assuming that owning a Tesla will save you 40 minutes per month in stoppng for fuel, which equates to knocking $33 off of your payment. All told, the company tries to spin a $916 per month payment into a $579 per month payment (and the $579 figure is displayed more prominently, in a larger font, and in bold.)

    When dealers do that kind of thing, we call them crooks. No reason that Tesla should get a pass. Where I went to school, $916 was $916, not $579.

  • avatar
    ckgs

    Seems to me most of the services provided by current car dealers are rapidly becoming unnecessary overhead in a car purchase. They should work to adapt rather than battle for the status quo. Take a lesson from examples like the music, PC and publishing industries before it’s too late.

  • avatar
    hands of lunchmeat

    Is there anything dealer owners wont bitch about? Though i do understand their fear of this, as this is the proverbial camels nose.

    I wonder, if Tesla made major inroads with this marketing, which major Manufacturer do you think would try to make a break for it and follow in Teslas footsteps?

  • avatar
    philadlj

    The whole idea of car dealers being able to restrict commerce in any way kinda bothers me. America is ostensibly a free market; we as consumers should have the choice between direct sales and the dealership experience.

    The dealers are probably looking at Tesla (and Fiat’s early attempts at a direct-sales center) and are worried about a slippery slope.

    Obviously, requiring cars to be sold at dealers helps the dealers, but I’m unsure if or how it helps consumers, or the economy as a whole. If you have an Official Chevy Store(TM) opening up across the street from “Johnson & Sons” Chevy and undercutting them, that will be bad for the dealership, but I don’t see how it’s bad for the car buyer who would almost certainly get a better deal on an identical product without the middleman.

    I liken it the Mitsubishi factory in Normal Illinois that until recently was churning out ancient Galants and Eclipses NOBODY wanted to buy, simply to keep the factory workers busy. If a business can’t compete, it should die, not be propped up like some kind of zombie.

    Dealerships have a right to exist, but I don’t think they should have the power to stop manufacturers from selling their product directly. If dealers truly have something of value to offer, than that something should be tested in the crucible of the marketplace, and if dealers fail, it’s because the consumer decided whatever that “something of value” was, it wasn’t enough.

    • 0 avatar
      tikki50

      Bingo! Dealerships have become irrelevant they slimmed product selection down to a few packages. LT LT1 LS LTZ, and pick a color. See we as consumers already do all the selection on the site, the dealer is now irrelevant to the purchase, I do not need him nor want them involved in my sale it only causes prices to go up. They should be worried most of America already knows this it’s just a matter of time. Oh I cant wait to hear the fat lady sing.

    • 0 avatar
      Chicago Dude

      “America is ostensibly a free market”

      That’s a marketing term, and it always has been. Article 1 of the Constitution gives the Congress the right to regulate commerce. That’s not a “free market.”

      • 0 avatar
        bunkie

        Best comment of the day.

        The “columns” comment , while very funny, was cribbed from the brilliant SNL bit with Fred Armisen and Scarlett Johanssen doing perfect NY accents. “They’ll think the Pope lives here!”

    • 0 avatar
      CarPerson

      You missed the memo that says money flows up to the “have more” (dealers) and “have far more” (vehicle manufactures).

      The consumer sits NOWHERE at this table…

      Nissan places EVERY safety and convenience option AFTER the purchase of a needless, worthless, maintenance-headache, headroom-robbing, leaky, high-margin sun (moon) roof.

      You, the consumer, are cordially invited to shove it and first buy the hole in the roof before proceeding…

  • avatar
    BlackDynamiteOnline

    The other dealers weren’t expecting the Model S to take off like it has. It’s hurting their business, so it’s time to get desperate, and attack them from behind.
    BD

  • avatar
    SCE to AUX

    “…calculating the cost of ownership is misleading”

    Cry me a river of tears. Call me when you stop using the four square, you hypocrites.

  • avatar

    If only we could sick unions upon the dealers.

  • avatar
    Kenmore

    I get everything else from Amazon, I want to get our next cars from them, too.

    SUBMIT ORDER… *click*… sleep, sleep… Ding-Dong…

    Oh, look, Honey… our Datsuns are here!

  • avatar
    April

    Re: Traditional car dealers complaining about the accuracy of ads for Tesla.

    People who live in glass houses should not throw rocks…

  • avatar
    cartunez

    I for one am glad these nice honest car dealers are using the power of the state to make me pay more for services that I may or may not want. God Bless America

  • avatar
    JimC2

    Another example of manufacturer direct-to-consumer sales, consumer choice, and the free market- if I want to buy a spatula I have a choice between using a middleman (a retail store) or going to the factory outlet at Spatula City.

    • 0 avatar
      SCE to AUX

      The problem with your illustration is that there’s no money in selling spatulas alone; you need the combined economies of scale from selling lots of commodity items to make a profit.

      Cars, computers, and houses can all be sold directly for a profit.

      • 0 avatar
        JimC2

        “Spatula City” was a pop culture reference to “Weird Al” Yankovic’s movie, UHF (a somewhat obscure reference and I wasn’t worried if only a few people got it).

        Besides, they make great gifts…

  • avatar
    mcs

    I wonder if the dealer association sent Tesla any communication regarding the issue before filing with the State DMV? The Dealers need to be careful about the methods they use against Tesla. I think the dealers are skating on some really, really, thin legal ice and could easily provoke the US DOJ.

    Essentially we have a group of individuals organizing for the purpose of skimming a portion of Tesla’s revenue using the threat of continuing to harm Tesla’s reputation if they don’t comply. Using legal process to challenge Tesla’s legal right to sell direct is one thing, but calling the DMV and nitpicking about advertising might be considered attempts at injuring reputation, and may be crossing a line.

  • avatar
    wmba

    My best friend owns and runs a reasonably high-end audio store. Yes, he’s managed to survive the online tsunami by adapting to change.

    He has probably 120 product lines, some with overlapping products and price points. However, he has a proper demonstration area where 24 pairs of speakers, a dozen amps and a dozen sources (including streaming) can be listened to in any combination.

    Once customers, who may have prejudged their brand of choice, find out that they can actually hear the stuff with their own music, a funny thing happens. Can you guess?

    Only a fairly limited number of speakers, amps and sources actually get chosen. That’s right, check out the stock area and it becomes clear what actually sells across price ranges. Given the actual choice, consumers tend to agree what is best, despite their claims as to being deaf before the demos begin. Yes, amazingly, they can hear.

    The knife edge of balance occurs between the store and the manufacturer. In this go-go sell anything as fast as possible world, manufacturers are of course annoyed when repeat orders focus on just a few models that actually sell. “But ours is the best at all price levels,” they claim. They really want the store to be a single make outlet.

    Car dealers are single make outlets, even ones selling three makes because they pretend they’re separate with different sales staff and service bays.

    There is no easy way to make comparisons at one place. The commission-only salesman will do anything to sell you his make.

    The manufacturers want it this way too. Throwing all makes and models in one big ring with similar financial terms and a reasonably knowledgeable salesperson would be death to many models, just like at my friend’s hi-fi outlet. The good models trample the also-rans.

    That’s the very last thing manufacturers want – they have factories to run at predetermined rates. They have dogs to sell, screw the customer for shopping around, so let’s do our best to make sure that cannot happen.

    Tests of all consumer products by magazines, papers and online websites is a poor substitute for checking stuff out yourself. It may give a general idea, and forums exist where folks tell lies to each other, pushing their choice on others because they’re the big know-it-all. Probably the manufacurers seed these forums with comments from employees extolling their products. Like fake posters on this site.

    It’s a pretty horrible situstion. Many people want to deal manufacturer direct, convinced by other people’s “opinion” as to what’s best, and desiring to miss the dealer experience. These people are delighted when they read that, hey, ALL cars are pretty good. Makes it easier to order what they want online.

    But as my friend’s store shows time and again, products are NOT all good, and some are far better than others for the same money. Car reviews are pretty bland, even here, when minor criticism is reacted by outrage from fanbois and manufacturer trolls.

    I’m advising anyone who cares to listen that they should drive all the models that might suit them, rebuff the cloying salesman at each store (he/she is operating in a flawed system, so tough). You will find more differences than you at first supposed. It does take an effort, though. Can you hack it?

    Of course if you’re a point and click shopper, I hope you’re happy with whatever you plunk your money down for. I find people give up and just select something because they get fed-up – exactly what manufacturers want. If you buy this way, well don’t haunt forums proclaiming what a brilliant choice you made. It’s highly unlikely.

    The whole paradigm for selling cars is flawed, because comparisons are not really allowed.

  • avatar
    TrenchFoot

    I wonder what’s a greater value to the larger manufacturers: wiping the tears off their dealership’s faces or the zero-emission compliance credits that most of them are buying from Tesla? This will never see a day in court. If it ever got close Tesla would stop selling credits and Dodge would have to contemplate buying Nissan Leafs to slap pentastars onto.

    “Now introducing the 2014 Dodge Colt EV!”

  • avatar

    Having worked for five car dealerships over a span of seven and a half years, I never will again but can say that this doesn’t surprise me at all. The car business by its very nature never takes anything seriously until it has ballooned into a REALLY big problem. Car dealers live for the right now, the sale and the cash that’s right in front of them and don’t care at all about the little guy starting up down the street. You know why they don’t care? Because granny here wants to pay $399 a month for 72 months on a brand new Corolla with a $16K sticker and she’s got a low-mileage, late model Honda Accord trade-in that they gave her $4,000 for! The dealers didn’t see Tesla as a threat and never bothered to do anything about until now when the company is kicking ass and taking names and now the dealers want to cry party foul because they’re missing out on the gravy train.

    I have utterly no sympathy for car dealers. None. Think of how much fun your last car-buying experience was and then imagine working in that atmosphere five to six days a week. It’s horrid and they can all go suck on a railroad spike as far as I’m concerned. It’s a perverse corporate culture founded on deceit and screwing over anyone that gives them the smallest opening.

  • avatar
    Robert Fahey

    Tesla’s best advertising is the whining by the competition — and it’s free.

  • avatar
    jimbob457

    Wow! Buying an item with a ten or fifteen year useful economic life creates an ongoing relationship between buyer and seller(s). That said, car dealerships are still modeled after 19th century livery stables and animal sales. A dog eat dog environment to say the least.

    Personally, I think Tesla is getting roughed over by the established car dealers, at least in some jurisdictions. Maybe things will work out for Tesla. Maybe their mail order customers will all end up happy. Then again, maybe Tesla will fail, and its customers will end up getting screwed.

    This is America!

    Tesla’s potential customers are not the little sisters of the poor. Let it happen. If they do end up with the short end of the stick, so be it. Big boys and girls should be able to take care of themselves.

  • avatar
    wolfpv

    As a Tesla Model S owner I have the perspective of personal experience.

    Buying process was fine, delivery well handled, and the car is fabulous. Some of the economic claims are far-fetched, but generally based on factors which are presented accurately, if not prominently, in Tesla’s marketing materials.

    If anyone (including the dealer networks) feel that Tesla’s claims are dishonest, they are welcome to file complaints – but like many of you, I think the irony of car dealerships complaining about misleading advertising is delicious.

    What should by now be clear to everyone is that the sales paradigm has shifted. Local retailers, dealers and distributors must add significant value in order to prosper. Maintaining their role by legislation may be a short-term solution, but it’s bound to fail in the long run.

    Incidentally – and off topic – if you plan to purchase an electric or plug-in hybrid, and you own a roof, get solar. It’s quite cheap now (especially if you do-it-yourself) and the environmental and economic benefit of an electric car really “shines” (pun intended) with photovoltaics.


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