Dealerships or direct sales? Tesla model shares road with car sellers in Washington

(Reuters) - On President's Day last month, about 40 electric-car advocates gathered under the rotunda of the state capitol in Olympia, Washington, where a lobbyist for Tesla Motors Inc urged them to rally against a bill that would prevent the carmaker from opening new sales offices in the state.

By the time the legislature finished its work last week, a coalition of environmentally friendly Democrats and free-market Republicans had stripped the restrictions from the bill. Tesla would be free to sell its cars through its own sleek showrooms rather than relying on the dealer networks that have dominated the industry for decades.

It was a welcome win for Tesla after setbacks in Arizona, New Jersey and Texas, where state officials have blocked the startup from selling directly to consumers. But auto dealers were happy with the outcome as well, because the bill carved an exception for Tesla while strengthening rules that require other automakers to sell through their stores.

The outcome in Washington, which must still approved by the governor, shows that the battle between the Silicon Valley startup and Main Street dealers, currently playing out in states like New York and Ohio, isn't necessarily a zero-sum game.

Where there is a ban, Tesla can show off its cars in "galleries" and sell them online. And dealers may be able to co-exist with Tesla in states where it sells directly, so long as bigger players don't try to follow its lead.

"Our issue is not with Tesla itself, it's with the model," said Tammy Darvish, a vice president at Darcars Automotive Group in Silver Spring, Maryland who bought a Tesla of her own. "How can we as auto dealers compete with manufacturers in the same market when we are completely dependent upon them for our inventories?"

STATE-BY-STATE BATTLE

The clash pits a billionaire engineer, Elon Musk, against 17,000 businesses, often family-owned, which are engines of their local economies, and which made substantial investments based on ground rules that require automakers work with dealers, not compete against them.

Over the years, dealers have sponsored Little League teams, supported local charities and forged strong ties with the state officials who regulate auto sales.

The conflict came to a head last year after Tesla introduced its Model S, a $60,000-plus sedan that aimed for a wider audience than the two-seat, $101,000 Roadster sports car it introduced in 2009.

Texas and Arizona have blocked Tesla from selling its cars directly in their states, while regulators in New Jersey ruled last week that the company must stop direct sales by April 1.

Colorado, Virginia and Georgia have imposed restrictions.

Tesla successfully fended off limits in North Carolina, Massachusetts and Minnesota last year. The two sides are currently battling in Ohio and New York.

Tesla currently operates 116 sales and service operations globally and aims to add another 90 or so by the end of the year, according to its most recent annual report. Sales are rising fast from last year's 22,477, but it is a niche player so far.

Tesla, which declined to comment to Reuters, argues that dealers don't understand its technology and have little incentive to sell an electric car that does not require its owner to return periodically for maintenance.

Chief Executive and founder Musk, whose charisma evokes comparisons with Apple's Steve Jobs, acknowledges the investment in local dealerships.

"Franchisees ... invested a lot of their money and time in building up the dealerships. That's a fair deal and it should not be broken," he wrote in a blog post last week.

Musk has said that he is not interested in overturning the existing franchise system, but he doesn't want to participate.

Dealers, however, see direct sales of any sort as an existential threat.