Business & Real Estate

Sacramento-based auto dealers group finds fault with Tesla site in L.A.

Elon Musk, CEO of Tesla Motors Inc., talks about the Model X car at the company’s headquarters, in Fremont, Calif.
Elon Musk, CEO of Tesla Motors Inc., talks about the Model X car at the company’s headquarters, in Fremont, Calif. Associated Press

The Sacramento-based California New Car Dealers Association, a persistent critic of Tesla Motors sales practices, is again alleging that the Palo Alto electric automobile company is possibly in violation of California car-selling laws.

In a July 22 letter to state Department of Motor Vehicles Director Jean Shiomoto, CNCDA President Brian Maas says it appears that Tesla “is engaging in one or more prohibited acts” at its Tesla Gallery inside Nordstrom at The Grove shopping complex in Los Angeles.

The 400-square-foot site featuring Tesla’s Model X crossover sport-utility vehicle, which starts at around $81,000, opened in the men’s department in June and is scheduled to operate through the end of this year.

A Tesla representative at the Nordstrom is said to have told a CNCDA staff member they could help ‘design and order’ a vehicle at the store.

In the letter, a copy of which was obtained by The Sacramento Bee, Maas contends that the Tesla site at The Grove appears to be improperly offering vehicle sales services at an unlicensed, off-site location (outside a dealer’s licensed place of business or branch site) and not having required disclosures, signage or licenses at the gallery.

The letter contends that the Tesla site does not display dealer/sales personnel licenses, lacks signage noting that no sales or deposits can be accepted at the site, and has no on-site signage indicating the dealer’s name, location, address and place of business.

The letter says the alleged violations were observed on-site by a CNCDA staffer who visited the Tesla Gallery in Los Angeles on July 15. According to the CNCDA letter, the staff member inquired whether a Tesla could be ordered at the Nordstrom site and “was told the Tesla representative could help ‘design and order’ a Tesla at that location.”

No sales are going on there right now. ...We’re very careful to work within the laws of all the states where we do business.

Tesla spokeswoman Keely Sulprizio

The CNCDA letter requests that “the DMV investigate this matter and take appropriate action.” The group also urges the DMV to take steps to end Tesla’s alleged violations of advertising laws and consumer protections.

Asked for comment last week, the DMV issued the following statement: “The department is in receipt of the July 22nd letter and, as is the case with any letter of complaint filed against an occupational licensee, the complaint is under review and will be acted on accordingly.”

Tesla spokeswoman Keely Sulprizio said the Tesla site in Nordstrom was not operating as a retail sales center. She said Tesla has applied for a sales license for the site. Until a license is issued, a gallery visitor who wants to make a vehicle purchase is directed to a licensed sales associate or a licensed Tesla store. Buyers can also can place orders for vehicles at its website.

“No sales are going on there right now. We made that clear from the start, even with the name. It’s a Tesla Gallery and does not currently have a sales license. …We’re very careful to work within the laws of all the states where we do business,” Sulprizio said. She added that the site now has posted signage, saying: “no sales permitted or deposits taken at this location.” It is not clear when the sign was posted.

In a phone interview, Maas said it was “frustrating” that Tesla was not complying with laws “applicable to all our dealers.” The CNCDA says it represents about 1,100 franchised new car and truck dealer members statewide.

Maas said he would welcome meetings with DMV officials or state lawmakers “about whether the rules should be changed … but that’s where those discussions need to occur.”

The latest CNCDA action marks the dealer group’s third challenge to Tesla’s sales practices.

In September 2013, the CNCDA notified DMV that Tesla allegedly was committing advertising violations marketing its vehicles for sale in California on its website. In 2015, DMV issued a general memo emphasizing that automakers displaying the net price of a vehicle – the price after a federal tax credit, rebate or other savings offers – was false and misleading. The memo said the DMV was prepared to enforce advertising laws

The memo did not mention Tesla by name, but the CNCDA claims it was issued as a result of its complaints aimed at Tesla.

The automaker declined comment.

On Sept. 29 last year, the DMV sent a warning letter to Tesla Motors CEO Elon Musk, contending that the automaker’s online-advertised referral program violated California laws. The program described on Tesla’s website at the time said anyone ordering a “new (Tesla) Model S before Oct. 31 using the referral link of a current owner will get $1,000 off the purchase price. In return, the current owner will get a $1,000 discount that can be applied to a new car, service center visit or accessory. New orders must be placed prior to Oct. 31, 2015.”

In his letter to Musk, Frank Alvarez, chief of DMV’s Investigations Division, described the offer as “a practice commonly referred to in the vehicle sales industry as offering ‘bird dog fees,’ ” and warned of possible state action.

Tesla has revised its referral program since then. The current program displayed on its website says: “Anyone who orders a new Model S or Model X during this period (July 18 to Oct. 15 this year) using the referral link of a Tesla owner will get a $1,000 credit towards the purchase price.” Referring owners are eligible to receive merchandise or invitations to Tesla events.

Mark Glover: 916-321-1184, @markhglover