California Car Dealers File Complaint Over Tesla Motors Advertising

Tesla Motors is getting a whole lot of traction these days, and auto dealerships don’t like it. The company has come under increasing pressure recently, particularly in eco-conscious California where car sales are steadily gaining prominence, as are its supercharger charging stations.

But according to California New Car Dealers Association, (CNCDA) the problem with Tesla isn’t its unusual over-the-Web sales technique (although this has become a bone of contention in some states recently), but that it isn’t telling the truth to consumers.

The CNCDA says that Tesla’s online sales calculator, which is designed to show consumers what their monthly payment would be if they bought a Tesla car, is misleading.
The 20-page complaint, which was filed September 16, 2013 with the California Department of Motor Vehicles (DMV), accuses Tesla Motors of “a long-term advertising strategy to mislead consumers as to the affordability of its vehicles.” The complaint cites a number of issues, including the addition of a tax rebate that it says most consumers would not be eligible for based on their incomes.

“The tax credit is completely irrelevant to the purchase price for the Model S. Whether the customer never applies for the credit, has insufficient tax liability to claim the full tax credit, or can claim the full credit, the tax credit has no bearing on the purchase price of the Model S,” the CNCDA asserts in its complaint.

The organization also cites a Congressional Budget Office study in which the agency says that only 20 percent of tax filers have the tax liability to use a $7,500 tax credit.

“By including the tax credit in the advertised price quote for the vehicle, Tesla is misleading 80 percent of the population of the actual purchase price of the vehicle, even net of the federal tax credit,” says CNCDA.

In fact, the reason the federal tax credit exists is to incentivize buyers (even those with enough income to afford a $70,000 car) that might not otherwise consider buying a particular commodity, like a rather expensive electric car whose savings are reflected in its long-term usage, not in its price tag.

As Lee Hutchinson explains in his article on arstechnica.com, Tesla’s advertising is geared toward high earners, many of whom would have a tax liability large enough to qualify for such a rebate. Just because only 20 percent of the eligible buyers apply for the tax credit doesn’t mean it isn’t a valid point to raise to consumers. Appliance stores regularly boast the fact that certain “energy-saving” purchases may win consumers a rebate. But that may not be the reason that the consumer buys the product.

What Tesla Motor’s advertisements do is challenge conventional notions about car sales and advertising. If it takes advantage of anything, it is the fact that many consumers feel more comfortable investigating a sale from behind a computer where they can methodically research the information and aren’t pressured to make a decision on the spot. Its approach has been likened to that of Apple, which promotes its products on the web and sells through its privately owned stores. No doubt this idea makes car dealers nervous. It not only cuts out the car dealer, but makes it easier for the car industry’s highest-bracket customers to investigate purchases on their own time without the pressure of a one-to-one with a salesperson.

My suspicion is that Tesla knew when it went to market that they would be testing some well-entrenched notions about car sales, what’s kosher and what’s not. Judging by the CNCDA’s complaint, it sounds like Tesla will also be testing the boundaries of laws that weren’t directed at protecting the Internet consumer – and in a state that prides itself on consumer action. But even though California’s car dealers may think they have grounds to complain, the final decision when it comes to the success of a car sale ultimately lies with the consumer. And that’s a fact that I am sure Tesla Motors has already figured out.

Image of Tesla Model Scourtesy of Tesla Motors