Automotive Retail

Ohio car dealers challenge Tesla’s business model

Car dealers sue to block Tesla

When Tesla Motors isn't putting out fires of the real or public relations variety, the electric-car maker contends with a steady stream of legal conflicts that have flared up across the country.

Quibbles over laws regulating car dealerships have become somewhat routine for Tesla, with past or ongoing legal conflicts in Texas, New York and Massachusetts. Earlier this month, the Ohio Automobile Dealers Association and several dealershipsincluding Mercedes, Lexus and Ford franchisesbecame the latest group to challenge Tesla's direct-to-consumer business model in court.

The group filed a lawsuit on Dec. 11, accusing the Ohio Bureau of Motor Vehicles of improperly granting Tesla a motor vehicle dealer license and that the automaker does not meet the state's criteria for a car dealership. The association's president, Tim Doran, told CNBC on Monday that it's not Tesla's potentially disruptive business model or product that upsets the group.

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"We're not anti-Tesla," Doran said on "Squawk on the Street." "We just want to make sure the integrity of the law is upheld. ... People get very concerned and skeptical over government when they kind of make the rules up when they go along or when they change the rules for different parties."

Tesla Model S cars are displayed at a Tesla showroom in Palo Alto, Calif.
Getty Images

Tesla's vice president of regulatory affairs, Jim Chen, responded to the lawsuit's allegations on "Squawk on the Street" with his own allegations against the dealership organization. He said the group has tried three or four times to block Tesla's entry in the Ohio market by appealing to local and state officials.

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Chen said the lawsuits against Tesla stem from dealerships seeking to protect their monopoly on car sales.

"We don't cheat," Chen said. "We don't skirt the laws. We are doing business in full compliance of Ohio law. That's exactly what our modus operandi has been and will continue to be."

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Tesla fights back against Ohio

Instead of allowing independent dealers to franchise their brand, Tesla operates its own storefronts and sells directly to consumers.

Some states, such as Texas, don't allow automakers to sell directly to consumers. In other states, Tesla made compromises with dealership organizations. Chen said the Ohio dealership group did not return his attempts at reaching an agreement.

"In every battle we've been in, we've tried to sit down with the dealer organization and absolutely try to get to a compromise position," Chen said.

Tesla most recently scored a legal victory in Massachusetts when a judge dismissed a dealership organization's lawsuit against them, according to Automobile magazine.

— By CNBC's Jeff Morganteen. Follow him on Twitter at @jmorganteen and get the latest stories from "Squawk on the Street." Reuters contributed to this report.