How Tesla plans to short circuit new-car dealers

If you want to buy a new car or truck in the United States, you have the choice of going to a dealership in person or not buying at all. For the first time, one automaker — electric vehicle maker Tesla — will attempt to short-circuit dealers by selling its cars directly to consumers over the Internet. It's controversial, risky and already under fire from traditional dealers, but Tesla's model could spark bigger changes.

The store above in Denver is one of 14 Tesla has opened in the United States and 25 worldwide, with another eight to 10 set to open in North America before the end of the year. While the company has focused on meeting production targets of its electric Model S sedan, it's also been adding stores like these — owned by the factory, usually located in malls or central shopping districts closer to Urban Outfitters than other car dealerships.

It's a key part of Tesla's overall business: Instead of building cars and selling them to dealers who hawk them to shoppers, Tesla wants to build only cars customers order — eliminating part of the auto industry's massive overhead costs in inventory. By selling its cars directly, Tesla's executives believe they can make their customers happy, and eventually sell more cars for less money.

"Our way of thinking about the whole ownership experience is fundamentally different than the way other car companies think about it," said George Blankenship, Tesla's vice president for sales. "The best way to do this is to control the process throughout."

There's a reason America's 17,500 dealer franchises have an impenetrable hold on where you buy a new vehicle. Over seven decades, new-car dealers have built a protective web of state and federal laws that give them a legal shield against automakers and their own competitive urges unique in American business.

Starting in the late 1930s, auto dealers successfully lobbied state capitols to even the field with manufacturers, who were prone to canceling franchises without warning, making it costly for an automaker to pare back franchises once granted. In modern times, those rules are what prevent automakers from going the route of Apple or Amazon; it's illegal in several states to sell new vehicles over the Internet or for an automaker to own a dealership.

Dealers have also faced criticism from consumer advocates, who claim they've used their lobbying power to avoid tougher consumer protection laws. More customers file complaints about automotive problems with consumer protection agencies than any other business, according to the Consumer Federation of America. While new-car dealers do face far tougher standards from manufacturers than used-car lots or the guy selling cars on Craigslist, buying a new car can often be a painful process even when no rules are broken.

Scott Adams, creator of the "Dilbert" cartoon, wrote last week about buying a new car and how the steps familiar to many buyers — from drawn-out negotiations to the pitch for undercoating to paperwork "mistakes" always in the dealer's favor — left him sour. "The reality is that we are amateurs and we were dealing with professionals," Adams wrote. "The rational part of me knows that somewhere there are customers getting better prices on this same vehicle, which causes me to hate both the car and the dealership."

Tesla has maneuvered around these laws in several ways. As a start-up, Tesla has no base of dealers who might object to direct sales. It's sold fewer than 3,000 cars to date, and hasn't proven it can build cars at high volumes. It's no accident that Tesla's sales chief spent years building Apple stores; most Tesla stores look like an Apple shop, with glass doors, dramatic yet simple signage and a location in a high-traffic place. But unlike Apple, no one there can actually sell the company's main product.

Shoppers who walk into a Tesla store to buy a car are escorted to the company's website to fill out forms, a task Blankenship estimates a prepared buyer can accomplish in half an hour. Once the factory builds their car, Tesla will deliver the car to their home, or they can pick it up at the factory in Fremont, Calif. By communicating with the factory, the transaction legally takes place in California — letting Tesla avoid the purview of other state's restrictions.