Some individual auto dealers and regional associations have already filed lawsuits attempting to block Tesla, which now operates 16 stores in 12 states.
The upstart automaker's battle with dealers is shedding light on a little-known practice that it contends amounts to legalized restriction on trade. The franchised new-car dealership system dates back to the start of the U.S. auto industry, when hundreds of manufacturers were fighting for market share. Setting up showrooms was expensive, so automakers sold other entrepreneurs the right to market their cars in specific cities.
Over time, car dealerships became crucial sources of employment and tax revenue for local communities. To prevent manufacturers from opening their own stores and undercutting neighborhood dealers, states developed laws governing the franchise relationship. Bottom line: Carmakers had to leave their retail sales to someone else.
