Tesla stock plunged -10 percent on Tuesday in a double whammy of bad news as Consumer Reports pulled its “best car ever” designation, and the California Department of Motor Vehicles (DMV) said the company is illegally “bird dogging” to hype sales.
Consumer Reports (CR) pulled Tesla’s perfect 100-point score awarded in early September 2015 as the “best-performing car we’ve ever tested.” But just a month later, CR revised the score for the $127,820 Model S to a “worse than average” 43 after receiving 1,400 responses by owners that complained about a litany of squeaks, rattles and multiple electric motor replacements.
Other common complaints were: warped brake rotors; leaking battery cooling pumps; out-of-alignment trunk and hatchback latches; persistent wheel-alignment issues; and door handles that often fail to “present” themselves as drivers approach their car.
Minutes after CR’s announcement, the Sacramento Bee’s website broke a September 29 letter to CEO Elon Musk from Frank Alvarez, Chief of DMV’s Investigations Division, stating that a Tesla program to pay referral fees to Model S owners for prospects “violates California laws.” Alvarez described the Tesla offer as “a practice commonly referred to in the vehicle sales industry as offering ‘bird dog fees.”
Characterized as a “way of thanking you for continuing to build the Tesla community,” Tesla had begun offering offering a $1,000 referral fee on its website as of Oct. 1 to anyone “who orders a new Model S before Oct. 31 using the referral link of a current owner.” For any current owner that achieved 10 referrals, Tesla promised to offer a $25,000 discount toward an immediate delivery of a “Tesla Founder Series Model X”, which has almost a one year backlog, according to ExtremeTech.
Although the federal Truth in Lending Act and other regulations do not prohibit “bird dogging” referral fees, every state and the District of Columbia ban the practice, according to Auto Dealer Monthly. Here is a typical state statute:
With respect to a consumer credit sale, the seller may not give or offer to give a rebate or discount, or otherwise pay or offer to pay value to the buyer, as an inducement for a sale in consideration of the buyer giving to the seller the names of prospective purchasers, or otherwise aiding the seller in making a sale to another person, if the earning of the rebate, discount, or other value is contingent upon the occurrence of an event subsequent to the time the buyer agrees to buy. If a buyer is induced by a violation of this section to enter into a consumer credit sale, the agreement is unenforceable by the seller, and the buyer, at the buyer’s option, may rescind the agreement or retain the goods delivered and the benefit of any services performed without any obligation to pay for them.
Auto Dealer Monthly warns subscribers the activity is not only subject to a fine: if a “dealer violates the law, the transaction with the buyer is unenforceable. Can you say, free car.”
Questions are swirling about when Tesla knew about the coming CR downgrade and if the referral program was an effort to hype sales before bad news hit.
There are a number of comments on the Tesla Motors Club website voicing worries about the CR report and the risk to owners for repair costs after their warranties expire.
Monsterzero wrote: “I’ve been looking to buy a Model S the first part of next year, but this report, as well as fellow member’s experiences on the forum are concerning. What happens when the car is out of warranty and something major happens?”
In its downgrade, CR emphasized that despite the reliability problems, “Ninety-seven percent of owners said they would definitely buy their car again.”
In pre-opening trading, Tesla Motors, Inc. (TSLA-NASDAQ) is 213.30, down –6.61 percent.
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