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Opinion: What do New Jersey, Texas and Arizona have against Tesla?

By

March 14, 2014

New Jersey is the latest state in the USA to outlaw sales of Tesla

New Jersey is the latest state in the USA to outlaw sales of Tesla

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Electric car manufacturer Tesla has been in discussions for some time with the New Jersey Government and Motor Vehicle Commission about the implementation of its direct dealership model. This week the Administration, following suit with Texas and Arizona, moved to block Tesla from selling cars in its own stores. So what's all the fuss about?

Tesla called the move "an affront to the very concept of a free market" in a blog post on Monday, saying that the proposal "would, among other things, require all new motor vehicles to be sold through middlemen and block Tesla’s direct sales model." The EV manufacturer argues that the Administration and New Jersey Motor Vehicle Commission are "going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers."

Kevin Roberts, a spokesman for the office of NJ governor Chris Christie responded by saying that the "administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation and Tesla has been aware of this position since the beginning."

So in a nutshell, Tesla wants to push forward with its direct sales model, while the government wants to protect the traditional model where cars are sold through franchised dealerships.

So what is it about Tesla’s unconventional model that is such threat to the American way? Well for one thing, it’s different. For some the idea of change seems right up there on par with alien invasions and communism. If it ain’t broke, don’t fix it.

The Tesla dealership model is agile and small. Typically no bigger than a good sized shoe store the Tesla shops can be found in fashion districts, shopping centers or as standalone stores. The dealerships or boutique shops, in keeping with Tesla’s contemporary approach are designed with highly stylized kiosks, color palettes and swatches, the occasional Model S, high gloss finishes and non-commission sales people. The idea according to Elon Musk is to allow consumers to be properly educated, without the typical high pressure sales tactics predominantly associated with traditional dealerships. So that’s the big scary monster that will destroy America and has auto dealers running for their shotguns and bear spray?

Tesla's store employees typically spend two to three hours with potential customers explai...

Tesla argues that its specialized stores are not only a way to sell new cars but to also promote new technology. Again quoting Tesla's blog post from earlier this week: "This model is not just a matter of selling more cars and providing optimum consumer choice for Americans, but it is also about educating consumers about the benefits of going electric, which is central to our mission to accelerate the shift to sustainable transportation, a new paradigm in automotive technology."

Unfortunately for Tesla, New Jersey isn’t the first state to snub the company’s unique dealership concept. Texas and Arizona have both implemented laws making it illegal for Tesla to sell cars in their states. Tesla says that under the current Texas Occupations Code, it is" unable to sell its vehicles directly to the public because it has no franchised dealer relationships in Texas, or in the other states.”

Tesla surprisingly still has two dealerships in Texas; one in Houston and one in Austin. While this may sound like it managed a workaround to the legal dilemma, Tesla employees at these galleries are “prevented from discussing pricing, lease options, or offering test drives.” The in-shop kiosks have also had all pricing removed. But what if a clever, entrepreneurial employee just happens to mention a dealership in California that can help with pricing, leasing, etc. questions? Texas lawmakers have already thought of that. No, employees cannot provide assistance to interested consumers. The same restrictions will apply in New Jersey.

Over $86.8 million of dealership monies has been spent on state election races across the ...

Rhett Ricart, President of Ricart Automotive in Columbus and a plaintiff in a lawsuit filed against Tesla in Ohio, provides an insight into the attitudes Tesla is up against in an interview with Bloomberg : “I don’t want ‘Hydrogen Motors’ to come along five years from now or some other Mickey Mouse thing to come along and then just jack up the industry. It’s not right.” Ricart does give Tesla a back-handed compliment by saying, “they build a great car,” however, he goes on to add that “the reason these laws are in these states are to protect the consumers.”

"Consumer protection" seems to be a stick used by both sides in this debate, but it's hard to see how clinging to an 80 year old business model that only adds costs to the finished product is benefiting consumers.

There is of course, an elephant in the room in all of this. “In 2012 there were an estimated 17,600 dealers of new cars and trucks in the US," according to the Bloomberg report cited above. "From that group, over US$676 billion of sales were generated, accounting for almost 15 percent of all US retail activity.” To say the automotive industry and its dealerships are an integral part of the US economy is to state the obvious. However, "over $86.8 million of dealership monies was spent on state election races across the US since 2003 with $57 million funneled into federal campaigns.” Tesla, the new kid on the block, has only only managed to throw roughly $500,000 towards state and federal politics. There's also the issue of the amount of tax dollars each dealership brings to state coffers. A figure hard to ignore on either side of the aisle.

So is this all just a bit of good ol' fashioned fear mongering on the part of the establishment? It wouldn't be the first time. In the 1970s and 80s when foreign entities started to enter US markets, anti-American rumblings became common place and driving a foreign car like a Toyota or a Datsun (Nissan) was frowned upon in some quarters. But Tesla isn’t a foreign entity, it’s a home-grown success story that employs 4,000 people and whose stocks have risen 500 percent in the past 12 months. Its Model S has consistently been named as one of the best overall cars in recent memory – of gas or electric persuasion. My personal experience in driving the Model S has not only changed my opinion of what an electric car can be, but further reinforced the argument that technology of this quality is the way of the future. Maybe not tomorrow, or next year, but slowly the shift from that of a gas-only, my F150 is bigger than yours mentality will happen. It seems to me that this whole is dust-up is a case of not seeing the hood ornament for the trees.

What next? Tesla being Tesla, and Elon Musk being Elon Musk, are not taking this lying down drinking flat mojitos. The next salvo will be fired when Musk testifies in person at a hearing into the issue at the Texas State Capitol building on April 9.

About the Author
Angus MacKenzie Born on the cold, barren Canadian plains of Calgary, Alberta, Angus MacKenzie couldn’t decide between marketing, automotives or an entrepreneurial path - so he chose all three. When not writing, Angus has for the past six years been Editor-in-Chief for elemente, an internationally recognized architecture/design magazine.   All articles by Angus MacKenzie
42 Comments

Wow. Politicians are not even trying to tell reasonable lies anymore. "the reason these laws are in these states are to protect the consumers.” is such a blatant lie it is ridiculous. These laws have nothing to do with consumer protection. They are being enacted to preserve the dysfunctional dealership model. Which is to say they are acting to protect the dealerships existence and their practices of adding a 50% or more markup to the vehicle. I’ve never understood the middleman model being protected so fiercely other than outright bribery and lobbying. The internet is allowing more direct to consumer sales in every class of goods. A similar issue happened in my town when Sam’s Club stated selling gasoline. They were able to sell gasoline for about 30% less than most fuel vendors. So the other fuel vendors rather than even try to compete simply lobbied the lawmakers into putting a law in place that made it illegal to sell fuel for more than 10% less than the average price in the area. So much for free market anything.

VirtualGathis
14th March, 2014 @ 03:31 am PDT

They harp on consumer protection, but the real reason is that they are getting contributions from PACs and dealers, and most likely some under-the-table cash or cars to keep things the way they are.

Any time a politician says "it's for your own good," what they really mean is they can't afford to change anything because the money is too good.

Tesla selling directly to consumers threatens the established players in the game and pressure from those players applied to politicians is what prevents Tesla from selling. There are no other reasons.

flink
14th March, 2014 @ 03:33 am PDT

Another factor is the property tax that a 5 acre dealership generates. Money, money , money for the local municipalities

MontanaPhil
14th March, 2014 @ 06:35 am PDT

I wonder how long these so called "representatives" of the people can keep up their lies and deception while selling out to the highest bidder (in this case the car dealer lobby).

No honor among these people!

Skipjack
14th March, 2014 @ 07:32 am PDT

it's embarrassing to be an american today. We are the leader of world corruption

tampa florida
14th March, 2014 @ 08:54 am PDT

The hell with TX, AZ and NJ. Just go where people want to buy them. I'm sure there's not a Ferrarri or Maserati dealership in every state. People who want a Tesla will get them elsewhere.

dsiple
14th March, 2014 @ 10:32 am PDT

I would open a showroom on the border of each state and let the revenue go to the neighbor. As for Christie, he'll be gone fairly soon anyway. :)

WackiMacki
14th March, 2014 @ 10:40 am PDT

Friends deep in Ford eluded to the mess that occured when GM was bought by the US government... how the chopping block came out for the dealers... and the sword dropped swiftly. Before the bailout, GM wanted to get rid of many dealers and couldn't... but once owned by the 'guv'..they had carte blanche to do whatever they wanted. The dealer network is like defence networks... all of them contribute to a politick and someone getting elected. I probably messed this up royally... or maybe not.

hdm
14th March, 2014 @ 11:09 am PDT

Tesla could open Franchises keeping 99.999% ownership and providing a 0.001% commission (~$1.00 USD per car); there are no legal limits on these percentages. Slap in the face to corrupt politicians.

I believe the only problem in this planet is corruption. Eradicate it like a plague, and all current problems will solve with time.

THY
14th March, 2014 @ 04:10 pm PDT

New Jersey, Texas and Arizona all have Republican Governors. I thought Republicans claim to be for unimpeded free enterprise.

Unless Elon Musk has been espousing a Constitutional amendment specifically designed to allow President Obama to run for a third term, I think these folks have some 'splainin' to do!

yrag
14th March, 2014 @ 09:27 pm PDT

Dealerships often sell cars practically at cost, they make their money providing brand-specific service. If your Tesla car breaks, where do you take it, back to the kiosk? No.

I guess to the Lotus dealer, they are the ones who designed it, maybe they know how to fix it. Who else knows how to fix a Lotus?

This story is all about providing after-sales service to customers, but Musk twisted it so that it's about him getting to do what he wants.

I guess if you really want a Tesla car, I think by all means you should be allowed to buy one, and Musk should be allowed to sell you one, somehow. If it breaks and you're stuck, that's a story that Musk won't be able to suppress...

Grunchy
14th March, 2014 @ 11:09 pm PDT

What is the increase in sales tax from the dealership markup?

Slowburn
15th March, 2014 @ 01:33 am PDT

Its Pork, plain and simple, the Dealerships are the only employers in the chain in those states who are contributing to the tax base. Now if Tesla manufactured 'in state' there is no longer a problem.

This is petty protectionism, because Tesla is a luxury brand and only a small number of Dealers are affected. However if you will accept a point of view about 'fair' not 'free' trade.

https://youtube.googleapis.com/v/4FrGxO2Fn_M

L1ma
15th March, 2014 @ 01:41 am PDT

The funny thing about this is that for most Americans the least satisfying thing one can do is go to a car dealership and buy a car. I never understood why a manufacturer would want to have that gatekeeper to their brand.

What other retailer could exist if every time you went to their store you had to gear up for battle and after you left you had a sick feeling that you were taken advantage or felt you purchased something you wished you didn't?

aldo
15th March, 2014 @ 01:52 pm PDT

Classic Ayn Rand scenario from Atlas Schrugged.

However, Tesla's business model also benefits from government coercion thanks to the whole carbon hysteria. Government also offers perks for "green" cars. To me there seems a typical case where Tesla likes one type of coercion but not the ones that are hindering them.

I wonder what Tesla thinks of fracking and the abundance of energy it puts onto the market. Would Tesla be this successful if government would not interfere with markets? I think not.

From a technical point of view I like the concept of electrical cars.

Paul van Dinther
15th March, 2014 @ 02:10 pm PDT

Tesla isn't cooperating with their crony capitalism.

b@man
15th March, 2014 @ 09:54 pm PDT

100 years ago, people had to choose between gas lighting or electric lighting in their homes. Which one won? Electricity, of course: safer, cheaper, and it doesn't pollute.

Now we have the same choice concerning personal transportation. The answer is obvious. Anyone still clinging to the idea of an I.C.E. being the best way to drive from point a to point b should be looking to find a T.A.R.D.I.S. instead, because you're going to have to time-warp back to the 20th Century to find anyone else like-minded.

The gas/electric debate is over, Tesla/Elon Musk won. Now, we can conserve our Oil for use where it's actually necessary and not waste it on plebian frivolity.

Jeremy Nasmith
16th March, 2014 @ 03:43 am PDT

one word: Cronyism.

-------------------

" If your Tesla car breaks, where do you take it, back to the kiosk? No. " - Grunchy

No, you don't take it back to the kiosk. You take it to a tesla service center. Those service centers don't fall under the same restrictions as the galleries/kiosks, so even if dealerships did handle the sales, the Tesla service centers would still be there. So I'd guess most people would rather take it to an actual tesla service center rather than a dealership.

This is simply about cronyism, and stupid politicians that could care less about the people. It's the same reason why here in California, they decided to spend $80 BILLION on a bullet train that is one of the slowest and most expensive in the world (obsolete technology) when they could have built Elon Musk's Hyperloop, which would definitely be the fastest and probably cheapest high speed "train" in the world (next gen technology) for a fraction of the cost.

KushSmoka420
16th March, 2014 @ 11:03 am PDT

@Grunchy, you must be thinking of the Tesla Roadster and even then have not get things straight. The Tesla Roadster (Tesla's first car) used a custom glider (basic body shell) made by Lotus that was based on the Lotus Elise, but everything else was done by Tesla. The Roadster is no longer manufactured. The Model S (the current vehicle Tesla sells) is 100% designed and manufactured by Tesla. Tesla has service centres (separate from their stores and galleries) for servicing issues (for both of these vehicles), as well as a "Ranger" service that can come to you for servicing if you're too far away from a service centre.

The irony of all this is that it is only in the United States, where the vehicles are made, that this is even an issue. These types of ridiculous dealership laws do not exist anywhere else in the world. Go figure.

moollar
16th March, 2014 @ 02:10 pm PDT

Like some other posters, I can't see why this cannot be easily circumvented ... How small does a 'dealership' lot have to be? 1 acre, 5 acres?

They are not service centres, they already exist!

Sell franchises to sell Teslas under strict legal conditions so as much control stays with Tesla as possible, then tell Big Brother to get stuffed.

The Skud
16th March, 2014 @ 06:41 pm PDT

Best advertising gift Elon could have dreamed for! Mass free publicity turning an entire population into Tesla lovers and "established player haters". :-)

christopher
16th March, 2014 @ 08:19 pm PDT

What is wrong if one of the mfr. of cars wants to sell cars directly to his customer. My experience of selling of industrial products through dealers is that they can sell simple products without any difficulties. But if the product is highly technical it needs direct selling by mfr. It needs trained person to explain the operational aspect to customer in highly technical way. More over dealers normally can not afford good technically qualified engineer to sell such sophisticated product. Dealer's rep can mess up the whole process and result in bad name to brand and mfr.

Suresh Sharma
17th March, 2014 @ 04:12 am PDT

What's responsible for this? The NADA (National Automobile Dealers' Association). PACs, labor unions and other groups who exist mainly to exert control over people and collect money.

Gregg Eshelman
17th March, 2014 @ 04:38 am PDT

Let's not forget that Dealerships make most of their money from the rip off repair & maintenance required to sustain your warranty. Oh, & of course the never ending newly invented charges that become 'Standard Industry Practice' like Documentation Fees, Shop Supplies, Administration Fees etc. - Just who made these fees Industry Standards? The Dealership model along with the Auto Industry as we know it has had it's day. Bring on the Electric Revolution! I might have to add air to my tires & windshield fluid to my reservoir!

Glen Aldridge
17th March, 2014 @ 09:23 am PDT

So I see that Tucson AZ is going all out to try to get Tesla's battery megafactory while Arizona itself bans Tesla from selling their cars.

Sounds like shooting oneself in the foot to me!

Maybe Arizona could wiseup, come into the 21st century about sales and then they might be in the running for the factory.

Sirmike
17th March, 2014 @ 09:37 am PDT

New car dealers actually provide valuable services that the Tesla sales model doesn't, such as:

- trade-in your old car for a new one right on the spot

- used cars that have been inspected and fixed so they are safe and run properly

- test drives for both new and used cars, including 1 or 2 day long test drives

- immediate delivery if the car you want is in stock

- good deals on new cars that were used as demos

- creative financing options when you are trading in your old car for a new one

- ability to sue the dealership if they do anything wrong (suing Tesla directly would cost a fortune compared to suing your local new car dealer)

And no, I don't work in the car business and have no financial interest in that industry at all. I like Tesla cars, but am not keen on their direct sales model.

robo
17th March, 2014 @ 09:48 am PDT

So Tesla Motors has service centers in Scottsdale, AZ, Springfield, NJ, and Austin, Dallas, Houston, and soon in San Antonio, TX. What are the limitations on service centers from running ads or infotainment segments in their waiting areas or better still interactive kiosks that talk about technical subject matter related to the car? They are not taking orders but actually providing service on existing owner’s cars. What better place to find out about the ownership experience than in a location where you might run into someone that is experiencing the day-to-day ownership issues associated with a particular car. Put up a big sign that says check the internet for pricing and delivery options.

It might be a little risky getting potential buyers hooked up with current owners but my guess is that it would be a bigger win. As long as vehicle registration of out of state EVs and company owned service centers are not made illegal in AZ, NJ, and TX then Tesla and any other future manufacturers have the opportunity to make the service center a very powerful marketing center. It could be promoted on the website as a way to learn more from current owners, including where they purchased their car and for how much. All without a Tesla Motors’ employee opening their mouth. The only thing missing is a test drive.

Jim Friedl
17th March, 2014 @ 10:22 am PDT

I wonder how many fewer people will be employed if Tesla gets its way versus if Teslas are sold the traditional way?

Nelson
17th March, 2014 @ 10:45 am PDT

I saw one of these the other day when I went into a mall for the first time in years.

I also almost walked inside. There were no barkers, no salesmen gladhanding, just a pretty red "S" and a bunch of well-lit displays and a couple of people looking at them.

As someone who wants to buy a new motorcycle soon, I am afraid to go shopping for one without cash in hand because then I will get endless commissioned salesmen calling my house at all hours every time they are feeling poor.

Because I have lusted after the Tesla Roadster for years and have followed this company since its inception, I think I'm gonna head back to the mall and maybe have a seat in that pretty "S."

Hutchy
17th March, 2014 @ 10:55 am PDT

I'm inclined to think that the crux of the issue is the buyer's legal recourse in the event that they buy a defective car from Tesla.

Should this happen under each model, what recourse does the buyer have? What protections apply to each? Federal and/or State?

Any legal eagles out there that can clarify this?

Eggster
17th March, 2014 @ 12:21 pm PDT

@ Nelson

None. Increasing the money spent on Tesla automobiles merely moves where and for what the money is spent. So it goes to a Tesla dealership rather than a massage parlor; big deal.

Slowburn
17th March, 2014 @ 01:38 pm PDT

Yea Robo, but let us - the public - make that choice. We are not stupid and if we prefer to buy a new car from the manufacturer rather than a sleazy car dealer then we should be able to. We can here in the UK and haven't come unstuck yet. Just like you can buy a used car from anyone in the street. No, its a stitch up.

rippa700
17th March, 2014 @ 01:42 pm PDT

Easy answer; the crooks in those states don't want to lose their kickbacks from the dealerships. All three states are easy targets for "restraint of trade" lawsuits.

Robert Fallin
17th March, 2014 @ 02:39 pm PDT

This article and the comments section clearly show both the corruption of government and the complete loss of governmental trust by our citizenry. And this isn't even a political website.

Even worse this isn't even close to the first time we've faced this level of corruption in America. And every time we clean it up and enact new regulations we can be sure it's only a matter of time before the corruption creeps back in.

But what are we to do? I believe the future of government lies with what I call Direct Democracy. Imagine an app available on all smart phones and computers that allows for direct introduction, debate and voting on bills by all registered voters that currently is being carried out by elected representatives. This app would in effect turn everyone into their own Senator or Congressional Rep.

I could just see it "Senator so and so your job has been downsized and your services are no longer needed. Please clean out your office".

Think about this. It's impossible to bribe or blackmail an app. It's much easier to check an app for corruption than a person and it's definitely easier to correct an app than a person. So as long as the app remains open source so than anyone with programming knowledge can see if it's been altered, then the results should be transparent and inscrutable.

Russell Poley
17th March, 2014 @ 03:28 pm PDT

This restraint of trade by the states is immoral and unconstitutional. The states have no authority to regulate (dictate) how cars are sold. But having no authority is no limit on governments, big or small. They exercise whatever power best maximises their revenue, at the expense of the populace, who they claim to protect. And they will get away with this ruse, i.e., corruption, as long as we let them. The corruption comes with the power. The only way to stop it is by removing the power, i.e., the delegated task of protection by instigating violence. Instigated violence is never justified. Furthermore, delegating a task does not grant a moral blank check, as politicians and bureaucrats seem to think. They have been out of control since govt. was invented. "Checks and balances" have failed.

At 71, I have bought cars new at dealerships. It was always painful and expensive. But when I buy from ads in the paper, I get a much better deal, without the pressure. It requires a different kind of "due diligence" but the rewards are great.

I recently took my Camry to the main dealership for repair (check engine light). After two hours, I got my first estimate, $870. I authorized repair. The rep left to "check on something". He returned an hour later to revise the estimate, $1370. I authorized repair. He left again to check to see if the parts were available. He returned an hour later to inform me the parts had been ordered and would be there next week. The new estimate, $1870. I agreed. As I waited, I decided to get a second opinion. I took my car to a small, independent garage. After 10 minutes, the estimate was $370. Forty minutes later, the car was repaired. In less time than it took to get an estimate from the major dealership, my problem was solved for $1500 less. That was a year ago. No problems.

Do you believe the politicians who protect the dealership model protect you? If not, maybe you should stop supporting govt. protectionism. With "friends" like these we don't need enemies.

Don Duncan
17th March, 2014 @ 03:31 pm PDT

What a ridiculous and completely unfounded restriction of free trade.

This won't stand, but I am surprised any state would be bold enough to try it to begin with.

Enough of this backroom corruption. Let the Teslas flow, however the company wants to sell them.

flylowguy
17th March, 2014 @ 07:11 pm PDT

Like anything else in the world, where people have financial interests it is the consumer who pays and the good companies who get destroyed in the end. While companies can publicly buy off politicians and political parties with donations (and off the book bribes) good business will always be at the mercy of self-interest. Get the Federal government to open the lid on the payola and donations and embarrass these state governments into doing the right thing for a change. Where are the great consumer advocates of the past when you need them!!! :)

David Priol
17th March, 2014 @ 10:02 pm PDT

Career Politicians sleep with everyone and anyone.. and they are also whores to the auto industry... just look what politician did to Tucker and us, the consumer. When will all this bribery (lobbying) and lying stop? ... "Oil up the mobile guillotines!"

Patrick K
18th March, 2014 @ 08:14 am PDT

I've looked all over these darn Tesla car and, you know, funniest thing is I can't see where to put the gas nozzle. And we're really wondering why Texas is acting up. If I ran a big oil company I would also lobby to have the diesel particulate levels for cars set so high that there would be little chance of those european 60/70mpg highway rollers gaining entry to my markets.

Poor attempt at irony (apologies!).

Emma Royds
25th March, 2014 @ 09:19 am PDT

Vote against all incumbants. In the churn we stand *a chance* of some integrity rising to the top of the muck.

gseattle
30th March, 2014 @ 07:44 am PDT

I bought new cars in 1973 and 1978, then stayed with used cars until I bought a 2013 model right after it was introduced in 2012. I won't say what make it is since I don't want to help make it even harder to sell.

It's from a major brand with strong dealers everywhere. The web is full of complaints about fundamental problems with new technology first used on these models.

Dealers: "It's a (brand) problem, they all do that and we can't do anything about it".

Factory reps: "We deny there are any problems, but if you do find one you have to take it to a dealer."

Some lucky buyers were able to get a refund from excellent dealers who went beyond what that were required to do, but most of us are stuck.

The point is, with direct sales you might still be helpless, but at least you would know who to blame.

If I ever buy another car it will be a popular used one with an established reputation, recommended and inspected by an independent repair shop that I trust.

Yonian
31st March, 2014 @ 12:27 pm PDT

““The reason my dealers and I support the franchise system is that it’s pro-consumer in that it provides competition between like brands..”

Oh, come on. Show me one auto buyer who thinks the franchise system is pro-consumer. Auto dealers are an obstacle to buying a car, not a help. They add absolutely no value (other than perhaps local storage of cars) but add considerable cost. I’ve wished for years that one could just buy directly from the manufacturers.

JanetKirst
18th April, 2014 @ 11:00 am PDT
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