Chris Christie’s Tesla Ban Challenged by NJ Legislators
Back in March, the Chris Christie administration barred Tesla from operating in New Jersey, saying the electric carmaker didn’t have the right to unilaterally change the way cars are sold in the state. But now the New Jersey legislature will decide whether the automaker can sell cars without using the old dealership/franchise model.
Christie’s political appointees on the Motor Vehicle Commission voted unanimously to shut down two Tesla stores in the state, making it impossible for Tesla to sell its cars there. However, a State Assembly panel says that Christie’s decision was ill-advised. Not only is the panel proposing to re-open the two closed stores, its bill would let Tesla open up two more stores. The vote by the panel was 4-0.
If passed, the bill would allow Tesla — or any automaker that markets zero-emission cars — to have four stores where they could sell directly to consumers as long as they have at least one vehicle service center in the Garden State.
Christie’s Commission justified stopping Tesla sales by citing a four-decades old state law that requires cars to be sold through franchised automotive dealerships. Along with New Jersey, Texas and Arizona also bar direct sales of Teslas.
Tesla has countered that its sales model does not include dealerships, as these franchises turn a profit from automotive maintenance. As an electric car, the Tesla Model S does not need nearly as much maintenance as does a car with an internal combustion engine.
“There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car,” says Tesla CEO Elon Musk. “Overcharging people for unneeded servicing (often not even fixing the original problem) is rampant within the industry and happened to me personally on several occasions when I drove gasoline cars.”
Another Tesla executive, Diarmuid O'Connell told the assembly panel that the automaker’s direct-to-customer sales model fundamentally aligns with Tesla’s core strategy.
“This is a super important issue for us in New Jersey, and as some of you would know, nationally as well,” said O'Connell said. “[It will] allow us to, in a modest way and a reasonable way, conduct the business of educating the public about electric vehicles and get as many of those vehicles on the road as quickly as possible.”
O’Connell said Tesla is working on an electric car, the Model E, that would sell at $35,000.
A Pro-Business Bill
The bill’s sponsor, Assemblyman Tim Eustace, defended the Assembly panel’s decision: “This is a company that is an American company, an American idea,” he said. “I think we would be mistaken if we didn’t reverse the decision that the MVC made, making it illegal to sell Teslas in New Jersey.”
Nobody testified against the proposed legislation, but the state’s automobile dealership lobby continues to insist that Tesla eventually adopt the dealer model. Amy Brink, director of state affairs and franchise counsel for the Alliance of Automobile Manufacturers, has asked for amendments to better protect the dealership “status quo.”
Other states have also tried to ban Tesla from selling cars. Missouri state senators recently tried to sneak by anti-Tesla language in a previously unrelated bill with the help of state's auto dealers. The bill’s language forces consumers to buy new cars and trucks only through franchised dealerships. The bill passed by the Senate last month. However, House majority leaders indicate that they won’t pass the reworked bill, because it would restrict the free market.
Auto dealer lobbies have strong ties to state houses across the U.S. stemming from their political contributions. According to Open Secrets, the National Automobile Dealers Association, a lobbying group that represents car and truck dealers, spent $3 million in political contributions in 2012 and another $3 million on lobbying.
“When Tesla came along as a new company with no existing franchisees, the auto dealers, who possess vastly more resources and influence than Tesla, nonetheless sought to force us to sell through them,” says Tesla’s Musk. “The reason that we did not choose to do this is that the auto dealers have a fundamental conflict of interest between promoting gasoline cars, which constitute virtually all of their revenue, and electric cars, which constitute virtually none.”
Last month, Forbes reported that New York's auto dealers obtained a promise from aides to Governor Andrew Cuomo that he would sign a Tesla ban that was working its way through the state legislature, but Tesla was able to work out a deal to keep selling cars there. Ohio has also worked out a similar deal with Tesla.
The Federal Trade Commission has supported Tesla's right to sell vehicles direct to consumers. In a blog post a few months back, the FTC said: "Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated." Separately, a letter signed by more than 70 leading economists under the banner of the International Center for Law & Economics roundly dismisses every dealer argument and concludes that these bans are only motivated by "economic protectionism that favors dealers at the expense of consumers and innovative technologies."