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Tesla Motors sells high-end zero-emission electric vehicles. They’re currently pretty trendy. Elite tech guys, or tech guys who want to be seen as elite, like to buy them. But Tesla routinely runs into problems selling their cars to such customers because of archaic dealership protection laws. Recently, the New Jersey Assembly advanced legislation that will allow Tesla and other electric car companies to sell cars directly to consumers.
Tesla chose not to depend on a dealership business model, instead preferring to sell directly to customers. Though this makes sense from a business perspective as a young car company, some 48 states have laws restricting manufacturers from selling directly to consumers, instead exclusively relegating the car sales business to independently-operated dealerships. Tesla gets around this by operating showrooms, or “galleries,” where customers can look at cars and learn about them, but can’t discuss price or financing or go on a test drive. Instead, those customers must go online when they get home and have the car shipped directly to their driveway. Tesla currently operates just 55 showrooms in 24 states.
Not surprisingly, dealerships are incensed about Tesla slipping around these dealership-protection laws. Some states have pushed back Tesla’s advances by enacting new legislation specifically restricting Tesla. For example, after Tesla opened a showroom in Denver, Colorado, the legislature prevented it from opening any more across the state. Dealership organizations pressed hard against Tesla’s model, and such supposed free market paragons as Arizona and Texas passed extremely restrictive bans on Tesla’s direct sales. In Texas, the showroom salesman are not even allowed to give customers their website address. New Jersey was the third state to pass anti-Tesla laws, with governor Chris Christie, also a free-market proponent, suddenly enforcing a decades-old dealership-protection law through a Motor Vehicle Commission ruling this past March to shut down Tesla’s showrooms. Many, including Tesla and its founder Elon Musk, accused Christie of back-room dealing and fast tracking the process for political gain, making this one of the many transportation-related issues facing the Christie administration.
Christie declared that it was up to the legislature to change the law, as he was just the enforcer. Today, the New Jersey Assembly Consumer Affairs Committee unanimously advanced a bill to to allow manufacturers of zero-emission vehicles to sell directly to customers in New Jersey, giving Tesla an end-run around the law that Christie used in the first place. The bill will also double the number of showrooms Tesla can operate to four.
This bill, if ultimately passed, will be a huge benefit to New Jersey consumers. Dealership protection laws were originally put in place to prevent manufacturers from opening dealerships across the street from independent dealerships and undercutting their own prices. Preventing manufacturers from doing this, supposedly, would allow for more competition between different manufacturers and prevent intra-franchise bullying.
But that’s not what they accomplished. By the very assumptions of the law, it prevents competition. A manufacturer opening up its own dealership would drive prices down for consumers. A manufacturer delivering a car to a consumer directly to the consumer would also drive prices down. So what is the real fear? Bill Wolters, President of the Texas Automobile Dealers Association, claimed that “if they change the franchise laws, it allows every other manufacturer to come in and do what Tesla is going to — compete with our family-owned businesses.” Competition is the fear.
Direct sales makes sense, especially in a world where you can do almost anything online. Dealership protection laws prevent competition, drive up car prices for consumers, and are generally an awful experience for everyone around. No one has returned from purchasing a car from a dealership and felt like they haven’t been suckered. The dealership is a relic from a bygone era, and all auto manufacturers — not just the cool electric ones — could benefit from the repeal of protectionist laws.
Of course, if the New Jersey law doesn’t pass, Tesla can always try hiring a few more supergeniuses to figure out how to sell its cars.
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