Tesla Direct State Sales - Political or Politics?

It mostly comes down to current laws on the books. Many states already had automotive dealer franchise laws - had them for many years. So when Tesla came along - in spite of their innovative products - they were largely viewed as another auto manufacturer that simply had to comply with current laws. In some cases they earned waivers from those, or had to structure their Showroom business to work through the legal fine print.

In NJ – and possibly NY and Massachusetts - it appears that Tesla may have simply been granted waivers for their showrooms to conduct business simply because no one really expected them to succeed. No one took them seriously or really expected them to last, but they did produce an electric car (which many governments viewed as a positive), so – lets give them a waiver and let them take their best shot. After all, the auto industry has a terrible success rate for new brands trying to make it in this market - just look recently at Fisker or Coda. Even more established brands such as Hummer and Saturn didn’t make it. So how seriously did some states, or the industry, take Tesla when they started requesting the ability to sell through their own showrooms? Sure – why not – they won’t be around for long anyway.

But surprise - Tesla turned out to be a winner! They earned accolades for best car ever tested by Consumers Reports. They produced an electric vehicle which finally had enough range to make it a viable transportation alternative for many. They are Silicon Valley based, are led by the greatest Silicon Valley wiz since Steve, they are innovative, they are growing, and they are succeeding. Wow! – who would have thought?

But all this means that NOW they are noticed by the industry. (Want to guess how many big automakers will "suddenly" have all new, all electric luxury models out in the next few years? My guess is - all of them.) So the dealer lobbies in many states, most notably NJ, now begin to see Tesla as creating a threat to their sacred franchise system. And at that point it became simple politics.

Dealer lobbies are plentiful, they have a lot of money, and they have political influence. So they simply played their cards. In NJ the Tesla waivers were due for renewal, as well as their application for a 3rd store. But politics being politics meant that the governor could not ignore his constituency – so, waiver renewals denied. You can see the thinking – “Let’s cut off that threat before it becomes really serious.”

But this was not a Republican issue at all – it was just old fashioned politics at work. Look at Virginia - It has a Democratic Governor, a Democratic Senate, US Senators who are both Democrats and 6 of the 11 US House delegates who are also Democrats. Yet they were one of the 1st states to deny a business license to Tesla, but I never heard anyone saying that made it a Democratic issue. The state issues there, and now in NJ, are plain old politics, with dealer groups feeling that their franchise protections are being threatened now that they see Tesla as the major change agent to the industry. Tesla still has their work cut out for themselves, but they have gotten the idea of industry change rolling, which could actually be their largest contribution to the industry.

But as mentioned in other articles – the entire legally enforced dealer franchise system really is being threatened – but not directly by Tesla, but by the issues and ideas Tesla has raised by their attempts to do business the way they want. Many are now starting to question why dealers need franchise protections in the first place. Many wonder what “consumer protections” these franchise laws really provide. After all, in many places dealers and dealer groups have essentially grown “fat & happy” under these legal protections, and many customers realize that this fat was taken from their hide by a system that may have outlived its need.

Would it really be so bad if manufacturers were allowed to directly sell to consumers? Being from the OEM side of the business I know that many OEMs highly value their good dealer partners, and really do not want that to change. They do not really want to start managing hundreds of stores all across the country, not to mention that they have existing dealer-by-dealer franchise agreements – legal contracts - which cannot simply be broken on a whim. What OEMs really want is the ability to stop using dealers who are not doing the job, do not represent their brand well or who mistreat customers.

But all that’s for another story.
Tesla fans horrified to learn politicians lie and there is no free market in NJ
Tesla: wrong move, New Jersey

Written by Richard Hubert