New Jersey Bans Direct Sales of Cars (Tesla)

So today the tech world is upset over New Jersey’s rule that bans the direct sales of cars - effectively shutting down the Tesla model (go to New York if you want your car).

They join Texas and Arizona in this. In all 3 states you will be able to go to a showroom, but not discuss price or how to buy.

First statement: I think that this is ridiculous, and is nothing more than an attempt by auto dealers to keep out competition. So, yeah, I am against it. Maybe, however, I am missing something here and someone can tell me why the dealer model is better.

Second position: The three Republican Governors are anti-business hypocrites. ASSuming that Republicans are pro-business, they are instead going to push business out of state. The counter to this might be old-school protectionism I guess, but maybe someone can defend these three states from a Republican perspective.

Knowing Boss Hogg, I mean Chris Christie, it’s a whole lot more about not getting his cut than it is about any logical reason.

I notice that Tesla exclusively sells electric cars.

Not to suggest that the greedy oil corporations have been pulling strings behind the scenes. Oh no, I would never imply that. Not me, no way.

Maybe this is a dumb question, but why doesn’t Tesla have dealers?

Good article / interview from Autotrader:

My interpretation is that they don’t trust dealers to properly represent the brand.

Sounds like legal restraint of trade to me. In other words, the auto dealer lobby managed to buy off the government. Not surprising.

But is there more to it than that? Are there other factors, such as Canadian cars being imported and sold, or someone avoiding taxes through some loophole? I honestly don’t know.

But absent other knowledge, the smart money is on this just being another example of business and government getting in bed with each other to stifle competition.

While NJ’s action is new, this practice goes back decades in most other states with this type of legislation, and it was used by the larger car companies to keep out competition from the smaller ones that couldn’t afford dealerships.

We did a thread on this last year… not sure if it was in this forum or not.

Not to worry, though, as you predicted he’d be gone by Easter. Right?

Who holds back the electric car?

Who made Steve Guttenberg a star?

I think this is generally just government caving to special interests, but this is more an issue of government siding with small business (dealerships) over big business (manufacturers). Even so, I do see a few potential issues here:

  1. Loss of jobs. Tesla is not the first company that wanted to sell directly to the customer. Ford attempted to do this in the past, and was blocked for similar reasons. That said, this study says auto dealerships account for 7-8% of retail employment. Putting all those people out of work so that Tesla and others can sell a car for $70k instead of $74k is probably not worth it to the state.

  2. Loss of tax revenue. States earn about 20% of all state sales tax revenue from auto dealerships. Disrupting that revenue stream would be stupid.

  3. Consumer protection. If I sell you a lemon, and I don’t give you a place to repair the car, or address issues, it’s could be a huge problem. I don’t think this would have necessarily been an issue with Tesla, but in theory, it could be. A car is often the most or second most expensive thing a person will buy in their life. Having some physical location that is accessible to customers, and has to answer to local government, is an important consideration.

I don’t know if I would have voted for the bill even given the above, but I think reasonable people can disagree on that. This isn’t really just about Tesla, it’s about whether the dealership model is worth protecting given the obvious costs and redundancies. At some point, you have to make sure that technology is creating jobs and opportunities faster than it’s destroying them. A government official must be even more keenly aware of that fact given that streamlining the automotive sales process might mean the state isn’t able to fix roads or hire police officers.

Apart from (1), Tesla does have local presence in the state, so (2) and (3) don’t apply. Specifically, in order to sell cars in NJ, you must now have a FRANCHISE agreement with a car manufacturer. Which boggles the mind. Why should business structure dictate anything?

There’s also a bunch of other things aimed squarely at Tesla (minimum square feet of show space, more than 2 models of car, etc etc).

The machine grinds on…

I think I specifically acknowledged that some of that would likely not apply to Tesla at the moment. The problem is that there would be nothing to require Tesla to keep a physical presence in every state. The bottom line is that allowing Tesla to sell cars directly would result in fewer jobs in, and less tax revenue for the state.

What exactly is your complaint, and how does it speak to the points I made?

In this case yes, but only because they are trying to challenge the existing laws through loopholes. This protectionism been going on for a while, and is not really about Tesla. As I said before, there is little practical reason to set up the system the way it is now if it were designed today. The problem is that we have a system now that is good for the state coffers and keeps lots of people employed. Upsetting all that for the chance that consumers might save a little is not an easy call to make.

What does a franchise agreement have anything to do with either taxes or a physical presence?

Anyway, we are in general agreement - there was a rationale in the past for requiring dealerships (why not simply impose physical presence requirements for car sellers, either through agents or from the manufacturer itself I do not know), but whatever the origins of this requirement, they have been long superceeded by the self-perpetuating organisation of dealerships, which are only interested in the continued existence and well-being of dealerships.

Allowing manufacturers to sell cars directly to consumers will not put all people employed by auto dealerships out of work. Unless this has happened in states where Tesla is allowed to sell directly to consumers. There will still be manufacturers that wish to sell through dealerships.

There are different ways to account for “loss” of state sales tax from auto dealerships. States can still apply sales tax to cars sold directly by manufacturers for one.

You can still have the manufacturers maintain a physical location in the state. Or make it obligatory that they have a partnership with a local mechanic shop.

I came here looking for an answer to why NJ and the other 2 states banned Tesla from selling directly to consumers. I can see why some states think the reasons given by brickbacon seem viable, but in my opinion they will do more harm than good.

Does anyone know if Tesla goes to Federal court, and wins, the states will have to allow manufacturers to sell directly to consumers?

It should be noted that NJ also bans self-service in gas stations. A recent governer (either Corzine or McGreavy, IIRC) tried to allow it, but was shouted down by a lot of disabled person activists and others who were concerned about job losses.

This does not make sense to me.

In NJ, sales tax is charged by the DMV (or MVC, as it’s called here), at the point when a title is registered. Even a private seller selling to another private seller pays sales tax when they register the title (although a lot of people probably understate the selling price on the title for this reason).

Under normal circumstances, the dealers take care of title registration, and for this reason they bill the purchasers for the tax. But the same tax would be paid regardless of who registers the title, and the presence or absence of dealers has no impact.

ETA: I’ve not looked into the core issue, but one obvious reason occurs to me - the dealers are local people and Tesla is not. Politicians tend to favor the locals.

Indeed, cars are one of the few things that cannot escape due sales/use tax. We all buy stuff from out of state that we are supposed to report for use tax. Businesses buy bigger lots of stuff, up to industrial machinery, that they sneak in. But the requirement to report the financial transaction and be issued registration means there are likely vanishingly few cars on the road that hain’t paid their dues.

In any case, given that Tesla is free to sell their products in 47 states, I’d put all these restrictions down to local greed/protectionism over any kind of conspiracy to suppress new makers, EVs, cars named after Serbians or rock bands, etc. (ETA: Especially in New Jersey, where car dealerships are historically the privilege of “friends.”)

Not to hijack but as the Wicked Witch of the West would say, these things must be done delicately. It’ll take come time for the US Attorney to make his case. Now let’s shoot for Labor Day for resign in disgrace, then to be indicted and sent to the federal pen some time before the 2016 election.

Back to the matter at hand- cars are indeed a bit different than refrigerators or TVs. The seller must confirm the buyer’s identity and that he has proof of insurance and the seller must have act as an agent of the state in providing temporary registration. For these reasons, it makes some sense to require dealers but if the logistics can be worked out so that the manufacturer can do all these things, grest.

Tut tut.

Bob, Mace. Give it a rest. There’s a place for that and this thread ain’t it.

Years ago I read a book about bringing the VW Beetle to the US of A. At the beginning, it was a oddity. People would just have a beetle in a storefront. This was an issue as there had been an influx of foreign cars brought back by returning from occupation GIs that never really worked out in the USA. So, VW and VWOA (Volkswagon of America) cracked down on who they’d wholesale their cars to. Main thing was, if you wanted to buy some cars to sell, you HAD to buy an certain inventory of spare/replacement parts. One of their early publicity stunts was to have the maintenance staff of a VW dealership build a complete, operating beetle of of their parts in stock.

I really don’t understand Tesla going this other way, but neither do I understand why some states are passing laws against them shooting themselves in the foot this way. States will still get their money when buyers get the title and tags for the things. All I can come up with are campaign contributions from car dealers to politicians.

To be honest, I think the sales tax argument is moot. A Tesla goes for $80,000. That’s a lot of sales tax, but if only 4 of them are sold in the state in a given year, that’s not really a lot of sales tax. No revenues that rely on volume are going to be affected by Tesla sales.