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NJ Situation: today's Wall Street Journal, letters to The The Editor

How can New Jersey deny Tesla Motors TSLA -1.57% a license to sell cars when it doesn't have any franchises to compete with ("New Jersey Pulls the Plug on Tesla," Marketplace, March 12). The law was set up to protect franchises from competition from the auto maker.

Doug Wilbert

Elberta, Ala.

I bought a Tesla easily and painlessly in Arizona, which also requires that automobiles be sold through franchise dealerships. Tesla has a store in Scottsdale staffed by pleasant and knowledgeable people who answer questions about the vehicle on display there. As they are banned from any selling activity, they scrupulously refuse to answer any questions about price or financing. You can test drive the car by appointment, which can be arranged online. When you're ready to buy, you do so online. You pick up the car at another Scottsdale location.

Before placing my order, I made another trip to the store to have one more look. The manager asked me what options I had selected. He explained that several of them were a waste of money. He saved me $10,000. When was the last time that happened at a franchise car dealership?

Stephen R.S. Martin

Cave Creek, Ariz.

The regulation adopted by the New Jersey Motor Vehicle Commission on March 11 isn't an attack on Tesla or an attempt to put the car maker out of business in New Jersey. It simply requires Tesla to conform its business model to existing state law. The Tesla factory-store model is unlawful in New Jersey because the statute, on the books for more than a decade, prohibits an auto maker from owning a dealership, being licensed as a new-car dealer or directly retailing cars in the state.

The law serves the public interest in competitive pricing, convenient warranty and safety recall service and highway safety. The franchise system of independent new-car dealerships promotes aggressive price competition, while the factory-store model advocated by Tesla creates a vertical monopoly and limits competition.

James B. Appleton

President

N.J. Coalition of

Automotive Retailers

Trenton, N.J.

There is no circumstance in which reduced choice or the inclusion of a sales commission to a dealership helps the consumer.

Dan Ogden

West Orange, N.J.

"The law serves the public interest in competitive pricing, convenient warranty and safety recall service and highway safety. The franchise system of independent new-car dealerships promotes aggressive price competition, while the factory-store model advocated by Tesla creates a vertical monopoly and limits competition."

Sarah Palin couldn't have said it better...

"The law serves the public interest in competitive pricing, convenient warranty and safety recall service and highway safety. The franchise system of independent new-car dealerships promotes aggressive price competition, while the factory-store model advocated by Tesla creates a vertical monopoly and limits competition." Of course this line of BS comes from the Dealers Association.

"Competitive pricing" - just fuzzy math to confuse buyers into thinking they have gotten a deal from the mysterious manager in the back room.

"Safety recall service" - Check with the dealers selling GM cars to see how helpful they were while GM swept problems under the rug.

Tesla's "vertical monopoly" - Which means NJ dealers are afraid of Tesla's business model because it is working - for the consumer!

AmpedRealtor

Is someone at Tesla holding a gun to the consumers head forcing him to buy a Tesla? Don't all those franchise dealers, whom everyone knows really put of ALL the consumers interests first, provide competition for Tesla?

@ AmpedRealtor: "Sarah Palin couldn't have said it better..."

Oh, yeah, she could have.....

She would have said it in a less grammatically-correct, but much folksier fashion, sprinkled in a few "ya-know"s - and then you'd support her, I'd support her, we'd all support her, without quite knowing why, but knowing that it was obvious if we thought about it but we didn't need to think about it because it was even more obvious that she HAD to be right.

Such is the power of leadership.

This Appleton is such an ass. How does "highway safety" come into this? How does Tesla's business model make the highways unsafe? How safe was it for the 13 people that died in GM products, of a known problem to both GM and the dealer network.

Why doesn't a reporter ask these idiots these questions. They make these asinine statements and nobody calls them out on it. If it is/was always against the law for Tesla to sell directly, then why were they given a license in the first place. Is it perhaps because there was an agreement with Christie, that at a point it would go before the NJ legislature......Instead Tesla got back doored.

It's amusing that posters here bring up Sarah Palin when discussing New Jersey, a deep blue state-- Christie notwithstanding-- with strong Democratic majorities in the house and the general assembly.

It would be interesting if someone was sufficiently motivated to look up the voting records; but it's easy to see that if the Democrats had wanted Tesla in New Jersey, the law wouldn't have been passed.

@Dramsey-
No law was passed in NJ. This was done by administrative action.

I don't know the history of NJ politics, but the actual law has been on the books for many years. Licensing apparently is done through the Vehicle Commission in NJ. They are the one that let Tesla open 2 stores and issued the licenses. So it stands to reason that there was a special arrangment with the commission and Christie.

This ban isn't a new law Christie signed, because it didn't go through the NJ legslature. It was some type of "executive order" that was prompted by the DMV which is full of appointies of his.

This is another example of why doesn't the press ask Chrisite, live on TV, if as he says he is just enforcing the law that is already in place, then why was Tesla given a license to open 2 stores in the first place?

I find it hard to beieve that the DMV in NJ didn't know the law before issuing the licenses.

This isn't Dem vs Rep - they both get piles of dough from the NADA folks. It is just corrupt politics that, in the past decades, never helped the consumer nor was in the consumers best interest.

@Dramsey: That "deep blue" state sends an awful lot of Republicans to the executive office and the legislature. And the only laws relevant to the current situation have been on the books longer than Tesla has existed. The new rule that was passed came from a small committee of Christie cronies with no input from the legislature.

"The regulation adopted by the New Jersey Motor Vehicle Commission on March 11 isn't an attack on Tesla or an attempt to put the car maker out of business in New Jersey. It simply requires Tesla to conform its business model to existing state law."

If I might add the next few sentences assuming this guy was speaking the truth. "This law does nothing to benefit the consumer and in fact adds a significant premium to the cost of the vehicle purchased above what the consumer would have paid had it been purchased directly from the manufacturer. While the intent of this law was to insure that car manufacturers do not abuse their relationship with their franchisee's, we intend to use the law to keep Tesla from selling cars, unless they agree to sell through dealers, which will add another 8% to the final cost of the vehicle at the expense of the consumer. In addition, once we have control of the consumer we will do our best to craft useless dealer prep items that no one needs and insure that the consumer is over-charged for service. Since Tesla's require very little service, we will make things up as we go along. We realize that the consumer hates us, but we don't care because they will have no other choice. While we are glad that our payments to the political parties, it does not matter if Republican or Democrat - works for both, has continued to buy their support, we understand that our efforts will backfire in the end. We are not going to be able to stop Tesla or the EV revolution. In fact, I bought one online myself in 5 minutes. Easiest car purchase I ever made, and I am the head of NJ CAR. God I love my Telsa, best car I ever owned. Too bad I will never be a Tesla franchisee.

The "I am just enforcing the existing law" excuse is such a load of BS. It depends on on the media and the general public's laziness.

Yes, a law on requirements to sell a car in NJ was already on the books (duh). What the NJMVC commission did through administrative action was to add a paragraph to the relevant section to require the seller of a new car to be a franchisee. The prior law did not contain that language which is why Tesla was able to legally open its two stores. The rules change also effectively made it illegal to renew Tesla's existing licenses, which is why the existing stores have to cease operations.

For those who care, the actual text can be found here: http://www.nj.gov/mvc/pdf/About/PRN_2013_138.pdf

O

Well the stores phsically are still open, they are just now "galleries".

Can't Tesla simply incorporate a separate entity that operates as franchise and simply own all shares of it?

Christie was elected to provide a red counterbalance to the blue legislature. But he failed, because they're all really maroons and he adapted.

I believe they tried that.

According to the MVC, these amendments will have a positive social impact.

At the very least, I think the problem with all those schemes is that these separate entities is that they introduce additional costs which then must be absorbed by Tesla (lowering profitability) or passed along (increasing the price). Since this creates zero value for anyone, its worth fighting on philosophical ground alone.

Not an expert on this stuff, but I also wonder if a business running with essentially zero profit on purpose runs afoul of unfair business practices regulations of some sort.

O

I got to wondering what the actual New Jersey statures say about manufacturers selling cars. So far, I found this.

39:10-8. Certificate of origin, title; security interests.

39:10-8. When a new motor vehicle is delivered in this State by the manufacturer to his agent or a dealer, or a person purchasing directly from the manufacturer, the manufacturer shall execute and deliver to his agent or a dealer, or a person purchasing directly from the manufacturer...

So this portion of the law presupposes that manufacturers *will* sell directly to consumers.

http://law.onecle.com/new-jersey/39-motor-vehicles-and-traffic-regulatio...

> cervelos5 | MARCH 21, 2014 NEW
> Can't Tesla simply incorporate a separate entity that operates as
> franchise and simply own all shares of it?

If NJ law is the same as TX, then the law specifically states that the manufacturer must not have any ownership in, or controlling interest of, the dealer.

The Christie administration and his commission did not change any law. The law is on the books, and has been for years.

What they did was grant a license to Tesla, and then let that license expire without renewing it because they thought it was not permitted based on their interpretation of the law.

As best I can tell, Tesla agrees since their remedy, if the commission is outside the law, is the courts. They are pursuing this in the media because they have no chance with the courts.

The simple remedy is with the legislature. Same as the commission claims to have told Tesla when they granted the original licenses - the law needs to change for Tesla to sell vehicles in NJ. So far, that has not happened.

Tesla has played this very well in the court of public opinion, as evidenced by myriad comments in this thread. If they simply had their legal team working this instead of their public relations team, their stores in NJ would not be closing.

@omarsultan, the document you referenced is not a change in the statute, but rather a change in the regs. Looking at the statute, there is some ambiguity. The overall purpose of New Jersey's "Franchise Practices Act" is to deal with the relationship of franchisors and their franchisees. In fact, NJSA 56:10-3 defines "Franchisor" as "a person who grants a franchise to another person." So under that definition, TM would not be a Franchisor, and thus not subject to most of the prohibitions of the Act.

However, in another section of the statute, NJSA 56:10-26 defines a "motor vehicle franchisor" as "a person engaged in the business of manufacturing, assembling or distributing new motor vehicles, or importing into the United States new motor vehicles manufactured or assembled in a foreign country, who will under normal business conditions during the year, manufacture, assemble, distribute or import at least 10 new motor vehicles." Under this definition, TM would technically be a motor vehicle franchisor, subject to the prohibition against selling a motor vehicle to a consumer except through a franchisee.

Depending on what is found in case law and legislative history, TM would have an arguable case that the statute should not be interpreted to create a class of "motor vehicle franchisors" who are NOT also "franchisors." In other words, plain logic, as well as the entire structure, purpose, and hopefully, also the legislative history of the Act leads one to conclude that, to be a "motor vehicle franchisor," a person must actually grant a franchise, and that TM is not a motor vehicle franchisor within the meaning of the Act.

An arguable case is not a slam dunk, however, and the court might read the statute literally, and uphold the action of the Motor Vehicle Commission. Particularly if they are elected judges and have received lots of campaign contributions from the dealers.

This Appleton guy just took some buzzwords and threw them at the wall, hoping one or more would stick. His straw men have no place in this discussion, they are just distractions. He is using the trick of telling people three things that they may agree with ("competitive pricing, convenient warranty and safety recall service"), and sneaking in a fourth ("highway safety") that has nothing to do with the discussion and simply serves as a subtle jab at Tesla's fire troubles from a few months ago.

How is it a monopoly for one company to sell its products directly to the customer? The last time I checked, there were plenty of other car companies and models from which to choose. If I am Apple and I decide that I want to sell my phones directly to the customer through my own stores, I can do so. What the dealer associations are doing is tantamount to telling Apple that it must sell its products only through Best Buy and other independent, local resellers. That is patently ridiculous because it deprives the company from controlling all aspects of the product's marketing. It burdens the company with relying on a reseller that may not necessarily be competent or experienced in the areas needed to promote the product in the best light.

NJSA 56:10 is the "Franchise Practices Act". So it follows that anything in it does not apply to one not involved in the practice of franchising.

As I mentioned above, the vehicle code, 39:10 presupposes that manufacturers will directly sell to end users.

So, if the licensing regulations are founded on the Franchise Practices Act it is surly contestable. I have not found the regulations, only things that propose to change portions of the regulations. The regulations should cite their authority.

They basically passed a NEW ordinance stating that a dealer had to have a miniminum floor space and an attached service center. This was SPECIFIC to delete Tesla's mall type stores...

IT IS NOT SIMPLEY ENFORCING EXISTING LAWS.......

As note earlier, the original statue is ambiguous. What NJMVC did was add the paragraph the requires anyone who wants to sell a new car (or to renew their license) to now have a franchise agreement in place.

Once again, the "we are enforcing the existing law" excuse is bull.

O

I was at the Tyson corner gallery in Virginia. Some one there had questions about price, etc. and the Tesla folks couldn't answer the questions. So I did. I had my laptop with me. IN THE GALLERY I went on line, showed them the options and the prices and showed them how to order on-line.

It seems to me that we owners have an opportunity to fill the gap the politicians have created. When frequenting the galleries, we have every opportunity to talk with potential buyers. So far as I know, Mr. Appleton and his ilk can't abridge our free speech rights.

What would really be interesting would be for Tesla owners to set up booths across the street from car dealers and advocate buying Teslas. Of course that is wishful thinking.

Yawn...

It comes down to this. The public like Tesla's model better than the dealer's. This will thus, end badly for the dealers and, if they keep pandering to them, the politicians as well. Well, it clearly won't matter to Christie. He's toast anyway after the bridge debacle.

@jackhub; I was going to post something along the same lines, but since you already have....

What is to keep a Tesla owner "volunteer" from sitting in the vicinity of a Tesla gallery with a small sign that says "Ask me about Tesla pricing and financing"? As you say, free speech.

I'm not sure whether this would please the company or not.

The executive branch is merely carrying out the existing laws on the books. They have always had wide latitude in interpreting laws and rule making.

The law is the problem; the legislature can simply change the law...if they so choose. In 18 months they have not so chosen.


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