Cliff Banks - The Banks Report

New Jersey’s Vote for Tesla a Win for Dealers – Almost

March 17, 2015 — Yesterday’s overwhelming vote by New Jersey’s state Senate (30 – 2) to allow Tesla to sell directly to consumers, appears, on the surface, to be a political loss for the state’s car dealers. The reality, though, is far different.

It’s definitely a win for Tesla in that it gets to sell its vehicles directly to consumers in the state. Meanwhile, New Jersey’s politicians obtain cover with the voters without alienating the state’s dealers who bring significant financial strength to the table.

New Jersey’s dealers get a win, or will get a win — once the Senate passes legislation (S927) amending the “Franchise Practices Act,” significantly strengthening state franchise laws. The only ones not gaining anything are automakers who will have stronger franchise laws to contend with in New Jersey.

Here’s the back story:

New Jersey’s Motor Vehicle Commission ruled last April that Tesla was violating state law by selling cars to consumers. The ruling effectively rescinded the license it had originally granted Tesla.

Yesterday’s vote essentially over rides the MVC’s ruling. The new bill allows a manufacturer to buy from or sell directly to consumers zero-emission vehicles (ZEV) at a maximum of four locations in New Jersey. The manufacturer also has to maintain at least one service facility. The service facility is not required to be at one of the sales locations.

Even more importantly, from the dealer’s perspective, the legislation limits its effectiveness to only Tesla. The bill addresses only those manufacturers that were licensed in New Jersey to sell ZEVs on or before January 1, 2014. You guessed it –the only manufacturer in that category is Tesla.

(New Jersey Governor Chris Christie has 45 days to sign the new bill and it’s our guess that it would be politically damaging for him not to do so.)

Other states were exploring similar models last year, and it appears that the head of the New Jersey Coalition of Automotive Retailers Jim Appleton bought into the concept. But it also appears that Appleton, a savvy political operator, saw an opportunity to use the possible pro-Tesla law to strengthen dealer franchise laws in his state.

We wrote about the possible political trading going on last June (Dealers & Tesla – Political Horsetrading in Jersey?) Our first two sentences were:

When the New Jersey Assembly voted last week overwhelmingly to allow Tesla to sell its vehicles directly to consumers it looked like the Jim Appleton led dealer-association had their rear ends handed to them. There had to be more to this story. There is no way New Jersey’s Assembly votes 77-0 against the dealers unless Appleton signs off on it with another play in mind.

While it’s true we might be ascribing too much political power to Jersey’s car dealers, the fact is, yesterday’s vote is the product of savvy political horsetrading — seeing opportunities and running with them.

That other play we referenced and wrote about last year is a second bill that New Jersey’s Assembly voted decidedly (68 – 2) for on the same day it voted in favor of the bill allowing Tesla to sell to consumers. That Senate version of that bill — that we mentioned earlier in this piece — is S927. It amends New Jersey’s “Franchise Practices Act,” and is significantly pro-dealer curtailing manufacturer activity in several areas. In fact, the manufacturers came out strong against the Assembly version last year.

Key parts of the bill limit a manufacturer’s ability to exercise the Right of First Refusal (in cases of dealership buy-sells) to those situations where both the dealer and automaker have signed an agreement allowing the action. It also provides for an exemption in situations where a manufacturer wishes the franchise to be sold to an already established minority-owned dealership.

The bill also requires the manufacturer to buy back all of a dealership’s vehicles if it terminates or decides not to renew the franchise agreement with the dealer. And it also prohibits manufacturers from forcing its dealers to offer incentives.

Essentially, New Jersey’s politicians, in allowing Tesla to sell cars to consumers, gain significant political protection on an issue in which consumers and media outlets have come out strong for supporting the uptstart automaker. And they look good in standing up to dealers, a powerful political group.

Dealers, on the other hand, are able to back off on its defense against Tesla’s sales model — a potential threat to the franchise system. And they get the added bonus of strengthening the state’s franchise laws.

One could almost call this a homerun. The dealer state association was able to turn a potentially harmful situation — at least from a PR perspective — into a big win.

But, you know what happens to the best laid plans. They sometimes go awry.

S927 was supposed to be voted on yesterday along with the pro-Tesla legislation. It was a package deal — all wrapped up with a tidy bow on top. Well, the United Auto Workers union had something to say. Remember, the automakers came out strong against the proposed amendments to the franchise act. The UAW, citing the fact it is an owner of at least General Motors and Fiat Chrysler, began pushing back against S927. As a result, the vote was delayed.

Behind the scenes, a lot of work has been done to try to craft a bill that allays many of the UAW’s concerns. Meanwhile, New Jersey’s Senate is out for at least two weeks, so the bill may not reach the Senate floor for vote till April or May.

So we won’t know till the vote whether the dealers get a partial win or have hit a homerun. Stay tuned…





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