Jim Appleton, the president of New Jersey Coalition of Automobile Retails (NJ CAR) responded to the accusations of Elon Musk, CEO of Tesla Motors Inc (NASDAQ:TSLA) that the auto dealers cut a backroom deal with Governor Chris Christie in connection with the regulation approved by the state’s Motor Vehicle Commission that prohibits automakers from selling directly to consumers.
‘Not a new law’
Appleton pointed out that the regulation approved by the New Jersey Motor Vehicle is “not a new law” and “Tesla is operating illegally” in the state. He added that the electric car manufacturer will be out of business by April 1 unless it decides to open a franchise in the state.
“Mr. Musk is a brilliant man, and Tesla Motors Inc (NASDAQ:TSLA) is an innovative company. We can all respect that. But he doesn’t get what it takes to do business in New Jersey. With all due respect, his legal opinions are about as sound as my programming abilities,” added Appleton.
Under the new regulation approved by the New Jersey Motor Vehicle Commission, Tesla Motors Inc (NASDAQ:TSLA) will no longer be able to renew its two store licenses to sell its electric cars directly to consumers. Automakers such as Tesla are required to enter a franchise agreement with auto dealers or retailers to obtain a license to sell cars in the state.
Gov. Christie’s response
During a town hall meeting, Gov. Christie stated that Tesla Motors Inc (NASDAQ:TSLA) is “operating outside the law.” According to him, “I have no problem with Tesla selling directly to customers, except it’s against the law in New Jersey.” The governor added that the electric car manufacturer should deal with the legislature.
Musk’s understanding of franchise laws
In his blog post last week, Musk explained that the dealer franchise laws were originally created for a just cause, but are now being twisted for unjust purposes. According to him, the existing automakers originally sold franchises to gain a sales force and generate capital. Franchisees made further investments to improve their dealerships. According to him, such a deal is fair and should not be broken.
However, automakers later practiced pressuring tactics to repurchase their franchises at low prices, which prompted dealerships to seek protection from state legislatures. Musk emphasized that is the main reason why the current franchise laws exist today in the United States. According to him, the objective of the franchise laws was to “simply to prevent a fair and longstanding deal between an existing auto company and its dealers from being broken, but not to prevent a new company that has no franchisees from selling directly to consumers.”
Musk pointed out that Tesla Motors Inc (NASDAQ:TSLA) is a new company with no existing franchisees. According to him, auto dealers are trying to force the electric manufacturer to sell through dealerships.
Auto dealer’s conflict of interest
Tesla Motors Inc (NASDAQ:TSLA) does not want to sell its electric cars through dealership because it believes that auto dealers have a fundamental conflict of interest when it comes to promoting gasoline cars. According to Musk, auto dealers will favor selling gasoline cars because electric cars will not provide them with more profits. Electric cars do not require services such as oil, spark plugs, or fuel filter changes, tune ups, and smog checks, unlike gasoline cars.
It is a policy of Tesla Motors Inc (NASDAQ:TSLA) that it “should never attempt to make servicing a profit center. It does not seem right to me that companies try to make a profit off customers when their product breaks,” said Musk.