Pub. 15 2016-2017 Issue 1

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 7 new jersey auto retailer W W W . N J C A R . O R G Nobody Likes To Hear, “I told you so…” President’s MESSAGE | BY JAMES B. APPLETON Critics of the franchise system need to take a long, hard look at the latest controversy involving Tesla. They need to ask themselves how consumers benefit from a closed system when it comes time to have warranty work done by the manufacturer. Tesla has come under scrutiny from the National Highway Trans- portation and Safety Board (NHTSA) and has been the subject of much public criticism because they forced Model S owners to sign non-disclosure agreements in order to get warranty repairs done. The Model S owner featured in a recent New York Times article was, first, told he would have to pay for the repairs because they were from “normal wear.” The company eventually agreed to pay for part of the repair, as long as the owner signed a nondisclosure agreement. Could you imagine if you tried to have your customers sign such a document? This highlights the problem consumers face when a manufac- turer controls the warranty repair process and why the franchise system is so beneficial for consumers. The extensive network of franchised dealers offers consumers easy access to warranty and recall repairs by highly skilled technicians. Dealers are paid by the manufacturer to fix their mistakes, so their goals are more closely aligned with consumers. The direct sales model does NOT view the consumer as a priority once the sale is complete. And the latest dust up involving Tesla clearly illustrates this fact. Tesla says the nondisclosure agreements protect them from potential lawsuits. The agreement even refers to repairs as a “gesture of good will.” Repairing a manufacturers defect is NOT a gesture of good will; it’s a contractual and legal obligation that consumers pay for in the purchase price of a new car. It’s called a warranty. The Tesla non-disclosure agreement also reportedly asks owners to waive their right to future legal action and to keep the arrangement confidential. Is this part and parcel of a company-wide policy that seeks to keep the public in the dark about potential defects? Makes you wonder if Tesla is a car company or a cult? This issue shines a spotlight on a major drawback of the direct sales model. Tesla claims that they have chosen to bypass franchi- sees, because dealers don’t want to sell electric vehicles. But that ignores the fact that New Jersey new car dealers have sold more pure electric vehicles than Tesla and tens of thousands of alterna- tive fuel vehicles, as well. Just look at the company’s own SEC filings and you find the REAL reason Tesla doesn’t want dealers. They want “to avoid the conflict of interest inherent in most incumbent automobile manufacturers, where the sale of warranty parts and repair by dealers are a source of revenue and profit for the dealer and expense to the manufacturer.” Put in simple terms- dealers get paid to fix the manufacturer’s defects and that impacts their bottom line. And, sadly, Tesla isn’t the only manufacturer that has tried to game the system. Volkswagen, of course, is in the midst of a major scandal involving more than 500,000 diesel vehicles with software installed that allowed them to “cheat” emissions tests. General Motors continues to face questions about what they knew and when they knew about a widespread ignition switch defect that has resulted in fatalities and precipitated a series of recalls affect- ing millions of vehicles. And, of course, the Takata airbag recall has reached 34 million vehicles (and counting) from Toyota, Ford, Chrysler and other manufacturers. Manufacturers, if left to their own devices, will try to sweep problems under the rug in order to protect profits. Dealers, on the other hand, have the best interests of consumers in mind. They want to ferret out and fix each and every manufacturing defect because they get paid by the manufacturer and the consumer is more satisfied and driving a safer vehicle. Dealers oppose Tesla’s direct factory sales model, NOT because it threatens dealers, but because it harms consumers. Manufacturing defects are inevitable. It’s not a matter of “if,” but “when” they reveal themselves. Customers should get the care they deserve and that will keep them safe on the highway. They should not be forced to take a vow of silence to get what they paid for in the form of warranty service. Smart policy makers know that you don’t put the fox in charge of the chicken coop. That’s why dealers strongly defend the franchise system and promote laws that protect consumers. The franchise system works— for manufacturers, for dealers, and especially for consumers.