Pub. 17 2018-2019 Issue 4

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 President’s MESSAGE | BY JAMES B. APPLETON Tesla’s Business Model Would Have Already Failed, If It Didn’t Keep Getting Outside Help It’s been a wild ride for Tesla. The one-time darling of Silicon Valley has come up against the harsh realities of the car business. The company has been desperately flailing, moving from manufacturing hell to distribution hell to delivery hell and can’t seem to get out of its own way. Causing many to wonder, is Elon Musk a visionary industrialist, like Henry Ford; a shameless self-promoter, like P.T. Barnum; or, as many have feared, a modern-day Carlo Ponzi? Time will tell. Just look at the recent headlines. Tesla is being investigated by the Department of Justice and was recently fined $20 million by the Securities & Exchange Commission. Elon Musk has been removed as the Chairman of the Board. Consumer Reports said it couldn’t recommend the Model 3 because of widespread concern about quality and reliability and ranked Tesla 27th out of 29 brands. Let’s not forget the millions of $1,000 deposits the com- pany collected from consumers expecting to buy a $35,000 Tesla, only to be told two years later that they can buy one for $45,000+. And now they are looking for $2,500 deposits on the Model 3. Tesla announced it would be closing virtually all its retail locations and moving all sales online in order to redirect resources to their troubled service centers, only to reverse course mere days later. They have struggled with production goals, delivery goals, pricing goals and more. A long list of broken promises litters the pathway that Tesla has carved through the auto retailing landscape. Here in New Jersey, Tesla is gearing up for another battle with franchised dealers. The company already received an exemption in March 2015 that allows them to operate outside the franchise system of independent new car dealerships and create a verti- cally integrated monopoly for Tesla sales and service exclusively from factory-owned locations. Now, the company is back at the State House, pushing for passage of A5097/S3493, which would expand the size and scope of their existing exemption. This new legislative offensive continues a pattern of Tesla demanding that the rules not apply to them. Indeed, it should be clear by now that the only reason the company has survived so long is be- cause of the special treatment and generous financial subsidies it demands from government at both the State and federal level. And now, once again, this struggling company is asking New Jersey legislators to give them MORE preferential treatment. Make no mistake, the legislation they are pushing is a full-fron- tal attack on the franchise system, which promotes competition for sales and service and ensures that consumers have ready access to warranty and safety recall service. Tesla’s direct sales model, on the other hand, obliterates competition and puts the fox in charge of the chicken coop when it comes to warranty and safety recall services that would otherwise be made available free-of-charge from independent neighborhood new car dealers. In a recent regulatory filing, Tesla came right out and acknowl- edged that they wanted to avoid using dealers because “the sale of warranty parts and repairs by a dealer are a key source of revenue and profit, but often are an expense for the vehicle manufacturer.” In other words, consumers are protected in a franchise model from the manufacturer’s natural inclination to reduce and avoid spending on warranty and safety recall services, which are promised to the consumer as part of the purchase price of the car. Tesla notes in its federal SEC filings that those warranty parts and repairs are an expense for the MANUFACTURER and that the Tesla direct sale model works best because it allows automakers to reduce, avoid or eliminate those costs. NJ CAR is pushing back hard on Tesla’s power-grab, repeatedly reminding the bill’s sponsors (and any potential supporters) why the legislation is bad public policy. We are making it clear that fran- chised new car dealers, not Tesla, represent the future of clean cars and electric vehicles. In 2018, dealers sold more than 10,500 “clean” vehicles, representing 62 different models of battery electric, plug-in hybrid and hybrid vehicles from 27 different manufacturers. That’s twice as many as the three models Tesla sold last year. By 2021, there will be more than 100 battery elec- tric vehicles and countless more alternative technology vehicles available for consumers to choose from. Tesla has proven, time and again, it cannot live up to its word; not about production volumes, profit projections, stock transac- tions, “free-for-life” charging or vehicle pricing and availability. Expanding the company’s exemption with the passage of A5097/ S3493 would undermine the franchise system. All dealers, and those who rely on the auto retailing industry for their livelihoods, must encourage their elected officials to support public policy based on what’s best for consumers, NOT Tesla.