Governor Christie is banning the direct sales of Tesla vehicles. The move preserves the need for middlemen such as car dealerships that would purchase from the manufacturer and then sell the vehicle to the public.
Beginning April 1, New Jersey will prohibit direct sales from a car manufacturer to a comsumer. Tesla currently has its showrooms in places such as malls where customers could inspect the vehicles and then order directly from the factory. Since the Model S has a base line of $69,900 ordering direct from the factory would save the buyer a commission charged by the auto dealership and effectively cut out the middleman.
A spokesman for Governor Christie responded that as far back as October 2013, Tesla was made aware of the possible change of rules by the governor and there was a time for public comment. He also denied Governor Christie made any back room deals with the New Jersey Coalition of Automobile Retailers (NJCAR).
When Tesla began its direct sales to New Jersey residents a year ago, it was made clear to the company that such sales were contrary to state law. Since the state legislature has not furnished a bill, Governor Christie made an executive decision to ban direct sales to customers. The step by Governor Christie brings Tesla Motors into the current sales parameters all other car manufacturers follow in New Jersey.
Elon Musk, Tesla’s chairman wrote in a company blog that his marketing plan was for direct sales to customers. The members of the New Jersey state legislature were supposed to create a bill for his direct sales strategy and vote on the measure. Instead, Governor Christie issued an executive order that was nothing more than a back room deal with NJCAR.
The intent of the New Jersey laws supporting the dealer system was to not to squeeze out direct customer sales from the manufacturer. Current New Jersey auto laws were meant to protect dealers in franchise agreements with manufacturers. If Tesla can sell directly to customers, then auto makers like Ford and Nissan could do the same at reduced costs that eliminate middlemen such as NJCAR franchises.
The reason Tesla does not have dealer agreements is due to its small sale volume of electric cars sales verses gas powered vehicles that make up most of the current market. It is more difficult to sell a new technology with an unproven track record when there is a current technology with years of use. The automobile faced the similar hurtles a hundred years ago when the horse and buggy was the dominant mode of transportation.
Jim Appleton, president of NJCAR refuted Musk’s allegations of there being any backroom deals with Governor Christie. The governor’s ruling evens the playing field for all New Jersey car sales and brings Tesla in line with existing rules for all other car manufacturers who sell through auto dealerships. Appleton also suggested that Musk attempted his own series of backroom deals with the Christie administration in creating its direct sales marketing approach to customers. Appleton’s goal is to maintain the current status quo that is already longstanding New Jersey law.
Until New Jersey allows direct auto sales, the two showrooms in the state at Short Hills and Paramus will become galleries. Customers can look at an electric car and ask questions. The price or the sale of the vehicle cannot be discussed or completed in the store. There are Tesla showrooms in Manhattan, NY and two nearby Pennsylvania locations that can accommodate sales.
Musk is considering judicial action as well as appealing directly to members of the New Jersey legislature to bring a bill to the floor allowing direct sales of Tesla vehicles. Musk will continue to challenge Governor Christie’s ban of direct sales of Tesla vehicles to New Jersey residents by legal means or appealing to the New Jersey legislature.
By Brian T. Yates