Tesla gets driven out of New Jersey

Telsa (TSLA), Elon Musk's high-flying electric vehicle company, has hit a roadblock its efforts to bring its environmentally friendly technology to the mainstream: the $676 billion automobile dealer industry.

The New Jersey Motor Vehicle Commission on Tuesday voted to ban the direct sales of vehicles to consumers, effectively shutting down the Palo Alto, Calif., company's operations in the Garden State as of April 1.

Tesla, not surprisingly, is livid, arguing on its website that the state's decision comes "on the heels of more than nine months of unexplained delays in the issuing of a new sales license for Tesla, despite our numerous requests, calls, and letters." A company spokesman declined further comment.

New Jersey Governor Chris Christie, a potential Republican presidential candidate in 2016, told Tesla that it needed to engage the legislature and that he didn't want to unilaterally change the sate's auto dealer rules, according to a statement provided to Bloomberg News.

Analysts argue that the ruling won't hurt Tesla's bottom line because it likely won't prevent anyone from buying a Tesla who's motivated to do so.

Wall Street shrugged off the news from New Jersey. TSLA shares, which have surged about 60 percent since the start of year, closed up 3 percent to $241.49 in Wednesday trading.

New Jersey joins Arizona and Texas is banning direct consumer sales. According to Bloomberg News, Tesla is waging similar battles in many states, including New York, Ohio, Washington, Minnesota and Georgia. The Wall Street Journal reports that Tesla has already been banned from selling directly in Texas and Arizona.

Critics have accused the auto dealers of stifling free enterprise, a view the National Automobile Dealers Association says is shortsighted.

"Cutting out the dealer won't lower the price of a vehicle because a factory-owned retail network would have to invest in the same physical assets and bear the same operating expenses as dealers," according to a NADA statement. "What's important to remember is, the current franchise system works. It fosters competition and saves consumers money. And it facilitates the convenience of personal relationships at the local level -- instead of the frustrating experience of the 1-800 number."

The economic impact of the nation's 16,000 new car and truck dealerships is huge. According to a 2010 paper in the Journal of Economic Perspectives, dealers account for about 20 percent of state sales taxes and roughly 8 percent of all retail employment. On a national basis, dealers accounted for 14.9% of total retail sales.

"This has resulted in a set of state laws that almost guarantee dealership profitability and survival -- albeit at the expense of manufacturer profits," according to the paper, which notes that the current autos dealer rules "have been a major impediment to the development of Internet distribution of new cars."

NADA denies that it's impeding the development of the market and says its members are "more relevant than ever."

"It is easy to see the rationale for state laws that foster a well-capitalized, independent dealer network," the association says. "New vehicles are expensive, generally require financing and often involve a trade-in. Consumers are better served by multiple retailers competing for their business."

  • Jonathan Berr

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