Wednesday, July 2, 2014

Rent-Seekers of New Jersey: Car Dealers

How to Sell Cars -- Tesla 

Several months ago, the New Jersey Motor Vehicle Commission (MVC) ruled that Tesla could not sell its electric-powered car through showrooms in shopping malls.  New Jersey law requires that all new car sales in the state must go through car dealerships.  No direct sales are allowed.

Tesla does not do enough business in the state to build a franchise network to market its product.  And, honestly, the company didn't seem to want to do business that way in any event.

The MVC ruling suited the owners of car dealerships very well.  Individually and as a group, they have been regular contributors to state legislative and gubernatorial campaigns to keep things the way they like them.

But the decision sparked a national outrage that seems to have kept other states from adopting similar policies.  And the bad press had an effect.  Now the dealerships are pretending to backtrack a bit.

New Jersey Legislation 

In the last month, the New Jersey Legislature has taken up a new bill, A2305, that seeks to calm the waters that were stirred up over the Tesla decision and, at the same time do a great many other things.

It would allow manufacturers of zero-emission vehicles (but not partial-emission vehicles), to have as many as four direct-sales outlets in the state.  The provision applies only to Tesla, which is the only manufacturer of zero-emission cars.

But there is much more to the bill, which revises the Franchise Practices Act, originally adopted in 1971 to protect dealerships from the depradations of automobile manufacturers.

New language says there is still a "vast disparity in bargaining power" between carmakers and dealerships. The law sets out to fix this by allowing triple damages to dealerships that win court cases against manufacturers.

This offers rich opportunities for lucrative lawsuits under the original, fuzzy language of the law, which forbids manufacturer efforts to "impose unreasonable standards of performance," "fail ... to compensate for reasonable costs" and "utilize an arbitrary or unreasonable formula ... to gauge performance as a basis for making any decision."

There are several other provisions limiting manufacturer purchases or terminations of car dealerships in New Jersey.

A spokesman for the Alliance of Automobile Manufacturers described the bill's terms as the "most onerous, anti-consumer and anti-business regulations in the country" in a newspaper interview.

Since there are no automotive plants in New Jersey, it is not surprising that the legislature is seeming to favor local dealerships over carmakers.

The bill's sponsors -- Republicans and Democrats -- naturally maintain that they only want to protect consumers.

This is hogwash on a fox-guarding-the-henhouse level.

Any car buyer who is too stupid to buy an automobile at a flat rate from a manufacturer has no business wandering unprotected into a car dealership.


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