It’s not even April, but New Jersey has already played its citizens for fools.
By committee edict, the New Jersey Legislature has said April 1 is the deadline by which Tesla showrooms in New Jersey must stop selling their cars directly to consumers. The state’s action will directly increase costs and reduce choice available to consumers while protecting the profits of auto dealers. James Appleton, president of New Jersey’s dealer association, said the statue “is on the books to protect consumers” while conceding, “Tesla’s business model crushes competition.”
Every time an automobile changes hands on the way to the final purchaser at the dealer, another layer of margin is added to the costs that consumers eventually pay. Dealerships add an estimated $2,225 to the cost of a new car sold for $26,000. Buying a car in a dealership is also one of the least favorite American pastimes, with nearly 60 percent of Americans saying they hate the car-buying experience, according to Kelley Blue Book. Despite this, efforts to streamline the auto distribution process have so far not been successful.
This prohibition of direct sales can be traced to the automobile’s infancy. To finance their growth, auto manufacturers offered dealerships territory in perpetuity so long as dealers agreed to purchase a certain number of cars per year. These arrangements eventually gave automobile dealers enough clout within their state’s political system to pass self-serving laws.
The new statute is based on the supposed acknowledgement that “inequality of bargaining power continues to exist between motor vehicle franchisors (manufacturers) and motor vehicle franchisees (dealers).”
Tesla is not alone. Businesses that disrupt established markets have always engendered strong reactions from those making money in the status quo. Taxi commissions across the United States have recently sought bans against more efficient solutions to on-demand transportation, such as the apps Uber and Lyft. The taxi commissions’ claims are the same as the New Jersey dealers: Regulations are synonymous with consumer protection, and “unregulated” newcomers are not in consumers’ best interests.
The groundswell in favor of Tesla may be more muted, as there are fewer would-be Tesla purchasers than there are taxi riders. However, those folks who lack sympathy for people able to fork over $70,000 for an automobile would be wise to consider their own potential savings if given the opportunity to purchase their next new car directly from the manufacturer.
The ability for an interest group to lobby on their members’ behalf is an important part of our democracy. Everyone should expect that the dealers association would make this argument; dealers have an instinct for self-preservation like anybody else. What’s unacceptable is that the New Jersey Motor Vehicle Commission has acted as their agents instead of in the public interest.
In a free market, people make money by providing a valuable service to the public, and a “business model that crushes competition” should be the business model that wins. If Tesla’s electric cars are safe, (the National Highway Traffic Safety Administration gave the Tesla Model S the highest safety rating it has ever given any automobile), there is no more efficient a system for protecting consumer choice than letting consumers decide from whom they want to purchase these automobiles.
Joseph Colangelo is a New Jersey native and executive director of Consumers’ Research, a consumer advocacy organization.
Joseph Colangelo is Executive Director of Consumers' Research, the nation's oldest consumer-focused organization. Joseph grew up in Northern New Jersey and attended U.C. Berkeley on a Naval ROTC scholarship where he graduated with a Bachelor’s of Arts with a concentration in Political Science.