State law, tech future at a crossroads in the Tesla era
Old Lyme resident Maria DeMarco, decidedly "not a car person," first spied an all-electric Tesla in Fairfield County and became immediately smitten with the automobile, priced to start at about $71,000.
"I love that. We've got to get it," she remembered telling her husband, George.
"Forget it," he shot back. "They don't sell Teslas in Connecticut."
DeMarco's husband was right. California-based Tesla Motors Inc. can't sell its well- regarded, no-emissions cars in the state because the company's business plan calls for providing products directly to customers while Connecticut law requires automobiles to be peddled by dealerships, not manufacturers.
Now the law, which opponents call a relic of a different time, is under attack. Two bills currently under consideration by the state legislature's Transportation Committee would amend regulations to allow manufacturers such as Tesla to set up shop in Connecticut, circumventing a decades-old tradition of dealership control over car sales.
The proposals have shaken the auto-sales industry in Connecticut, which has been lobbying hard to protect its turf, claiming any change would be unfair and could hurt consumers.
'Consumer issue'
"This is really a consumer issue," said Jim Fleming, president of the Connecticut Automotive Retailers Association, in a phone interview. "When a manufacturer direct-sells, protections for consumers go away."
Fleming was referring to the state's lemon law, which requires manufacturers to replace warrantied cars with defects if repeated attempts to fix them are unsuccessful. He argued that auto dealers often advocate for consumers because they want happy customers - this happens in car recalls as well, he added - while manufacturers sometimes fight attempts to fix or replace a vehicle because they are ultimately responsible for the cost.
"We act as the consumers' advocate to facilitate the repairs at the expense of the manufacturer," said Jeff Aiosa, president and owner of the Carriage House BMW dealership in New London and Connecticut director for the National Automobile Dealers Association.
"You are undermining years of consumer protection just so Tesla can sell direct to consumers," Fleming said. "We think the legislature should go very slowly on this kind of issue."
But James Chen, vice president of regulatory affairs at Tesla, said in a phone interview that the real issue is not consumerism but economic protectionism: Do dealers have the right to keep out Tesla to stifle competition?
"Whenever you are a disrupter of the marketplace, the entrenched interests are going to attack," Chen said. "You would think under the idea of American free markets that Tesla would be able to make a product and sell a product."
Profiting on service against Tesla philosophy
Chen scoffed at the idea that car dealers are there to protect consumers, suggesting that it is in the dealers' interest to keep Tesla out of Connecticut because the cars require very little maintenance - a key income source for dealerships.
"I think it's terrible to make a profit on service," said Tesla chief executive Elon Musk during a 2013 shareholders' meeting, expressing a defining philosophy of the company.
While Fleming indicated he has at least 10 dealers in the state who would be willing to sell Teslas, Chen said dealerships would rather sell a traditional vehicle that requires little explanation than to spend hours reviewing the intricacies of an all-electric car that generally needs only one annual service call to ensure maximum efficiency and comes with an eight-year unlimited power train warranty.
About 500 Teslas are currently registered in the state. But enough Teslas have made it into Connecticut through the back door - mostly through sales at out-of-state dealerships - that the company has set up a service center in Milford.
If Connecticut law is amended, the company intends to sell Teslas initially at five sites in the state, though Chen could not yet say where. Some of those sites could be in shopping malls, if the state approves, because there is no worry about noxious fumes with a Tesla.
"We would like the flexibility to open where the market would support it," Chen said.
Chen said Tesla is currently selling its cars in 35 states; Connecticut is one of only six states that don't allow Tesla to sell directly to customers.
State Sen. Art Linares, R-Westbrook, introduced the bill that both sides say has the best chance of passing this session. Linares did not respond to an interview request, but Chen said the legislator had wanted to purchase a Tesla and was upset that he could not buy one in Connecticut, leading him to introduce the amended law.
"We didn't pick this fight at all," Chen said.
It's a fight Tesla advocates are amazed has to be waged in the first place, considering Teslas are all assembled in the United States and that two Connecticut companies are among a long list of U.S. firms that supply components for the eco-friendly cars. The company said more than half the car's parts are American made.
Tesla CEO Musk also has touted the car's potential long-term effect on such issues as global warming and U.S. dependence on foreign oil, especially if the company can hit its goal of producing cars in the $35,000 range within the next five years. Still, with the company's current output of 35,000 cars a year, Tesla remains a small player in the 9 million-a-year global car-manufacturing industry.
So Musk's reluctance to embrace car dealerships - at least initially - has confounded critics. After all, say Connecticut dealers, what better way to ramp up sales than by pushing Teslas onto the showroom floors of existing dealers?
Tesla counters that dealers have different sales tactics than the company's more low-key approach that includes a set sticker price with no negotiations. And Musk has pointed out that the history of startup car companies selling their products through dealerships has not been good - pointing to failed companies such as Fisker and Coda, whose vehicles ran at least partially on electricity.
Similar to Apple's business model
But dealers said Musk's model is similar to Apple, which charges a set price for its products. In a way, they said, it's a monopoly because consumers who want a Tesla cannot shop around for a better price. If a variety of competing dealers offered Teslas, they said, market forces would naturally lower prices consumers pay.
"(Musk) calls us a monopoly," said Aiola, the New London car dealer, "when in fact nothing could be further from the truth."
Musk just last month indicated for the first time that Tesla likely would buy into the dealership model somewhere down the road. But he indicated the company would pick and choose sales outlets based on their ability to make car buyers' experience a pleasant one.
"We want to first establish a few stores of our own," he said during an interview at the Automotive News World Congress in Detroit, according to the website consumerist.com.
State Rep. Aundre Bumgardner, R-Groton, a member of the Transportation Committee that will be voting on the Tesla-inspired bill next month, said he sees no reason why the government should set up barriers impeding the free market. He added that Tesla buyers are a sophisticated and wealthy group and surely understand the "inherent risk" they would be taking in purchasing a vehicle directly from a manufacturer.
Tellingly, Bumgardner said he is not seeing a party-line split on the proposed law to aid Tesla; instead, he said, legislators seem to be dividing largely along the fissure of age, with younger lawmakers backing what they see as a trailblazer for innovation, while more established members of the General Assembly tend to side with dealerships.
"A lot of people want to see innovation in our state," Bumgardner said in a phone interview. "We should be proud of the fact there is a company that has a vision for creating cars with minimal impact on our environment."
While Bumgardner said the Tesla bill has spurred "all-out war" between the two sides, people like Maria DeMarco marvel that Connecticut has waited this long to embrace change - and to gain extra tax revenue from sales of the brand.
DeMarco, who estimates she drives 30,000 to 45,000 miles a year in her job as a real estate broker, downplayed car dealers' concerns about consumer protection.
"I don't need protection," she said. "Anyone who can afford to buy this car has done their homework."
DeMarco, who touted her Tesla experience before the Transportation Committee earlier this month, finally purchased her new all-electric luxury car in California while on a business trip, paying more than $100,000.
She then had to wait four months for the car, which has a driving range of about 270 miles before requiring a recharge.
"I waited for that car with more anticipation than any of my five children," DeMarco laughed. "It was worth every penny."
l.howard@theday.com
Twitter: @KingstonLeeHow
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