Auto dealers clash with Tesla as state pushes for more electric cars

New London — Bill Sullivan says his M.J. Sullivan Auto Corner sold about two dozen electric and hybrid-electric cars in 2017, his team's "best year yet" in a growing market.

"Gas cars and trucks will never go away, but (electric vehicles) are definitely the future," he said.

Local dealers, manufacturers, regulators and environmentalists alike see a future with more electric and zero-emission vehicles on American roads. While the 200,000 electric vehicles sold in 2017 account for just 1.1 percent of automobile sales nationwide, industry trackers say the market jumped 30 percent compared to 2016.

But as state regulators try to cut greenhouse gas emissions by deploying clean-fuel cars — the transportation sector emits more of those emissions than any other — the country's top seller of electric vehicles claims a 100-year-old franchise system effectively chokes off its ability to sell cars in Connecticut.

California-based electric vehicle manufacturer Tesla Inc. uses a direct-to-consumer business model that puts the company at odds with the state's 270 new-car dealers.

State law bars manufacturers from holding new- or used-car dealer's licenses. The state Department of Motor Vehicles ruled last year that activities at Tesla's gallery in Greenwich, its only such facility in the state, amounted to selling by a manufacturer. Tesla has appealed that decision, saying it has the right to educate customers about its products. The case is ongoing.

For the fourth year in a row, Tesla is urging lawmakers to reconsider the ban. The company says opening the door to direct sales would boost Connecticut's economy with local sales tax revenue, jobs at showrooms and an influx of cars that could help the state reach emission-reduction goals.

Lawmakers on the Transportation Committee started reviewing direct-sales legislation this past week.

"When policymakers are really evaluating the value of this legislation, they should be considering, 'Do consumers want this freedom? Does our state need this revenue? And do our policies indicate we need more electric vehicles?'" Will Nicholas, a Tesla senior manager, said.

But dealers like Sullivan say they're in a fight for survival. They argue direct sales would give Tesla and potentially foreign companies like India-based Tata Motors an edge over local franchises.

Dealers say Tesla typically leases its showrooms, whereas local dealers invest in and pay property taxes on their large facilities, employing an average of 50 employees with a wide range of skills. Tesla says each of its stores employs at least 25 full-time workers.

Jeff Aiosa, owner of Carriage House of New London, said he runs "many businesses within a business," including new and used car sales, finance, service and administrative departments. 

"In Tesla's model, most of that does not exist," he said. "That direct sale is supporting their headquarters in Palo Alto, Calif., not the local community."

Last year, Acadia Center analyzed labor data in three states that allow direct sales — Massachusetts, New York and New Jersey — finding that they "have not seen negative job impacts" for dealerships. Rhode Island has since agreed to allow direct sales, as well.

But Jim Fleming, president of the Connecticut Automotive Retailers Association, said as Tesla grows or other companies take advantage of direct sales and avoid dealership overhead costs, it could present long-term problems for dealers.

"It's very hard for a dealership in Connecticut to compete fairly on that level when certain companies get to export all those jobs," he said.

'A company that wants to invest its own money'

State Sens. Cathy Osten, D-Sprague, and Art Linares, R-Westbrook, and House Minority Leader Themis Klarides, R-Woodbridge, recently expressed support for direct sales.

"How many times have we seen the state offer taxpayer money to lure businesses to Connecticut?" Klarides said in a statement. "This is exactly the opposite — a company that wants to invest its own money, create jobs and send us tax revenue."

Environmental advocates like the Sierra Club and Acadia Center back Tesla, arguing direct sales would provide customers more choices and lead to reduced emissions.

State Rep. Holly Cheeseman, R-East Lyme, has voted against the measure and said on Friday she wasn't likely to change her mind this year.

"Until Tesla proves it's in a position to deliver large quantities of mainstream vehicles, I see no reason to give them a special deal," Cheeseman said.

She added there's "no shortage of electric vehicles" available, but argued battery technology must improve before they're viable on a mass scale in New England's unpredictable weather.

Tesla says it's ramping up production of its Model 3, which starts at $35,000 before incentives, compared to the $70,000-plus S and X models. The company says it recently began deliveries of the Model 3 to Connecticut.

'No one on the other side of the table'

Fleming argued that in warranty and lemon law disputes, dealers, who want to keep local business, often side with customers in fights with manufacturers over service or recalls.

Exempting electric car makers from existing franchise laws "could put very large corporations on one side of the table, and no one on the other side that you have now with a dealer," Fleming argued.

Tesla dismisses that argument, saying it is committed to consumer advocacy and satisfaction.

Nicholas pointed to December's Consumer Reports, in which Tesla topped the list of automakers in overall brand satisfaction.

"It's in our interest to serve and protect our customers to stay in business," Nicholas said. "We have incredible response and completion rates" on recalls.

Aiosa and Fleming also say the notion the state is missing out on sales tax revenue is misleading, arguing the state collects taxes when vehicles are registered at the DMV.

The DMV says while a Tesla purchased out-of-state can generate some sales tax revenue, it's not as much as it would be if the vehicle were bought here.

On Friday, DMV Chief of Staff Bill Seymour said a customer buying a car in New York would pay sales tax there and receive proof of payment that must be shown to the Connecticut DMV at the time of registration.

"If the amount of sales tax paid in New York is less than the sales tax amount charged in Connecticut, we would collect the difference," Seymour said.

Regulators push for market growth

Chris Collibee, Department of Energy and Environmental Protection spokesman, said while the agency "supports growing the electric vehicle market, DEEP has not taken a position on the sale of Teslas in Connecticut."

The Connecticut Hydrogen and Electric Automobile Purchase Rebate (CHEAPR) program offers thousands of dollars in incentives for state residents who buy or lease a new hybrid or electric vehicle with a base price of less than $60,000. It has disbursed almost $5 million in rebates for 2,332 vehicle leases and purchases since 2013, according to DEEP.

Connecticut also signed onto a multi-state commitment to deploy 3.3 million electric vehicles by 2025; Connecticut's portion is about 150,000 vehicles.

"Connecticut has been a leader there," said Emily Lewis O'Brien of Acadia Center. "One concern is ... that the pot of money will run out and we'll lose those rebates at a time when we're just picking up the market. DEEP noted that in their Comprehensive Energy Strategy," which called for continued investments. "But obviously it's challenging with current budget issues."

b.kail@theday.com

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