Crony Capitalism

Tesla Takes Another Round From Crony Capitalists in New York

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Photo credit: jurvetson / Foter.com / CC BY

Tesla Motors won another battle against auto dealers in New York late Friday night. State legislators failed to act on two bills that would have prohibited the state from registering any vehicle not bought through a dealer and forced Tesla to close its stores in the state. The bills are dead until the assembly reconvenes in January.  

The electric carmaker prefers to sell its vehicles directly to the public rather than through auto dealers—much to the chagrin of the dealers, who also went to the courts to try and derail Tesla. But, in April, a state trial court found that the New York dealers had failed to prove injury from Tesla's direct-to-consumer sales.

From Auto News:

The New York bills would make it illegal for vehicle manufacturers or related entities to operate a dealership. Licenses for any existing dealership under manufacturer control would be ineligible for renewal unless the original license was issued prior to July 1, 2006.

Tesla has three stores and two service centers in the state of New York, all of which opened after 2006. All would have to close if the bills passed, a Tesla spokeswoman said.

Mark Schienberg, president of the Greater New York Automobile Dealers Association, told Automotive News late Friday that the state's dealer groups offered Tesla a compromise in recent days: They would extend the grandfathering date in the legislation to allow continued operation for Tesla's existing stores. Tesla turned down the offer, Schienberg said.

But despite the earlier grandfathering date, "we're not putting them out of business," Schienberg said.

Even if the bill passes, Tesla could still operate freely in New York by setting up a franchised dealer network like other vehicle manufacturers, he said.

But Musk has "just chosen that he'd rather not follow any of the rules and regulations and standards that each state has, and that's why there's a pushback right now," Schienberg said.

Diarmuid O'Connell, Tesla's vice president of business development, told Automotive News later Friday that the dealers' offer to extend the grandfathering date never made it to him—the point man for Tesla on this issue. But even if it had, O'Connell said he would have said no.

Of course, the claim that the dealers just want Tesla to follow the rules is a little much; the dealers wrote the rules. Dealers are powerful forces in statehouses across the country because states get up 20 percent of their sales tax revenue from dealers. And dealers employ as much as eight percent of the retail workforce in some states.

So kudos to Tesla for taking them on.

If you missed Steve Chapman's Reason piece on Tesla last week, it's certainly worth a read.