Tesla Motors Calls New Jersey Out on New Rule Against Its Direct Sales Model
March 11, 2014 12:01 PM
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Tesla said Governor Christie’s administration has "gone back on its word"
Tesla Motors has been trying to push its direct sales model into various U.S. states, and while it saw a bit of success with New Jersey, a new state rule could destroy Tesla's plans.
, New Jersey Gov. Chris Christie’s administration recently proposed a new rule that requires that a person have a franchise agreement with an auto manufacturer in order to be granted a license to sell.
This is a problem for Tesla, considering it already operates two stores in New Jersey and had plans to open more. It's possible that Tesla could have to stop selling its all-electric Model S and any future vehicles in these stores and instead use them as showrooms where customers can look, but not buy.
"Unfortunately, Monday we received news that Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature," said Tesla in a statement. "The Administration has decided to go outside the legislative process by expediting a rule proposal that would completely change the law in New Jersey. This new rule, if adopted, would curtail Tesla’s sales operations and jeopardize our existing retail licenses in the state.
"Having previously issued two dealer licenses to Tesla, this regulation would be a complete reversal to the long standing position of NJMVC on Tesla’s stores. Indeed, the Administration and the NJMVC are thwarting the Legislature and going beyond their authority to implement the state’s laws at the behest of a special interest group looking to protect its monopoly at the expense of New Jersey consumers. This is an affront to the very concept of a free market."
Tesla CEO Elon Musk and President Barack Obama
Tesla has been in a battle with many states regarding its direct sales model. The issue is that auto dealerships feel Tesla's new sales model threatens their network, which many other automakers rely on. If other automakers were to follow Tesla's example, it would put the dealerships in a bad spot. The National Automobile Dealers Association (NADA) said that dealerships are necessary to ensure competitive prices for customers, and that it will continue to defend franchise and consumer laws in the states.
Tesla CEO Elon Musk, on the other hand, believes that
don't do a very good job at selling specialty cars like Tesla's high-end electric vehicles (Roadster, Model S). Hence, he's looking to run his own Tesla stores around the U.S. where he believes his cars will get a fair shot at being sold.
However, the problem for Tesla is that auto dealerships have
much deeper pockets
-- meaning that they have a lot more to spend on lobbying, and lawmakers will surely side with them when money is involved.
In fact, auto dealers spent $86.8 million on state election races across the U.S. between 2003 and 2012. They also spent $53.7 million on federal campaigns. Tesla, on the other hand, has spent less than $500,000 on both state and federal politics.
Tesla has gone head-to-head with many other states that are protecting auto dealerships, such as Massachusetts, Ohio and New York.
Just last month, it was reported that Ohio Sen. Tom Patton (R-Strongsville)
backed a new bill called Senate Bill 260
, which aims to prevent Tesla and any other automaker from "applying for a license to sell or lease new or used motor vehicles at retail." Tesla opened its own stores in both Cincinnati and Columbus, as Ohio's current laws allow the automaker to do so. However, Senate Bill 260 would certainly put a stop to it, unless existing stores opened before the bill are deemed safe.
What's interesting is that Patton received at least $42,825 between 2002 and 2013 from state and national auto dealership owners, employees, and political action committees.
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RE: Show me the money!
3/12/2014 5:13:37 PM
The problem I see with that system is that retained earnings get by scot-free without taxation. This could hinder dividend issuance, but I guarantee it will lead to widespread abuse of corporations by people simply trying to avoid taxation of their income.
What would be done to address that?
RE: Show me the money!
3/12/2014 5:40:46 PM
Retained earnings have to be spent at some point to be useful, so I don't see it as a problem. Either it'll pay for new equipment and services, or it'll go into wage increases and new staff, or the company will decide to distribute it to stockholders and it'll become income for them. All that's happened is it gets time-shifted. i.e. if you changed your accounting scale from FY2013 to 2013-2023, it's like it wasn't ever retained - it was all spent in the same time period that you made the revenue (though now you have different revenue which is retained). So in that respect, retained earnings are just an artifact of us deciding an account period for tax purposes should be one year, and the fact that business payments lag revenue receipts.
The main problem I see (and one which I still haven't figured out a clear or easy solution to) is people having the company pay their personal expenses. If you own a company which pays no taxes, and you get the company to lease a personal vehicle for you, pay for your food as a meals expense, and pay for your gas, airline tickets, and hotel in Cancun as a business travel expense, then you're essentially getting those things as "income" without having paid income tax on them. This already goes on, and there are already laws in the books to prevent or discourage it. But it's tough to enforce without having significant insight into the internal operations of the company.
"When an individual makes a copy of a song for himself, I suppose we can say he stole a song." -- Sony BMG attorney Jennifer Pariser
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