Legislators in the Connecticut General Assembly are working on a bill that would allow electric-car manufacturers to sell directly to consumers, bypassing state laws that require all in-state automobile sales to be conducted through a local dealership.
The bill, S.B.-3, was introduced on Feb. 3 and would enable Connecticut residents to purchase cars directly from electric-car companies like Tesla rather than from franchised dealerships, which currently act as intermediaries between automobile manufacturers and consumers. The bill received a favorable report from the transportation committee on March 15, followed by another favorable report from the committee on finance, revenue and bonding on April 18. The initiative has come under fire from local dealership owners and nonelectric automobile manufactures, who contend that dealerships provide important services to consumers that manufacturers cannot. State legislators, including joint Transportation Committee Co-Chair Sen. Carlo Leone, D-Stamford and Darien, have emphasized the importance of crafting a bill that manufacturers and dealerships can agree upon.
“Obviously there is a lot of opposition from other manufactures as well as automobile dealers,” Leone said. “What we’ve been trying to do is keep all parties negotiating to come up with compromise language to get concurrence on the bill.”
Tesla, a major supporter of the bill, has endorsed direct-sale initiatives in several states — including Virginia and New Jersey — where manufacturers are currently prohibited by law from selling directly to consumers. The company argues that because electric cars constitute a relatively small proportion of the United States auto market, dealers who struggle to sell them are incentivized to prioritize gasoline cars. Tesla’s proposed solution is direct sale, whereby consumers can purchase cars directly from the manufacturer and have them shipped to a nearby Tesla-owned and operated service center.
Tesla also argues that the franchise-dealership system prevents competition in the automobile market by requiring new manufacturers to invest in costly local dealerships to enter the market. In a March 2016 letter endorsing the bill, Tesla Vice President of Regulatory Affairs James Chen said adopting the bill would promote a competitive business environment that benefits Connecticut consumers.
“There is no legitimate reason to exclude manufacturer-owned and operated stores except to protect the monopolistic business interest of existing dealers from legitimate inter-brand competition,” Chen said.
Local dealership owners, including Karl Chevrolet owner Leo Karl, argue that dealerships provide important services to local communities that Tesla cannot offer through a direct-sale model. For instance, Karl said, local dealerships can provide maintenance on the cars they sell. Tesla’s manufacturer-owned service centers are often not local, he said, which dealership owners argue can present a hassle for car owners.
Karl said Tesla’s direct-sales model would inconvenience new Tesla owners.
“Tesla has been able to get by to date with a service where they’ll pick up a car and flatbed it to a service place in New Jersey, then repair it and bring it back,” Karl said. “As volume increases, they can’t continue to do that. From a consumer standpoint, who knows how that plays out.”
He also stressed other important functions of local dealerships, such as the ability to administer the manufacturer’s warranty and provide parts for discontinued models.
Karl criticized Tesla’s arguments that local dealers are less able to sell electric cars effectively and that Tesla does not have enough of a presence in the market to sell cars through local dealers. He said if passed, the bill would also create a special loophole to a law that gas-powered automobile manufacturers must still follow.
“They’ve lobbied that they can’t sell cars [through dealers] because they aren’t big enough,” Karl said. “Well, there are a lot of other manufacturers who sell far less vehicles than Tesla does today, and they are able to do it.”
As of April 2015, 25 states do not allow direct sale of automobiles from manufacturers to consumers.