January 28, 2019

Tesla owners charged up for car sales legislation

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Andy Lyman

Update: added statement from Tesla

New Mexico has a rich car club culture, ranging from lowrider and vintage cars to modern models too fast and too furious for many people. But on a cool Sunday in Santa Fe, about 30 minutes from the state capitol, another group of car enthusiasts gathered to discuss their automotive passion: Teslas. The Tesla Owners Club of New Mexico met in the parking lot of a rustic New Mexican restaurant, just a few days before a legislative committee was expected to vote on whether to allow the automotive upstart a chance to set up shop in New Mexico. The group of about two dozen sleek cars were a far, yet quiet, cry from the loud engines, custom, aftermarket paint jobs and flashy chrome one might expect from a traditional New Mexico car club.

Another difference  that unites New Mexico Tesla owners is that none of these cars were purchased or can be serviced at a traditional auto dealer in the state. Tesla’s business model of selling cars directly to consumers, without a franchised dealer to broker the sale, flies in the face of traditional dealers while simultaneously serving as a plus for Tesla fans. A potential Tesla owner can purchase one of the handful of models, starting at about $40,000, online with a series of mouse clicks. But major repairs and maintenance require a trip out of state.

Now, New Mexico lawmakers must decide whether they will carve out an exemption in state law to allow Tesla to open showrooms and service centers in New Mexico. The proposal has lawmakers divided, but not necessarily along political party lines. And supporters of the effort are not fully confident that this is the year Tesla will be able to launch its first New Mexico store.   

Tesla non grata

Brian Dear is the president and founder of the Tesla Owners Club of New Mexico. Currently, Dear and the other hundreds of Tesla owners in New Mexico can arrange for a mobile Tesla technician to come fix their cars, but for extensive repairs or services they have to leave the state.

“If you have to have major service on your car, or take your car in for annual service, you have to make a hotel reservation and travel to Denver or Phoenix,” Dear said.

Dear blames the state law barring manufacturer-owned stores on auto dealers associations, comparing them to a territorial “cartel.”

Local auto dealer associations did not respond to NM Political Report’s request for comment, but the battle between legacy auto dealers and Tesla is not new. In fact, many states have considered changing their laws to allow Tesla automotive stores or service centers. Some have been successful and some have not. After a long battle with the electric car company, Utah lawmakers came to an agreement last year to allow Tesla to set up shop there.  

A spokesperson for Tesla told NM Political Report the companies direct-to-consumer business model is designed to make the sale process easier for buyers.

“At Tesla stores, we can spend hours educating customers in a no-pressure environment. There’s no negotiating prices at Tesla stores, nor does Tesla profit off of service or sales add-ons. This ultimately delivers a better customer experience. Because franchise dealers receive most of their revenue from servicing the vehicles they sell and electric vehicles require less maintenance than traditional vehicles do, dealers are not incentivized to sell electric vehicles,” the Tesla spokesperson said.

Across the country, groups like the National Automobile Dealer Association have lobbied against many measures to allow Tesla a direct crack at the auto market, often arguing that Tesla wants to bypass consumer protection regulations.

Dear likened the situation to a Martin Scorsese movie.

“To me, it’s the kind of thing you’d hear from a gang. It’s like, ‘Look, we run things around here, this is our territory and if you want in you gotta play by our rules,’” Dear said. “It’s very thuggish.”

Dealer clout

Auto dealers in New Mexico are owned by franchisors, not manufacturers. While buyers can start their purchase online, the final deal ultimately goes through a local car dealer.  

Dealer franchise laws exist across the country and according to the National Automobile Dealers Association, such regulations protect car buyers from unfair sales tactics and provide healthy competition between local dealers. The organization also argues that franchised dealerships add to local economies by offering jobs and paying state and local taxes. Beyond car sales, dealers also offer in-house financing, warranties and maintenance services. And those extra services, one lawmaker says, is how local auto dealers make most of their money.

Democratic state Sen. Gerald Ortiz y Pino of Albuquerque introduced Senate Bill 243, which would  change New Mexico’s automobile franchise law to allow Tesla to open physical stores and service centers in the state. Ortiz y Pino said auto dealers claim  that changing the law would allow car manufacturers to fix prices and eliminate competition. But, Ortiz y Pino said, he thinks local dealers are likely more concerned with losing repair and service business.

“The model that every other auto manufacturer follows is that you don’t necessarily make your money on the sale, you make your money on the service and maintenance and upkeep of the car,” Ortiz y Pino said.

Tesla often touts that its cars need much less maintenance than gasoline-powered cars.  

Even though Ortiz y Pino wants his bill to gain traction and ultimately get an approval signature from Gov. Michelle Lujan Grisham, he remains cautiously optimistic at best. He said local car dealers have clout that goes beyond money.

“Every New Mexico auto dealer, particularly in the rural communities, every one of them is a rotary club member, Kiwanis Club president, Little League sponsor. These are the backbones of our small communities around the state,” Ortiz y Pino said.

That community support from car dealers, leads to support from lawmakers, which leads to a “pretty slim” chance his bill will make it to the governor’s desk unless Lujan Grisham herself advocates for it, Ortiz y Pino said.

A vocal opponent of Ortiz y Pino’s bill comes from within his own party. Sen. Jacob Candelaria, also a Democrat from Albuquerque, has a list of reasons why he will not support the bill. His number one concern is fairness for local auto dealers, calling Ortiz y Pino’s bill a “sucker punch” to local auto dealers who have long “played by the rules” that protect from unfair pricing.

“Because one large corporation says that [New Mexico’s] law doesn’t fit their business model, we’re going to create a sweetheart exception for them,” Candelaria said, adding that the bill sends a very particular message to local car dealers. “But go ahead and keep employing New Mexicans while we continue taking care of this company over here.”

Noting the high cost of of Teslas, Candelaria said constituents in his district, which covers a swath of Albuquerque’s westside, have not expressed concern about where they can get a Tesla serviced.

“Any person who buys a Lamborghini or Bugatti or a Bentley in New Mexico, when they purchase that car they know they can’t get it serviced in New Mexico so they’re going to have to go somewhere else,” Candelaria said.

But freshman Rep. Abbas Akhil, D-Albuquerque, who is sponsoring a House version of the bill, said allowing Tesla to sell directly to New Mexicans in a brick and mortar store is a small, but important step in accomplishing Lujan Grisham’s goal to reach an 80 percent renewable portfolio standard by 2040.

“Here is a car, of course it’s high end and most people object to the fact that it’s too expensive for the common man. But that’s nothing new with new technologies,” Akhil said. “I’m sure when the first computers came out it was all the nerds buying computers.”

But Akhil also acknowledged that it will be tough to win over the local auto dealers.

“I’m a newbie, I hate to make a forecast, but I think it’s not very good,” he said.