N.J. Democrat Lawmakers to Tesla Motors: We've Got Your Back Against the Car Dealer Cartel

Tesla Motors (NASDAQ: TSLA  ) lost a critical battle last week against the New Jersey Coalition of Automotive Retailers when Gov. Chris Christie's administration unanimously voted to ban direct auto sales in the Garden State. New Jersey's Motor Vehicle Commission passed a rule on March 11 that will force Tesla to stop selling its Model S cars in the state as soon as April 1. Tesla currently operates two retail stores and one service center in New Jersey, which will likely be closed because of this new rule.

However, the skirmish doesn't end there. Many Democratic lawmakers in New Jersey were outraged by the Christie administration's seemingly sudden decision to pass such a rule. Matt Friedman, a writer for the New Jersey Star-Ledger, quoted state Assemblyman John Wisniewski as saying: "From a policy perspective, we ought to be doing things to encourage the sale of electric vehicles in New Jersey. It would strike me that regulations that would have the effect of having fewer electrical vehicles sold is not a long-term public policy in the interest of my constituents or the people of the State of New Jersey."

Wisniewski isn't the only New Jersey lawmaker who's upset with the Tesla ban. Assemblyman Gary Schaer, who chairs the New Jersey budget committee, said the change of heart by the Christie administration contradicts the "governor's public stances in terms of free enterprise and competition," according to the Star-Ledger. 

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Even state Sen. Raymond Lesniak, who has publicly backed the New Jersey car dealers in the past, now says he plans to amend legislation "to reflect a compromise Tesla reached with the Virginia motor vehicles department," writes Friedman. If you remember, Tesla reached a compromise with the Virginia Department of Motor Vehicles that allowed the company to apply for a license to sell its all-electric cars in Virginia.

The same could still happen in New Jersey, but political maneuvers such as this take time. This is a challenge that Tesla faces in other states as well. Last year, it lost the right to sell cars in Texas. This was a major blow to the EV maker, because Texas is the second largest and second most populous state in the U.S.

With states including Texas, Arizona, and now New Jersey shutting Tesla down, more auto dealer groups could be encouraged to jump on the anti-Tesla bandwagon. It's pretty obvious why Christie's administration and others have chosen to side with powerful car dealer cartels: money.

Shady car salesmen backed by big money
Antiquated state franchise laws prohibit how auto manufacturers such as Tesla can sell their cars. However, what it really comes down to is money. Powerful trade groups spend hundreds of thousands of dollars each year on lobby contracts. The New Jersey Coalition of Automotive Retailers, for example, spent more than $155,000 lobbying last year, according to Bloomberg.

Terrance Dopp reports that people connected with the auto industry gave the Christie campaign contributions at least $64,700 during 2013 electoral campaigns. Of that, about $45,100 collected in the general campaign was matched two-for-one with public funds, for a total of about $135,300, according to Bloomberg. Meanwhile, the dealership cartel in Texas, better known as the Texas Automobile Dealers Association , spent upwards of $2.5 million on legislative elections last year in the Lone Star state.

Unlike these auto dealer cartels, Tesla doesn't have a bottomless stash of political cash. The innovative company is in the early stages of its growth story, and it needs every dollar it has to be reinvested back into the business. What it does have that the dealers do not is a growing support system of key lawmakers and high-profile businessmen in the U.S.

"The car dealers put pressure on the powers-that-be and they tried to kill an industry. That's antithetical to the idea of American free enterprise," Assemblyman Tim Eustace told Bloomberg. As more consumers get behind Tesla's vision for a transparent car-buying experience, it will make it harder for deep-pocketed dealers to get away with this type of back-room politics.

What to watch
Auto manufacturers have sold cars through franchised dealers since Ford introduced the assembly line more than 100 years ago. In the early 20th century, this approach made sense because locally owned dealerships offered a way for auto manufacturers to market and service their cars for consumers in remote areas throughout the country.

However, with the advent of the Internet, information is more widely available to customers. Not to mention, companies such as Tesla are now able to service cars remotely using an Internet connection to run over-the-air updates. Ultimately, dealer franchise laws are outdated. Going forward, investors will want to keep an eye on how Tesla handles similar brawls with dealer groups in Ohio and New York, as it could be years before we start to see real changes in these archaic state laws.

For the time being, Tesla's stock seems to be holding up just fine. Shares climbed more than 4% after the bad news out of New Jersey last week. The stock is currently trading at around $232 a share, which is up 58% so far this year.

Tesla will keep proving the critics wrong
Tesla Motors has achieved what many thought impossible for a start-up automaker. It's this type of drive to challenge even the most powerful auto giants earned Tesla a spot as one of The Motley Fool's top growth stock picks of 2011. Motley Fool co-founder David Gardner has proved the naysayers wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. Now you can get his scientific approach to crushing the market as well as his 6 stock picks for ultimate growth in 2014, in this free report today. Click here now for free access.

Read/Post Comments (6) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2014, at 8:31 PM, AjitC wrote:

    Over time, the auto dealers will be swept into the dustbin of history by technology like record, CD, DVD shops and rentals. Tesla has to come up with affordable BEVs that are in the 25-35k price and 250 real range. They will not need routine maintenance other than tire rotations and that can be done by any tire shop.

    I do not think the auto dealers will be able to stop a horde of consumers that want a compelling, affordable auto directly from a manufacturer like Tesla.

    Just a matter of time.

  • Report this Comment On March 18, 2014, at 8:43 PM, EPS100Momentum wrote:

    TSLA will win in the end that is what matters, and become very profitable.

    In China KNDI and SEV have become profitable as well in the electric vehicle sector based on their latest earning reports which were recently released. Both companies showed large revenue growth to account for their turnaround to profits and investors are starting to notice.

    Looks like the people of China are finally sick of the smog literally.

  • Report this Comment On March 19, 2014, at 12:00 AM, deeageaux wrote:

    Tesla Stores will become Galleries.

    NJ Tesla customers will wire payment to Tesla in CA.

    Tesla will send cars to service center where call will be serviced.

    NJ customer then picks up car and goes to DMV to register and pay sales tax.

    Kind of a pain but Tesla is not going anywhere.

    95%+ of the people/voters back Tesla.

    In time Tesla will win.

  • Report this Comment On March 19, 2014, at 1:16 AM, singaporenick wrote:

    It's a joke-America claims to be the land of free enterprise and market capitalism,when in fact is is more the land of cartels and political cronyism.

  • Report this Comment On March 19, 2014, at 8:38 AM, drax7 wrote:

    Crony capitalism, and then we go and lecture others how to run their countries. We spent trillions in Iraq and Afghanistan while our infrastructure is falling to pieces.

    Tesla will overcome that grotesque Christie .

  • Report this Comment On March 22, 2014, at 8:35 AM, EFRROS wrote:

    No wonder America is falling behind everywhere in the world and in such debt! The politicians don't practice what they preach, all phonies from both parties just like the Russians and Chinese government socialist n communist! Money n power is all they want! What's good for the common working class man is of no significance only cronyism for the rich and wealthy! Tesla in the end will completely succeed because it has the backing of the people!

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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