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N.J. weighs direct EV sales; states covet gigafactory

Politics is clouding the future of Tesla's showroom in Paramus, N.J.

The Tesla vs. dealers clash was already intense. Now the fight has escalated, with the addition of presidential politics and bidding for a battery factory.

And in a move that could have far-reaching implications, a New Jersey legislator has introduced a bill that would let any manufacturer of electric vehicles sell them directly to the public, bypassing franchised dealers. If passed, it could open the door to some direct sales by General Motors, Ford, Toyota, Nissan, BMW and others.

The dispute has AutoNation Inc. CEO Mike Jackson warning that the line-in-the-sand defense put up by some dealers in some states could end up hurting the franchise system for all dealers.

Jackson, head of the country's largest dealership group, points to Texas and Arizona, which have the nation's strictest laws against factory-owned stores and where Tesla's previous attempts to carve out exemptions from franchise laws failed. Now politicians there are openly courting Tesla. What changed? Tesla said those two states, along with Nevada and New Mexico, are finalists for its $5 billion so-called gigafactory project.

"You want to talk about unintended consequences," says Jackson, who favors letting Tesla CEO Elon Musk pick his own distribution method. "You pick a fight with Tesla. Now they build a big battery factory. What are you going to do?"

Dealers fighting Tesla's direct-sales model say the EV maker in some cases is breaking long-standing state laws that promote price competition and protect consumers, particularly in areas of warranty coverage and safety recalls.

Tesla counters that it obtained its licenses legitimately and that dealers are unfairly blocking a sales model that doesn't hurt them. Tesla declined to comment for this report, but Musk has threatened legal action in New Jersey.

The battle heated up after Tesla's March 11 accusation that New Jersey Gov. Chris Christie's administration had gone back on its word to delay new regulations blocking the company's direct-sales model. Adoption of the regulations sparked a flurry of national media coverage and prompted remarks by national politicians with presidential aspirations. (See Beltway column, Page 3.)

With Tesla's New Jersey stores scheduled to lose their license after April 15, new bills are being pushed to give manufacturers the right to sell directly in that state. Legislation proposed last week by Assemblyman Tim Eustace would amend New Jersey law to let manufacturers sell EVs directly.

When asked whether that would include traditional manufacturers with EV lines, a Eustace representative replied in an e-mail, "It applies to anyone who sells electric cars."

The New Jersey Coalition of Automotive Retailers opposes the new legislation. President Jim Appleton called the proposal "very concerning" and potentially damaging to the franchise system. It could be used by manufacturers to divert EV allocation from their existing dealer networks and could take as much as 15 percent of new-car sales out of the hands of franchised dealers in New Jersey by 2025, he said. That's when 15 percent of new cars sold in New Jersey will be required to produce zero emissions.

But New Jersey dealers hope it won't come to that. Appleton said he doesn't think there is support in the Legislature for so drastic a change. "The legislators I talk to are looking for a solution to the Tesla problem but not one that does violence to the franchise laws of the state," he said.

Since 2012 the battle has followed that pattern: The status quo wins. Whenever one side tried to modify the law in its favor, that side lost. That proved the case last year in Texas, Minnesota, New York, North Carolina and Ohio.

Early this year, that pattern continued. Legislation favoring Tesla failed to gain traction in Georgia. After hitting roadblocks on a pro-Tesla bill in Arizona, a legislator there said dealers and Tesla would have to work out the conflict themselves.

But with the announcement of the battery factory and the confrontation in New Jersey, there are signs the tide is turning.

In Arizona, new legislation has moved through a state Senate committee. Texas Gov. Rick Perry said last week that the Texas law should be reviewed.

"Tesla's a big project," Perry told Fox Business News. "The cachet of being able to say we put that manufacturing facility in your state is hard to pass up."

The Texas Legislature has no general session this year. A Perry spokeswoman says Perry has no plans to call for a special session on the Tesla matter.

In Washington state, dealers struck a compromise with Tesla in February in order to get other changes to the state's franchise law passed. The deal gives Tesla an exemption that lets it continue to operate in the state and even expand. That legislation awaits the governor's signature. Similar compromises favoring Tesla also were reached in Ohio and New York, though they have yet to be adopted fully.

The debates in Ohio and Washington brought another new wrinkle: letters from GM supporting the dealers' position. In a letter to Ohio Gov. John Kasich, a GM executive described the proposed exemption for Tesla as "troubling."

"It would essentially allow Tesla to compete under a completely different set of rules," wrote Selim Bingol, GM senior vice president of global communications and public policy. "Simply put, General Motors strongly believes there exists no justification for an individual auto manufacturer to receive such unique, favorable protection under Ohio law."

In Arizona, a lobbyist from the Alliance of Automobile Manufacturers gave the same message to the state Senate committee considering a Tesla exemption. And in Georgia, where a pro-Tesla bill failed to move before the legislative session ended March 20, GM defended the franchise system in conversations with legislators, said Bill Morie, president of the Georgia Automobile Dealers Association.

But if Tesla gains exemptions in some states, Morie doesn't doubt that traditional manufacturers will want the same treatment.

"We're all concerned," he said. "If one manufacturer is allowed to sell direct, that opens up the door for other manufacturers to sell direct."

Across the country, dealers are stressing to legislators that they don't want to put Tesla out of business. But the factory-direct model is like putting the fox in charge of the chicken coop and leaves consumers vulnerable, said New Jersey's Appleton. Even so, if Tesla insists it's not ready to have franchised dealers now, dealers in his state are open to talking about requiring the company to use franchised dealers later, when it hits a negotiated timing or volume trigger, he said.

Among several bills being proposed in New Jersey, one would force Tesla's hand on using franchised dealers. That bill, which would apply only to companies that exclusively make EVs, would require all sales to go through franchised dealers once sales of zero-emission vehicles top 4 percent of the state's total new-vehicle sales.

What happens next? "Really it's a question of: Is Tesla prepared to accept an accommodation that is offered, or are they going to hold out for something more extreme?" Appleton said. "If they hold out for something more extreme, there is likely to be a long, drawn-out political battle."

You can reach Amy Wilson at -- Follow Amy on Twitter: @theamywilson

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