Transportation Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-3

Title:

AN ACT CONCERNING THE LICENSING OF NEW AND USED CAR DEALERS.

Vote Date:

3/15/2016

Vote Action:

Joint Favorable

PH Date:

3/2/2016

File No.:

253

SPONSORS OF BILL:

Transportation Committee

REASONS FOR BILL:

To allow a licensed motor vehicle manufacturer to sell its vehicles directly to Connecticut consumers The bill does this by authorizing the DMV commissioner to issue a new or used car dealer's license to a licensed motor vehicle manufacturer that meet certain criteria. To qualify for a car dealer's license, a licensed manufacturer: 1) cannot have a franchise agreement with a new car dealer in the state; 2) must manufacture only electric vehicles, and sell at retail only vehicles it makes; 3) cannot hold a controlling interest in another manufacturer, or a subsidiary, affiliate, or entity owned or controlled by another manufacturer, that is licensed as a dealer under the bill; and 4) cannot be owned or controlled by another manufacturer, or a subsidiary, affiliate or entity owned or controlled by another manufacturer, that is licensed as a dealer under the bill.

The bill exempts such a manufacturer from motor vehicle franchise laws. It also expands the statutory definitions of new and used car dealers to include such a manufacturer and generally subjects the manufacturer to the rules governing dealers. It allows such a manufacturer, if it is licensed as a (1) new car dealer, to also repair vehicles and sell used vehicles, or 2) used car dealer, to also repair vehicles.

EFFECTIVE DATE: October 1, 2016

RESPONSE FROM ADMINISTRATION/AGENCY:

NONE

NATURE AND SOURCES OF SUPPORT:

James Chen, Vice President of Regulatory Affairs and General Counsel for Tesla an American Car Manufacturing Company based out of Silicon Valley, California - State-by-state automotive franchise laws were enacted decades ago to prevent a manufacturer from unfairly opening stores in direct competition with affiliated franchised dealers who had already invested time, money and effort to promote their business. Understandably, Connecticut's franchise laws were enacted without contemplating a new manufacturer such as Tesla, and the current statutes may be interpreted to prohibit manufacturer direct sales, whether a manufacturer establishes independent franchised dealers or not.

These laws are being exploited by franchised dealers to prevent car companies with non-traditional sales models, such as Tesla, from entering the market. Tesla has not, nor has it ever had, any franchise dealers anywhere. Instead, Tesla has always sold its vehicles directly to consumers. Due to the constraints of the Connecticut franchise laws, Connecticut consumers must travel to Massachusetts or New York to learn more about Tesla EVs and the purchase process.

Moreover, Tesla continues to invest in Connecticut. The company purchases nearly $3M per year in parts and components from Connecticut-based businesses. They currently have 12 employees and five open positions in the state and have opened a service center in Milford, which recently received updates and charging upgrades. Still further, they have installed four Supercharger stations throughout the state in Darien, Milford, West Hartford, and Greenwich, which allow up to 200 miles of range replenishment in as little as 30 minutes.

Tesla's plan is to capitalize the costs of their new powertrain technology in higher end products with a goal of aggressively driving down costs as they iterate further the technology in subsequent product offerings. Starting with the Tesla Roadster in 2008, at a price of $109,000, they have moved quickly to other offerings and scheduled for start of production in 2017, the third generation electric vehicle will enter the market at a starting price of $35,000. Once achieved, this aggressive technology innovation and release will represent a feat in engineering and price reduction that no other automobile manufacturer has ever matched.

SB3, amending the language of the motor vehicle franchise law to effectively open up direct sales in the state of Connecticut for manufacturers who do not already have franchise agreements with independent dealers, will not harm Connecticut consumers. Tesla's sales model still provides them with all the same warranty, liability, and consumer protections provided by law. 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. Consumers have responded positively to their cutting edge, environmentally friendly technology, as well as their direct sales model. This change will signal Connecticut welcomes new business and a competitive business environment that benefits the consumer.

Chris Shumway, Shumway Capital, Greenwich, CT - Tesla has demonstrated a commitment to quality and innovation and its movement into the State offers the opportunity for residents to realize the importance of these qualities in growing and building businesses in Connecticut. With each additional showroom opening, the direct economic impact of $8-10 M, an incremental $1.7M forecasted sales tax revenue and jobs for as many as 25 individuals is welcome news to all. Tesla's commitment to green energy is welcome and should be embraced in policy and practice in Connecticut.

Robin Gazza, Windham - Owner of Tesla for 3 years, has put 68,000 miles on the car and not spent a penny for fuel, or contributed to the pollution problem. Feels it is important that anyone who is trying to make the environment better be supported. The technology does work, and works well.

Randy Shuken, Westport - Connecticut sorely needs to embrace the future rather than clinging to protectionist and backward-looking interests (dealership lobby). Tesla owners have the best-rated car ever tested by Consumer Reports. They are the most satisfied with their cars as owners and the service is so far above any dealer it is incomparable. When they begin selling the new $35,000 vehicle with the federal incentive, this will be the best and greenest car ever for every resident of the state. It will help push the other car manufacturers to compete. Support the future, support our state being competitive, support he planet.

Bruce R. Becker –Owner and President of Becker and Becker Associates an integrated architecture and development firm based in Fairfield - (Member of the Westport Electric Car Club) - Bought 14 new cars in Connecticut over three decades for myself and my family from some great dealerships. Most recent new car is a Tesla and it is the most practical and environmentally responsible of them all. Tesla makes an undeniably better product – it's cheaper to operate, more fun to drive and has objectively better performance and higher safety ratings.

He understands the concern of local car dealers in protecting their revenues, but genuinely feel it will be more productive for them to put this energy into learning how to sell the amazing new hybrid and electric cars that are coming to market, rather than trying to temporarily block their competition. The opposition to Tesla's entry into Connecticut is equivalent to electronics retailers trying to block Apple from opening Apple Stores in Connecticut. It is a short-sighted effort which will reduce new job creation, limit competition and force Connecticut residents to do business out of state.

Chris Phelps, State Director, Environment Connecticut - For over a decade, Connecticut has been a leader of efforts to spur the innovation that has helped get increasing numbers of zero-emission vehicles, such as electric vehicles onto our roads. Connecticut's Global Warming Solutions Act requires a 90 percent reduction in carbon emissions statewide over the course of the next three decades. The transportation sector is responsible for a large amount of our carbon emissions. Therefore, a vital policy priority in our state's efforts to cut the pollution that is driving global warming is to continue reducing emissions from vehicles.

SB3 can play an important role in continuing the progress Connecticut has made towards transforming the market and moving towards zero-emissions vehicles. It is a well-crafted measure, balancing competing interests, while protecting consumers, encouraging innovation and job growth, and will help get more zero-emission electric vehicles on the road statewide.

NATURE AND SOURCES OF OPPOSITION:

Leo Karl, Owner of Karl Chevrolet Group – This bill will weaken the Connecticut Franchise Act. SB 3 opens a loop hole for manufacturers who solely produce zero emission electric vehicles. An exemption for one Original Equipment Manufacturer (OEM) will lead us down a slippery slope and expose Connecticut dealers to further end runs by OEMs.

If passed, this bill would unfairly hurt locally owned dealerships. Without a law change, Tesla has the ability today to work within the current franchise system that local dealers have invested in, which creates price competition, maintains good paying local jobs in Connecticut, and advocates for consumers when there is a recall or defect. Allowing any manufacturer to skirt existing state laws would clearly create an uneven playing field.

Dealers have invested millions in a franchise system. This system protects the consumer if something goes wrong with the car, fosters local competition among dealers, and creates a balanced system between national manufacturers and local dealerships.

Supporting local dealers means local good paying jobs stay here, not on-line, and not in California. There is a misconception that Connecticut Dealerships are not happy to sell Electric Vehicles (EVs). This is untrue. We have EVS and the trained mechanics to work on these cars.

This is a bill that will damage a sector of Connecticut businesses for no reason. Tesla is able to sell in Connecticut now and should o so under the current laws that protect the consumers. This is a bill that will do a great deal of damage.

Paul Garavel, Dealer Principal of Garavel Jeep Chrysler Dodge and Subaru In Norwalk – Supporters of the premium electric vehicle auto manufacturer, Tesla is asking you to change the rules and create a carve-out so Tesla may sell its cars directly to potential customers. While this may suit Tesla's business strategy, it violates Connecticut's dealer franchise laws – which I and all other car dealers in the state follow – that prohibit automakers from selling vehicles directly to consumers. Allowing any manufacturer to skirt our existing state laws would clearly create a partial, uneven playing field.

While Tesla likes to say that this law would allow them to operate in the state, they are just not factually correct. Tesla could open a franchised dealership with an independent operator in Connecticut today, but instead they insist that the state must first provide them with unique rules and special exceptions to suit their own business interests.

Connecticut auto dealer franchise laws are in place to benefit consumers and our local communities. Franchised auto dealers must compete with each other to sell the same brands in the same marketplace, which creates strong price competition that benefits Connecticut consumers.

Competition is good. It should make companies stronger and it should make products better. And ultimately it's the consumer who benefits from companies competing for their business. The competition should take place within a fair marketplace, and a fair marketplace exists only when the same set of rules are applied to everyone. Granting Tesla a corporate loophole would be turning our back on long-standing consumer protections and local businesses that have operated under these laws for decades.

Quincy Smith, Customer Sales Representative at A1-Toyota of New Haven – A-1 Toyota sold or leased the highest number of electric vehicles (WEVs) – including plug-in hybrids – from February 1 through July 31, 2014 and was the recipient of the Connecticut Revolutionary Dealer Award. It is insulting that Tesla states that my co-workers, here and at other dealerships, cannot or will not sell EVs. We continue to sell EVs and perform repairs and general maintenance on all the vehicles we sell.

Tesla has the option of franchising, however they chose not to. Therefore, extra mechanics will not be hired. Customers lose as well, since they have no idea who is working on their car. There is no need to make a different law when the ones here in Connecticut are working fine.

Tamara Jackson, President Dealer Principal of Jackson Chevrolet in Middletown - One of the arguments heard from Tesla and their supporters is that Connecticut car dealers do not want to sell Electric Vehicles (EVs). This is entirely untrue. All Connecticut auto dealers are fully committed to selling EVs. Dealerships helped to design the CHEAPR program and continue to promote it at a number of different events around the state. With Connecticut's new EV rebate program that began last May, CHEAPR, Connecticut dealerships sold more EVs in 2015 than we have ever before

Tesla's need for an exception to the franchise law because they sell electric vehicles doesn't compute to me because we are already selling electric vehicles through the franchise system under numerous manufacturer's brand in Connecticut today. Tesla could do the same as quickly as it would take to sign a dealer agreement. If Tesla were to enter into franchise agreements as other manufacturers do, jobs would still be created. Technicians that work at our dealerships are trained to work on different cars that are sold. This includes the EVs we sell. Our technicians know how to replace parts, fix pieces, work on computers and have the car working again. They also know how to work with the manufacturers on any recalls and warranty issues. The system Tesla wants to set up will not do this. Consumers will be hurt.

Many dealers across the state also offer charging stations to customers and visitors; charging stations that are for all different kinds of EVs use. With all the charging stations around the state, Connecticut's range anxiety is very low.

Utilization of the franchise system is inevitable because it works for consumers and makes sense for manufacturers. Let's work together to bring Tesla into Connecticut under current law.

Landon Fulmer, Vice President, State Affairs- Alliance of Automobile Manufacturers – SB 3 would unfairly create two different sets of rules within state law for competitors in the same marketplace.

As automakers, we work with our franchised dealers to operate as successfully as possible within our industry's existing distribution model. In Connecticut, automakers and dealers operate under a complex scheme of state franchise laws that regulate nearly every facet of our relationship. Unfortunately, some of these laws are outdated, anti-competitive, and anti-consumer. Yet, in a marketplace where competition between brands is fierce, all participants at least operate under the same set of rules. SB3 would change that.

This bill is bigger than Tesla Motors. It opens the door to allow any other new electric vehicle manufacturer that follows to use the direct-sale model. If passed, it would cleave the vehicle marketplace in two – new market entrants unbound by the franchise system and existing manufacturers that will still be required by state law to use the current system.

Our members do not shrink from added competition. Our members have developed modern vehicles that are safer, cleaner, and more advanced than ever and they welcome new competitors to try and keep up. Our members simply believe that state laws that govern the sale of vehicles should provide a fair and level playing field for all, and not grant special privileges to a select few.

Peter Thierry, Shop Foreman at Crowley Chrysler in Bristol – Along with other mechanics at Crowley, trained by the manufacturer to work on the cars that are sold, including electric vehicles. The dealership has a strong incentive to complete the repair work and keep local customers happy. Tesla as a manufacturer would not have the same incentive.

If Tesla opens up a store in Connecticut, they will outsource their repairs, recalls and all warranty work. Repairs will not be done in the store where the vehicle was purchased. There will be a conflict of interest with recall work on a Tesla. There is no third party making sure customers are having the work done that is necessary for their car. Crowley protects the interest of our customers by getting them the parts they need or making loaners available to them while manufacturers figure out the fix for the vehicles.

This bill will not allow for additional jobs in our current franchise system. If Tesla chose to work within the franchise system in Connecticut, additional jobs would be added. Additional mechanics would be hired and those that are at the dealership would be trained to work on that car. This is a bill that will damage a sector of Connecticut businesses for no reason. Tesla is able to sell in Connecticut now and should do so under the current laws that protect the customers.

Reported by: Mary Anderson

Date: March 24, 2016