Tesla, dealership tussle joins statewide debate over competition limits | Crain's Connecticut

Tesla, dealership tussle joins statewide debate over competition limits

  • Tesla Motors

    Tesla Motors | Photo via Creative Commons

  • Electric vehicle charging station, Precision Motors, Mystic.

    Electric vehicle charging station. | Photo by James Mosher

  • Foxwoods Resort Casino

    Foxwoods Resort Casino | Photo via Creative Commons

  • Mohegan Sun

    Mohegan Sun | Photo via Creative Commons

This weekend’s Connecticut International Auto Show will have electric cars center stage—but one big industry player will not be present.

Tesla Motors will have not a booth or any vehicles at the show because it is not represented by a Connecticut-licensed dealer and the event is for dealers only, said Chris Russell, a spokesman for the show that runs Nov. 18 to 20 at the Connecticut Convention Center in Hartford. The event is run by the Connecticut Automotive Retailers Association, which is the trade group for the state’s new car dealers.

Tesla has been trying to get permission to sell its cars directly to consumers in Connecticut for two years, but state law prohibits car manufacturers from selling directly to buyers. The Connecticut House of Representatives passed a bill last year that was never acted upon by the Senate, while Senate Majority Leader Bob Duff, D-Norwalk, offered a bill that would have granted Tesla the ability to open three retail stores but pulled it amid opposition from the dealers association.

Duff said recently he’s still considering reintroducing the bill in the next session that starts in January. He’s not waiting for anything special to happen before making that decision, he said.

Tesla still favors the legislation, saying it’s hopeful that the contribution its cars make to the state’s goal of reduced carbon emissions will be recognized.

“We’d rather the market dedicate our investment, but a few (stores) would be better than none,” said Will Nicholas, the automaker’s government relations manager. The current situation, dominated by “protectionist laws,” is “a bit of burden” on consumers, he said.

Tesla still dominates battery-only EV market

California-based Tesla has a gallery in Greenwich, a service center in Milford, and charging stations in several Connecticut locations but consumers are forced to purchase the cars in other states, including New York.

Tesla could sell through Connecticut-licensed dealers under current law but chooses not to, said James Fleming, president of the dealers association and himself a former State Senate majority leader. The retail store concept raises consumer protection issues since Tesla is a manufacturer, he said. A record 50 million vehicles were recalled nationally last year including some produced by Tesla, he noted. 

“They want to bypass a system that is in place to protect the consumer,” Fleming wrote in an email. “Only dealers advocate for the consumer against the manufacturers during recalls. When it comes to recalls, warranties, and securing the lemon law, dealers have been advocates for consumers whenever problems arise or car companies fail.”

Connecticut law forbids a licensed manufacturer like Tesla from holding a dealer’s license, Department of Motor Vehicles spokesman Bill Seymour explained.

Even without an in-state dealership, Tesla dominates the Battery Only Electric Vehicles, or BEVs, segment of the Connecticut electric car market with a 62 percent share, according to DMV statistics supplied by Seymour. Of the 1,381 BEVs on the road in Connecticut, 868 of them are Teslas. The total Connecticut electric car market – known as Plug-In Electric Vehicles, or PHEVs—numbers 3,556 with Tesla having a 24 percent share.

The Yankee Institute, a Hartford-based think tank, supports lessening restrictions on “non-traditional” businesses such as Tesla, Uber and Airbnb, as part of its “Connecticut Can Work!” campaign, which aims to increase economic performance through increased innovation.

“Our reforms don’t focus on competition per se but rather making it easier to hire and work in Connecticut,” said Zachary Janowski, the institute’s director of external affairs. “They have the advantage of costing the state nothing.”

Unintended consequences

The Tesla situation is among the high-profile Connecticut matters involving limits on competition, raising questions about how much these limits keep Connecticut costs of living and doing business higher than most other states. Analysts say that competition limits are a way for government to control the spread of things thought to have negative social consequences, such as gambling, and enable small businesses to survive amid competition from big-box stores.

Well-meaning laws can cause shortages of products and services, however, leading to higher prices, said Janowski, who wrote an institute paper last year saying that Connecticut’s hospital regulatory scheme impedes investment in the sector.

But lower prices are often not easily achieved and aren't a sure-fire cure for the economic malaise that has dogged Connecticut for years, economists say.

“Prices would not necessarily come down by having more businesses,” said Farhad Rassekh, an economics professor and associate dean at the University of Hartford’s Barney School of Business.

Parallels in gaming, liquor industries

Restrictions on competition sometimes take the form of state policies aimed at saving time and boosting existing businesses, said Alan Meister, principal economist at California-based Nathan Associates Inc. and author of the annual Indian Gaming Industry Report. That appears to be the case with the state government’s decision to outsource the siting of Connecticut’s third casino to a joint venture of incumbent operators Foxwoods Resort Casino and Mohegan Sun, he said.

The unusual grant to the joint venture shows that Connecticut leaders do not want to ditch Indian gaming—established through long-standing relationships with the tribal operators of Foxwoods and Mohegan Sun—for a new regime of “commercial gaming," he said.

Advocates of the joint venture, however, say the experienced casino operators will help keep gamblers from going over the state line to Springfield, Mass., where MGM Resorts is building a casino and multi-use entertainment district expected to open in 2018.

MGM filed a lawsuit claiming the Foxwoods-Mohegan Sun joint venture represented unfair competition, but a federal district judge dismissed the suit in June, saying any damages to MGM were "purely speculative." 

Another high-profile competition limits case involves Maryland-based Total Wine & More filing a suit challenging Connecticut’s minimum pricing liquor law. Total Wine wants to be able to sell at prices of its own choosing and briefly did so earlier this year until being fined by the Connecticut Division of Liquor Control.

The department as well as its parent agency, the Department of Consumer Protection, are now defendants in the lawsuit brought by Total Wine, a multi-state retailer with stores in Manchester, Milford, Norwalk, and West Hartford. Several Connecticut industry groups including those representing restaurants, package stores and beer and wine wholesalers, are lining up on the side of the current law and were recently allowed by a judge to become part of the suit.

The law requires wine and liquor to be sold at a price above what a store operator paid a wholesaler, which results in generally higher prices paid by consumers than in neighboring states. The tiered system of producers, distributors, and retailers has been around for decades. Smaller liquor stores would vanish if the law were ever repealed, supporters say.

“We have intervened as defendants in order to protect Connecticut state laws and the three-tiered system,” Sarah Maloney, executive director of the Connecticut Restaurant Association, wrote in an email.

A Total Wine representative could not be reached for comment.

November 17, 2016 - 1:31pm