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Bill opening door for Tesla, other online dealers advances to House

First Published      Last Updated Mar 05 2015 01:47 pm

When Rep. Dixon Pitcher wanted to buy a Tesla car, he went all the way to Hawaii to do it.

"I would have purchased it here in Utah, I would have loved to," he said. But Tesla cannot operate in Utah due to current laws prohibiting manufacturers from operating dealerships or online sales without going through a franchise. The company found this out the hard way this week when they were denied a license for their new dealership that was scheduled to open Friday.

Legislation now on its way to the full House after clearing a committee 7-5 Wednesday seeks to change the law.




HB394 (first substitute) would allow car manufacturers to obtain licenses to operate exclusively online and through on-the-ground salesmen and exempt them from regulations on dealership franchises under the New Car Dealership Act.

"Our current law is about 25 years old in its current form. When this came to be we didn't have an Internet," said bill sponsor Rep. Kim Coleman, R-West Jordan. "This law seeks to open this up to come up to date to 2015."

She said although Tesla is being used as an example because of their current situation in South Salt Lake City, the bill would also open the door for the Apple and Google cars that may be released within the next few years, along with other companies that manufacture custom cars in volumes too low to open franchises.

"My default position is we have to have a careful balance between not creating something that is wreaking total havoc within an expensive and broad system that has been working for a long time," said Rep. Jon Stanard, R-St. George, who voted for the bill. "But also… we need to not be so over-regulated that we are stopping innovative companies from coming up with alternative business models. "

He pointed to recent controversy over the operation of California-based insurance company Zenefits in Utah.

Coleman's bill would only allow online-sales licenses to go to car manufacturers that do not already have franchises in the state. It would also require manufacturers to open a Utah service center. Coleman said she is also working to make sure the language will allow Tesla to operate its newly built onsite location in South Salt Lake.

Some voiced concerns about undermining the investments franchise-owners have put into their dealerships throughout the state and leaving car owners without customer service.

Sarah Starkey, general counsel for the Larry H. Miller Group and representing the New Car Dealers of Utah, said it would be unfair for a manufacturer to be able to operate through online and on-the-ground sales, but do so outside of dealership regulations. "We would love to see Tesla come in to the state of Utah. We would just love to see it in the construct of the [existing] laws."

Coleman argued that Tesla doesn't offer direct competition to existing dealers, because "people that are going to buy a Tesla are going to buy a Tesla" no matter where they have to go to get it. But allowing the company to operate in Utah will allow Utah to get the sales tax that comes with the car purchases.

Rep. Gage H. Froerer, R-Huntsville, raised concerns over what a customer would do if they had issues with their car. "Do they now have to do everything online or talk to someone in India, or what are they doing?"

Tesla representative Daniel Witt said Tesla successful operates through online business models in most states throughout the country, and the service centers are enough to keep customers "well-protected" in the event of issues with their new cars.

Coleman said as a state that promotes free market business and innovation and is working on clean air and auto safety, Utah lawmakers should be doing all they can to welcome Tesla's business.

As for the Tesla dealership, it will open Friday as a showroom without the ability to offer test drives or discuss sales and pricing of the cars. Witt praised the committee's action in endorsing the bill and said if it wins final approval, Tesla will proceed to begin offering sales at their new location.

This bill is part of a package of bills currently in the works seeking to peel back restrictions on the state's car dealership industry.

 

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