RE HB1254 (PDF)

Monday February 22nd 2016
Chairman Buck
Senators Merri3, Delph, Head, Houchin, Leising, Tomes, Breaux, Broden
and Randolph
Subject:
Regarding HB1254 and Amendments Ostensibly Targe?ng Tesla Motors Inc. for
Disqualifica?on to Sell to Consumers in Indiana Ahead of the An?cipated Late 2017
Launch of its Mass Market Consumer Electric Vehicle.
Chairman and Senators,
Your honors,
I am wri?ng as an independent but concerned ci?zen regarding HB1254 to illuminate
some issues regarding the posi?ons and arguments advanced by proponents of this
bill.
Opening remarks
It will be well known to your honors that the measures called for by HB1254 run
directly contrary to sen?ments expressed in public by members of the FTC as well as
the will of between 86% and close to 100% the people whenever and wherever in
the United States people have been surveyed on the subject.
Selling Electric Vehicles is not the same as selling cars in the tradi?onal sense. The
simple reason for this is that the vendor cannot rely upon an ongoing revenue
stream from oil changes and rou?ne inspec?ons and maintenance of an engine as
their primary source of profits. In order for there to be healthy compe??on and fair
value for money to consumers of Electric Vehicles, it is vitally important that
consumers may choose from amongst his or her op?ons an Electric Vehicle vendor
such as Tesla Motors Inc., that does not seek compensa?on from the consumer for
lost engine service revenues thereby charging for value that the consumer will not
receive. In the absence of such compe??on, Franchised Dealers retain an unfair
bargaining posi?on with respect to both the OEM in their efforts to meet
environmental requirements and the Consumer to insist that EV sales contain
exaggerated mark-ups that match the profitability of ongoing Internal Combus?on
Engine servicing if Electric Vehicles are to be stocked and retailed next to internal
combus?on engined vehicles at all. This, far beyond any considera?on related to the
cost of ba[eries is a key explana?on why the electric vehicles offered to consumers

by Franchised Dealers are such extremely poor value for money when compared
with their iden?cal and iden?cally-equipped fossil fuel combus?on based siblings.
Typically double the price before subsidies and incen?ves, severely limi?ng
consumer choice and acceptance of a clean, quiet and efficient technology of direct
public benefit to towns and ci?es across every State, including Indiana.
Background
It is clearly understood that State Franchised Dealer laws have their place. These
were argued for and duly established, to prevent the benefit of investments made by
Franchised Dealerships in establishing vehicle brands like Ford and Chevrolet as
household names from being extorted by the brand owner a]er all the heavy li]ing
of introducing the brand to consumers had been done on their behalf. This is
something that Ford in decades past famously a[empted to do to its dealers,
whereby these laws were a just response.
Relevant investments made by Franchised Dealerships (and that Ford and possibly
others schemed to extort) included: Years of adver?sing, signage and other means of
establishing and building the OEM's brand-recogni?on throughout consumer
markets, staff recruitment and training for OEM brand-specific sales and service,
inves?ng in customer educa?on, acquisi?on and brand loyalty and finally the
franchise fee itself paid to the OEM and upon which the OEM had, to a significant
degree, financed the building of its business.
Note that a company such as Tesla Motors Inc., has both earned and arranged
external funding from the public markets and lenders to cover all of these ac?vi?es
(or their func?onal equivalents) without any assistance from Franchised Dealerships.
Unlike Ford and every other established vehicle manufacturer prior to Tesla,
dealerships have no valid claim to have invested anything into the Tesla brand or into
any business rela?onship with Tesla and cannot therefore reasonably or justly expect
the support of the law for security of returns on an investment that they have not
made - by insis?ng that Tesla freely provide their industry with a markup on all of its
sales against its will and the will of its shareholders and customers (as well as the
general public across party lines that disagrees that Dealers have any jus?fica?on to
dictate the limits of consumer choice in this manner whether the subject is Tesla or
not). Anecdotally support for Tesla’s ability to operate unhampered by regula?ons
like the proposed HB1254 that favours the special interests of Franchised Dealers
over consumers is to be found amongst members of the public that are at the same
?me opposed to the principle of Federal subsides for Electric Vehicles that were
ins?tuted under the Bush Administra?on and in-spite of those objec?ons. The image
of State Governments seemingly ‘bought’ by Dealership Lobbyists is so distasteful to
the vo?ng public that it is a fair presump?on that the very public mishandling of

precisely this issue of consumer rights and freedoms by Governor Chris Chris?e of
New Jersey in bowing to the New Jersey Dealer Associa?on, materially harmed his
poli?cal standing amongst voters na?onally and across the en?re poli?cal spectrum
in advance of his failed bid for the office of POTUS.
As a ma[er of record, Franchised Dealerships and Dealership Associa?ons, if
anything, have gone out of their way to hamper and disparage the business and
brand of Tesla Motors Inc., and sought to divert its customers. Far from having a
claim to have obliged Tesla with value crea?on in good faith, in aggregate dealers
have assumed the de-facto posture of a determined compe?tor to the Tesla
business. Objec?ng to compe??on through measures like HB1254, is an?compe??ve. An?-compe??ve behaviour such as that proposed to be enforced by
HB1254 is more typically viewed as an offence than a statute anywhere in the world,
including and especially the United States of America where, the overwhelming
majority of The People when surveyed view it in exactly that light.
The kind of unfair compe??on that State Franchise Dealer laws were designed to
guard against was specifically in rela?on to a form of unfriendly act that involved an
OEM threatening one or more of its Franchised Dealerships with termina?on of
product supply, essen?ally forcing it out of business, before seeking to purchase that
dealership at a distressed price as a result of distress deliberately inflicted for the
purpose.
No version of this scenario is applicable to a company such as Tesla that has no third
party dealers. It should be noted that there is no law created in an?cipa?on (and for
the preven?on) of a dealership building cars for sale, which in effect describes the
business of Tesla considering it has never assumed the OEM role in rela?on to a
franchisee and has only ever occupied the dealership role in rela?on to the business
of brand building, selling and servicing Tesla branded cars and has done from the
outset as it currently does lawfully in Indiana under a State Dealership License.
In fact to apply the spirit of the law justly and evenly; Just like any other Dealership,
a company like Tesla that has from the outset invested independently in consumer
brand building and customer acquisi?on must be free to enjoy the fruits of that
investment in the consumer market on a level playing field with other dealerships
that historically have made similar investments, without undue hindrance and for
exactly the same reason that Dealerships expect protec?on and not obstruc?on
under the law: To honor and to protect that investment in the consumer market
rather than to see it enjoyed unfairly by a third party. Case in point: General Motors,
seeking to benefit unfairly from Tesla’s investment in consumer educa?on by
promo?ng its forthcoming electric vehicle as a Tesla compe?tor that is dis?nguished
by being easier to buy than Tesla’s product in States where Tesla is currently

prohibited by GM-backed amendments to State Franchised Dealer legisla?on from
conduc?ng direct sales.
Advanced ObservaFons and Rebu3als, Regarding the PosiFons and Arguments
Forwarded By Dealer AssociaFon Lobbyists:
The dealership conten?on that dealerships are consumer-affiliated counter-par?es
to OEMs in the ma[er of recall rec?fica?on work is not simply unproven (no?ng the
point raised before the FTC that GM and Toyota recalls following a string of
consumer casual?es occurred in the context of the dealership business model, but
more than that, the inherent conflict of interest is logically at the root cause of
consumer lethality. This is because mandatory recall work is a source of uncapped
liability to OEMs (in the form of uncapped bargaining power on the part of dealer
service centers) making this the primary disincen?ve for OEMs to act proac?vely and
responsibly towards consumer safety. This conflict of interest with external service
agents is also the primary incen?ve for OEM's to fight NHTSA to deny, contest and to
delay acknowledgement of any requirement to recall a known safety defect and
creates the impera?ve to threaten counter-suits against NHTSA rulings un?l the
?ming of agency ruling are no longer predicated upon an urgent need to save lives of
ci?zens but upon the ?me it takes to build a case to defend the agency itself in the
event of an OEM filing a law suit for damages as a result of the recall no?ce. This is a
systema?c recipe for disaster, prac?cally requiring consumers to die before a
mandatory NHTSA recall is finally issued and this pertains most especially to those
cases that are known to have cost the most lives and have also dragged on the
longest without ac?on to rec?fy a known root cause. For example in the case of the
GM igni?on switch scandal, the delay in acknowledging the need for a recall was so
excessive that it spanned a bankruptcy, $12 billion of net government funding and at
least one complete change of GM’s senior management to finally admit it and then
to pay the government back approximately $38 million of taxpayer's money in the
form of fines. If Tesla is a representa?ve example of the behavior of a vehicle
business with an in-house service model that lacks conflict of interest between
a[ending to customer safety recalls promptly and avoiding the threat of third party
Dealership extor?on in the event of a mandatory recall, such a model will likely save
a great many lives when compared with the Franchised Dealership model in which
that conflict of interest is central and most likely a tragic obstacle to responsible
behavior towards the lives of the ci?zens of Indiana, and ci?zens throughout the
USA.
The poten?al for uncapped liability to a third party dealership service network is also
a source of severely delayed response to warranty work and recall work while OEM’s
nego?ate with dealer associa?ons such as NADA over the cost of rec?fica?on.
Conversely an en?ty like Tesla that operates service as a cost center is

overwhelmingly incen?vized to safeguard its reputa?on for product quality and
customer safety with expedi?ous and pre-emp?ve voluntary recalls of safety related
issues and to do so at the earliest opportunity where expense is minimized and
systema?c correc?on is implemented in future produc?on at the earliest to prevent
ongoing recurrent costs. This is not theory. Tesla has done this in prac?ce in the case
of a rear seat latch, and more recently a total voluntary fleet recall to check a seatbelt fixture upon discovering one incorrectly installed fixture out of 3,000 vehicles on
hand. In all cases Tesla was able to perform a ?mely voluntary recall via its own
compliment of service staff at trivial marginal cost, whereby the same check-up
would be prohibi?ve to acknowledge and to preform via third party dealerships.
Were in fact an OEM to simply ask its Franchised Dealerships to kindly check a seatbelt fixture during scheduled maintenance, this would most likely if not most
definitely result in a dealer associa?on such as NADA out of self-interest launching a
frenzied pe??on for a mandatory NHTSA safety recall rather than for the OEM to
simply receive low-cost and ?mely coopera?on that would most expedi?ously
safeguard the lives of consumers - and encourage the OEM to launch responsible,
voluntary and merely precau?onary recalls in future. Nothing here limits the ability
of NHTSA to issue a safety recall, it is simply the case that proac?ve preven?on of
safety issues is an established feature of the new business model exemplified by
Tesla and which is threatened by HB1254 in clear contradic?on of the public interest.
Tesla’s safety record is both outstanding and exemplary. A record which the
Franchised Dealership model can only aspire to and may never a[ain for the reasons
discussed.
As an adjunct to the first point, a direct client rela?onship between consumer and
Tesla, enables Tesla to diagnose both safety and non-safety related warranty issues
with customer vehicles expedi?ously and first hand. In the case of Tesla the ability to
operate deeply connected vehicles without objec?ons from dealers is pivotal to
providing this benefit in real ?me. Franchised Dealerships tradi?onally refuse to
permit an OEM to gain unfe[ered insight into the diagnosis and performance of
warranty work in order to preserve the ability to overcharge for that func?on
unchallenged by the OEM. This has prevented tradi?onal OEMs from implemen?ng
Over The Air (OTA) Updates (beyond those restricted strictly to cabin infotainment)
and prevented OTA Diagnos?cs that are of clear benefit to consumers as exemplified
by Tesla’s connected vehicles and the sa?sfac?on and safety record of its customers.
Yet it is falsely argued by Dealership lobbyists that Dealerships perform a valuable
role of consumer advocacy in rela?on to warranty work ci?ng the OEM as the party
inherently opposed to the interests of consumers in this regard. Tesla’s example
exposes this fallacy. Tesla is known to be able to detect and diagnose service related
issues in advance of those issues affec?ng the consumer and to become aware
immediately and with unfiltered data in the case of an incident (and in the case of a
break-down or accident to proac?vely call the consumer’s cell phone to ask if they

are ok). It is also the case that the direct distribu?on and servicing model eliminates
an incen?ve to obfuscate root cause analysis in rela?on to mul?ple vehicles
presen?ng with early and inexpensively rec?fied symptoms of a common design
fault prior to break downs or accidents requiring expensive retrieval and repair at
great benefit to the dealership and at great cost to the OEM (and that of the
customer in terms of convenience and safety). For Franchised Dealerships there is no
incen?ve for minor faults to be iden?fied, rec?fied and designed out of future
produc?on expedi?ously as opposed perminng minor issues to escalate to
expensive repairs.
As touched on above, the case for Franchised Dealers: That they operate as
consumer advocates in rela?on to warranty repair work does not hold water. A
strong incen?ve to exaggerate the extent and expense of warranty repair work
results in economic waste and essen?ally systema?c corrup?on that favours undue
value extrac?on by middlemen, ini?ally at the cost of the OEM and ul?mately to the
consumer. The cost of excessive warranty work is aggregated by the OEM when
calcula?ng the warranty reserve incorporated in the cost of each new vehicle and
charged to the consumer with both OEM and Dealer profits. This prac?ce harms the
interests of consumers who must ul?mately pay in aggregate for perfectly good
transmissions replaced where technically the ?ghtening of a bolt or the replacement
of a seal would have sufficed.
The key Dealership argument of the merits of intra-brand compeFFon is invalid in
the absence of its unique frame of reference within the incumbent internal
combusFon engine vehicle technology market which presents an overwhelming
incenFve to construct a ‘razor and the blades’ business model (as credited to King
Camp Gille3e when he famously undercut the market for metal razor handles by
focussing on price-gouging ‘locked-in’ consumers on disposable blades, oTen for
years per handle).
In the dealership business model the ini?al sale is the razor. Service is the blades.
Without reliable service revenues in the case of an EV, the profit on the ini?al sale is
no longer disposable. Dealerships overcharge unfairly for Electric Vehicles. Hence the
irrelevance and inapplicability of the conten?on concerning intra-brand compe??on
over ini?al sales price when it comes to EVs. Effec?ve compe??on in the interests of
consumers must come from a party that is not looking to the consumer to pay
profits on the servicing of engines that do not exist.
With internal combus?on engined vehicles ini?al price is not the true compe??ve
domain. Service is, and this is typically obscured from consumers in the dealership
business model by omission from adver?sing and in prac?ce wherever possible
throughout the en?re sales process. So long as the consumer is held cap?ve in a

high-profit subscrip?on-like business model for engine servicing then the profit on
the ini?al sale is just a trading variable. There is of course a superficial incen?ve on
the part of internal combus?on vehicle OEMs to approve of this model whereby
mul?ple dealers take product to market at suppressed retail margins while the
OEM's wholesale margins remain largely in tact - and because that OEM par?cipates
in the trade in high-margin OEM-branded service parts and upgrades suppled to
cap?ve consumers for years a]er the sale. Some?mes this razor and the blades
principle is taken to the absolute extreme, for example by Hyundai Kia where low–
cost cars are provided with a seven year warranty strictly con?ngent on all
a]ermarket work and parts being performed supplied by a Franchised Dealer
directly affiliated with the OEM. Nevertheless, all of the very considerable profits
derived from this model to the extent that they are realized by dealerships in sales
commissions, service labor charged o]en at considerably more than $100 per hour
in excess of the actual cost of that labor and branded parts with enormous retail
markups, plus duplicate administra?ve and adver?sing expenses - and not expressed
in terms of increased product quality nor cost reduc?ons enjoyed by consumers,
speaks to a lack of compe??on from alterna?ve business models. Par?cularly the
lack of compe??on from any business model seeking to sell an inherently high a
reliability, low rou?ne maintenance product. The Franchised Dealership business
model has become universally exploita?ve of the auto consumer for decades owing
to a lack of compe??on, specifically the kind of compe??on that Tesla represents -
and it is this advent of free market compe??on from a customer-focussed low cost
of service business model that is at the ra?onal root cause of Franchised Dealership
objec?ons. Clearly not the interests of consumers, as consumers a[est in each
consumer survey presented.
Following directly on from the point above, it should be of interest that tradi?onally
ICE vehicles sold via the Franchised Dealership business model are adver?sed and
sold wherever possible with total avoidance of the subject of servicing costs, which
is in fact the primary source of dealership profits on ICE vehicles, the primary
incen?ve to sell ICE vehicles to the consumer and the actual key metric of price
compe??on between dealers (or would be in an efficient market in which consumers
were correctly informed). Obfusca?ng on a point of secondary importance to
compe??on (Ini?al sales price) is a recipe for consumer harm. Poin?ng to intrabrand compe??on on ini?al price is misdirec?on and factually just the ?p of the
iceberg in a market where inter-brand (as opposed to intra-brand) service costs are
effec?vely uncompeted at the point of purchase commitment - while intra-brand
service price compe??on once consumers are cap?ve and forced to seek rou?ne
maintenance is far more likely to be non-existent, in other words cartel pricing
published with the appearance of an MRSP by the OEM on behalf of a consor?um of
its Franchised Dealers as prac?ced by Ford’s ’Service Price Promise Calculator’ to
give one example which effec?vely promotes consumer acceptance of an

uncompeted service price quote for redemp?on at any number of third party
Franchised Dealer businesses affiliated with Ford. It should be noted that unlike any
internal combus?on engined vehicle, in the case of Tesla there is no consumer
coercion in the form of a threat of lost warranty provision to accept Tesla’s service
prices. Should a consumer simply chose not to have his or her vehicle serviced by
Tesla, Tesla's warranty remains fully valid and unaffected.
In summary.
While acknowledging the just claim of Franchised Dealers for historical reasons not
to be forcibly disintermediated by their affiliated OEMs whose brands and
businesses they helped to grow, for par?es interested in consumer protec?on, free
market compe??on from new entrants with a new business model such as that
represented by Tesla Motors Inc, cannot come soon enough. Obstruc?on of the
la[er for the benefit of the former should be considered unacceptable in a law
abiding country and HB1254 should be roundly condemned as an a[empt to pervert
jus?ce and an insult to House and to the public it is sworn to serve.
Trus?ng this is helpful to delibera?ons,
Yours faithfully,
Julian Cox
julian.cox@b?nternet.com