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An analysis paid for by Connecticut auto dealers says allowing electric vehicle manufacturers to sell directly to consumers will cost the state thousands of jobs.
The group’s dire economic prediction, however, is based on a worst-case scenario not allowed under the legislation now before the state Senate.
Connecticut law requires automobiles to be sold through third-party dealerships, a model that electric vehicle startups say doesn’t work for them. That’s meant consumers have to travel out of state if they want to visit a Tesla showroom or pick up an electric vehicle they bought online.
A bill to allow direct sales of electric vehicles faces strong opposition from the auto dealership lobby, which has circulated a University of Connecticut School of Business analysis on the potential economic impact of the proposal.
The May 4 report, commissioned for $12,000 by the Connecticut Automotive Retailers Association, warns that the legislation threatens the loss of more than 40,000 jobs related to the state’s 247 auto dealerships by 2040.
In addition, by 2040, it could lead to the loss of $3.9 billion in economic activity, $1.1 billion in personal income, and state revenue of $431 million, the study said.
“If passed, Connecticut Senate Bill 127 would establish an uneven playing field now and unnecessarily increase mid-term risks to Connecticut dealers and the state’s economy,” the report said.
Importantly, the change in law would only apply to carmakers who make electric vehicles exclusively. And it would not allow manufacturers with existing dealerships in the state to sell directly.
But the UConn study estimates the economic impact if, in fact, every single auto manufacturer shifted to an e-commerce model, with the biggest shift happening in 2035 when “Volvo and the big three auto companies are manufacturing exclusively EVs and are thus positioned to terminate dealer contracts.” It also assumes that none of them will operate showrooms in the state.
In other words, it’s “a projection of what happens if essentially all new sales move out of state,” said the study’s lead author, Fred Carstensen, director of UConn’s Connecticut Center for Economic Analysis.
“We thought it useful to consider the ‘what if’ worst-case scenario to highlight the importance of how laws and regulations frame markets,” Carstensen said. “E-commerce has taken a big bite out of brick-and-mortar retail; a pure e-commerce model in new car sales would do the same to the existing structure. We don’t speculate on the likelihood of that dynamic.”
Linking that scenario to the legislation currently under consideration is a stretch, proponents say. For one thing, the bill doesn’t allow manufacturers with an existing franchise in Connecticut to sell directly to consumers even if they move to an entirely electric fleet, said state Sen. Will Haskell, D-Westport, co-chair of the Transportation Committee and one of the bill’s sponsors.
For another, auto manufacturers with dealership agreements in Connecticut may not simply terminate those contracts at will, he said. State law prohibits the cancellation or failure to renew a franchise without “good cause,” defined as insolvency, closing for business, conviction of a felony, fraud, or revocation or suspension of license, he said.
“Any report commissioned by the auto dealers needs to be taken with a healthy degree of skepticism,” Haskell said.
But Jeff Aiosa, legislative co-chair for the auto retailers association and a New London car dealership owner, said the big three automakers — Ford, General Motors, and Chrysler — see growth in the direct-sale model as creating an unlevel playing field. And if it continues to expand, they will likely take action, he said.
“The legacy manufacturers are going to say, ‘Wait a minute, we’re making EVs too, so maybe we should sell direct to the public — let’s level it off,’” he said. “That’s where the dealer franchise system goes away.”
While it’s true that competition from direct sales may not ultimately be good for dealerships, more competition is good for consumers, said Florian Ederer, an associate professor of economics at Yale University’s School of Management. And that’s the group lawmakers ought to be focused on, he said.
“The individual gains are much greater than the loss for the concentrated group that is the dealerships,” he said. “The Connecticut economy should not be set up to benefit car dealerships. It should be set up to benefit all consumers.”
Similar legislation has been proposed in Connecticut in previous years, but has met equal resistance. This year it passed out of the Transportation Committee on a 25-10 vote, but has yet to be brought before the full Senate. Of the public testimony submitted, about 70 people expressed support for the bill, and nine opposed it.
About half of the states, including Massachusetts and Rhode Island, now permit at least some direct sales of EVs, according to an open letter in support of that policy signed last month by about 80 academics from around the country, including Ederer.
The franchise dealer model does not work for EV makers, the letter says, because they build to order, rather than maintain parking lots full of inventory, and, due to fewer maintenance needs, don’t require big service departments.
The dealer requirement is slowing the adoption of electric vehicles in Connecticut, and will make it harder for the state to reach its goal of deploying at least 125,000 such vehicles by 2025, advocates say. There are currently around 14,000 EVs registered in the state.
The two models can coexist, as is the case in many states, noted Barry Kresch, president of the Electric Vehicle Club of CT.
“The dealers are still in control of their own destiny if they become more effective at selling EVs,” Kresch said. “We aren’t trying to put them out of business. We’re just trying to accelerate adoption of EVs.”