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back to article Elon Musk slams New Jersey governor over Tesla direct sales ban

Tesla Motors CEO Elon Musk has taken to the web to address the entire state of New Jersey about what he claims was a "backroom deal" to defeat his company's business model. Earlier this week, New Jersey became the third US state – after Arizona and Texas – to enact a rule banning auto manufacturers from selling cars directly to …

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Allow me to comment on another country's practices

Does seem a bit dodgy - why should't they flog their motors directly?

Here in the UK, you generally buy a car from err a franchised dealership but I'm pretty sure you could go to the manufacturer directly, who would probably point you to the nearest franchised dealership. However, I do know for a fact that I could go and see Arial and buy an Atom directly from them (I live in Somerset rather close to the Arial works)

If you want to sell your house, you could do the usual thing and engage an estate agent (en_US:realtor) or you could put up your own "for sale" sign and advertise in the local rag.

I could probably ring up Dyson and buy a hoo....err... vacuum cleaner.

I don't think I can ring up Sony in Wales and get a Raspberry PI though. Hmmm

So, in general, if you make stuff I think that you can and should be able to sell it direct to the consumer if you want to without having to subsidise middle-men unless they add value to the supply chain in your opinion (increase sales, take on support burden etc.) By the way I own a middleman business ...

Now that is here. In the US it might be different. I've just dug out a few examples, I'd love to hear whether there are reall differences over there on how you can flog stuff. I'm pretty sure if I wanted a little something from the more expensive end of IBM's product list in the US I would be looked after by an IBMer directly.

Now I think about it, are there any UK examples like this whereby a sort of artificial business model is protected like the auto dealers in the US?

Cheers

Jon

PS I do understand this is not a federal thing - it's individual states being daft.

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Re: Allow me to comment on another country's practices

>Does seem a bit dodgy - why should't they flog their motors directly?

Because then the poor consumer would be at the mercy of the evil car manufactures without having the services of honest car salesmen to protect their interests.

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Re: Allow me to comment on another country's practices

Nasty, nasty manufacturers 8) I hope all your up voters noted wher your tongue was lodged ... oh and I missed a n in shouldn't.

Anyway, I tried to buy a car recently and the Ford dealership around here (Yeovil) managed spectacularly to fail to do that simple job despite us trying our best to get them to do so. We were keen on the Fiesta - it won all the awards in the class of car we were interested in and we wanted to simply go on a test drive.

They failed quite impressively in several areas: firstly they were closed on Sunday - me and the missus work for a living as do they but we have spare time at weekends and hence car floggers need to be available at weekends, all weekend unfortunately (they can always do shifts, that's what my company does); secondly the salesperson seemed incapable of noticing that the real customer was my wife and not me.

I wont bore you any further but it would have been nice to be able to directly buy from Ford but I can't without the wiff being able to test out whether she's happy driving it.

So how would Tesla manage that situation?

Are they unable to open their own dealerships a la Ford et al in the UK (look: I got three languages in there, one extinct) - how does it work over there ?

I've been to to the US a few times and their car flogging setup looks pretty similar to ours - what am I missing?

Cheers

Jon

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Devil

Re: Allow me to comment on another country's practices

If you were from the U.S., or had been following our news reports over ... oh, say, the last half-century or so ... this "practice" would be crystal clear:

State and municipal government in New Jersey is an open sewer of political corruption.

In this particular instance, the NJ auto dealers alliance, having contributed about three-quarters million $US to the Governor's political war chest, were allowed to influence the Tesla question.

Easy-peasy, simple, case closed.

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Re: Allow me to comment on another country's practices

>Are they unable to open their own dealerships a la Ford et al in the UK

The car maker doesn't own the dealership.

They sell the franchise to whatever local Arthur Daily wants to it. The customer then deals with the dealer, argues with them, gets their customer service, pays their servicing prices, and remembers the process as the face of the brand - it's like the difference in buying from an Apple store or Comet!

The other problem with Tesla, and electric cars generally, is there is no servicing - so no profit for the dealer, so they only way the dealer would make money is if Tesla wholesale the cars at 40% discount.

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Anonymous Coward

Re: Allow me to comment on another country's practices

"I wont bore you any further but it would have been nice to be able to directly buy from Ford but I can't without the wiff being able to test out whether she's happy driving it."

You are a deadman.

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Re: Allow me to comment on another country's practices

Tesla has a couple of stores in New Jersey where you can look at, examine, arrange a test drive, and order.

http://www.wired.com/business/2014/03/tesla-banned-ensure-process-buying-car-keeps-sucking/

The New Jersey government is bending over (on their citizens' behalf) to good old fashioned rent seeking by the dealers' "guild".

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Re: Allow me to comment on another country's practices

It's not a practice limited to the US. In the UK Daewoo had the same problems in certain cities when trying to open their own dealerships.

Don't worry US cousins, corruption is rife in UK councils too, especially in regards to planning permission for building.

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Anonymous Coward

Re: Allow me to comment on another country's practices

That's Ariel, the makers of the Atom

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Anonymous Coward

Re: Allow me to comment on another country's practices

If you're selling millions then letting customers buying from the manufacturer is a lot of work.

But Tesla don't sell enough cars to warrant a dealership in every major city.

I can visit an Apple store to buy a laptop, but I can also buy it online. Imagine if for some dubious reason you were only allowed to buy from a shop, how would that be useful in this day and age?

The big companies are well known for dirty tricks. Which is why there's not been decent alternatives to the combustion engine.

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Re: Allow me to comment on another country's practices

"Here in the UK, you generally buy a car from err a franchised dealership but I'm pretty sure you could go to the manufacturer directly, who would probably point you to the nearest franchised dealership. However, I do know for a fact that I could go and see Arial and buy an Atom directly from them (I live in Somerset rather close to the Arial works)"

My uncle went and visited his Morgan as it was being built. Took delivery at a Jan 1st champagne when the CEO handed him his keys personally!

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Re: Allow me to comment on another country's practices

I think they have delaerships (which are becoming galleries) - but it's their own network that they own. So you can go on a test drive, chat finance, etc, but you're dealing with a Tesla employee, not a Stratstone employee or Foray Motor Group for Yeovil Ford.

Looks like a normal dealership, but run by the manufacturer.

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Re: Allow me to comment on another country's practices

Mrs Muscleguy used to refer to herself as a wff: well formed function. Back when she was doing CompSci and using a mainframe running VAX. I was expected to confirm that assessment you see.

So if I were to refer to her online as such no trouble would ensue as it would just be a trip down computer memory lane.

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Trollface

Re: I got three languages in there, one extinct..

Not quite extinct; still showing some signs of life in your own post.

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Anonymous Coward

Re: Allow me to comment on another country's practices

Don't forget, in the Uk we have the benefit of the Distance Selling Regs (aka the Try before you Buy law) and Section 74 credit card protection to protect consumers who buy direct. Those poor dinosaurs over in the Us don't have anything like this.

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Trollface

Re: Allow me to comment on another country's practices

Because then the poor consumer would be at the mercy of the evil car manufactures without having the services of honest car salesmen to protect their interests.

You forgot to use the Trollface....

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Re: Allow me to comment on another country's practices

"The other problem with Tesla, and electric cars generally, is there is no servicing - so no profit for the dealer, so they only way the dealer would make money is if Tesla wholesale the cars at 40% discount."

Um... you know that there's a lot more than the engine in an internal-combustion-engined car, right?

And what about non-service items. If your Tesla's steering or suspension starts to play up. Where do you get it fixed? Your local Ford dealership? Good luck.

There are two equal sides in this argument. A nearby dealer network is also of benefit to customers, just like a direct-sales model is of benefit as much (or more) to Tesla than its customers.

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Thumb Up

Re: Allow me to comment on another country's practices

50:0

TheRegister Commentard sarcasm detection meter functioning perfectly today :)

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Anonymous Coward

"Unless they are referring to the mafia version of 'protection'"

Love it. Go Musk, challenge the status quo! Haven't we learned from bank bailouts, rate fixing and auto maker bailouts that free markets are a total joke!

""The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures 'consumer protection,'" Musk railed in his missive. "If you believe this, Gov. Christie has a bridge closure he wants to sell you! Unless they are referring to the mafia version of 'protection,' this is obviously untrue.""

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Re: "Unless they are referring to the mafia version of 'protection'"

'Haven't we learned from bank bailouts, rate fixing and auto maker bailouts that free markets are a total joke'. At least two of those aren't examples of free markets. In a free market the banks would have been allowed to fail allowing the banks that weren't run by a colony of inept monkeys to take over their share of the market, ditto the auto makers. Unfortunately we don't have a free market because that wouldn't allow politicians to look like they're doing something.

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Anonymous Coward

Re: "Unless they are referring to the mafia version of 'protection'"

> At least two of those aren't examples of free markets.

Not to put words on someone else's mouth, but wasn't that the other poster's point in citing those as example of a supposedly "free" market?

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Re: "Unless they are referring to the mafia version of 'protection'"

I will never, never understand why people make a business oriented comment, then turn right around and bemoan the lack of 'free markets'. It really highlights why their business comment can just be ignored. They're out of their depth.

There has never been a 'free market'. There have been plenty of markets where one segment of the people in it are 'more free' than another, but no free markets. Ever.

Being able to survive in an unbalanced, unfair environment is what defines any business that is in business (versus out of business). Product quality, customer satisfaction, employee contentment, supply chain and any profits are all secondary to being able to find a safe(ish) place to operate in a market. Nobody ever promised fair and 'cheating' successfully is as much of a part of business as anything else.

You can't separate 'market conditions' from any other element of business, you can cut it or you can't. Saying 'it's not fair' is absolutely no different than buying a hot blooded horse for your kid, then bitching when it throws the kid off. Or buying a massively overpowered car and complaining because it is difficult to control.

Most companies fail because they are incapable of playing on the screwed up, slanted field of business. It's a hard, and expensive lesson for a lot of people, but reality 'is' and you deal with it as it is, or you fail. Elon Musk knows this too, it's just another challenge to be dealt with. We'll see how well he deals with it. The US automobile market will be his very first, real business challenge. Everything else he's done has been novel, and that goes a long, long way. This is a traditional business matter and seeing how well he manages through it will be interesting.

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right idea

Tesla's stores in the state would transition to being "galleries," where prospective buyers could learn about the vehicles but staff would be unable to complete sales or even discuss pricing.

By doing so, customers who buy ( from an other state I suppose ) would not pay sales tax in NJ!

Brillant!

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Re: right idea

That does not quite work. The way the anti-consumer state authorized racket... err... dealer-only laws... work in the USA is that you cannot register a new car in the statet unless it is bought from a dealer. So in fact, no New Jersy customer will be able to register a new Tesla in New Jersy from now onwards.

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Re: right idea

If New Jersey is like a great many states, Tesla purchasers resident in New Jersey will pay the applicable sales tax in the purchase state unless they buy a transfer tag stipulating that they will remove the car to a different state within a limited period. In NJ they probably will pay a "use tax" when they register the car that, curiously, has the same rate as the sales tax.

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Re: right idea

All 50 US States have 'Residence Restrictions' on new automobile sales. The customer will pay sales tax in their state of residence, in addition to a fee to the dealer for dealing with another states registration system.

Additionally, dealerships here don't own their new car inventory, it is owned by the manufacturer and the dealer pays a floor plan maintenance fee every month the car is on their lot. Anyway, what all that means is the manufacturer sets all the sales/incentives and to protect dealer territories any given dealer can only sell a car w/incentives to customers residing in a predefined area. Live outside that area and you pay sticker. You can, sometimes, do dealer transfers but a whole bunch of people all have to agree.

The US auto industry is, without a doubt, second only to freight rail for the power of its lobby. Wal-Mart tried to get into automobile sales in the late 90's. I wrote briefs for all three Congressional hearings on the matter. The auto industry said 'no', and that whole plan came to a screeching halt. Never to be mentioned again.

Tesla's got a big mess of a challenge to deal with. You can sell new, custom, automobiles in all 50 States with a gallery license, that's what Lamborghini, Bugatti and Maybach do, but that screws everything else up. Banks won't do traditional financing for custom autos and insurance rates skyrocket because those cars aren't required to meet the same safety requirements.

The Tesla cars are fairly cool and all, but they aren't really appealing to the traditional, high performance, car buyer who have different ways of paying for a car. It's going to be the upper middle class people that make, or break, Tesla, so traditional financing and reasonable insurance are going to be required. It'll be interesting to watch the solution (if found) and see how it goes.

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Re: right idea

Depends on the tax law. In California, for example, I have to pay the State of California (who need the money, bless them) the sales tax rate applicable to my home, or my business if it is a business purchase. I cannot escape this as I have to show the correct tax has been paid to get my tags for the vehicle.

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An excellent podcast

from NPR's Planet Money (well worth subscribing to) details US car dealerships:

http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful

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Anonymous Coward

He does have a point (for once)

However this quote:

"Also, all Tesla Model S vehicles are capable of over-the-air updates to upgrade the software, just like your phone or computer, so no visit to the service center is required for that either."

Hardly helps his case it's not like over-the-air updates to phones work all the time, what's his suggestion when it bricks you $80K+ Tesla, stick three fingers in its power socket?

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Re: He does have a point (for once)

Ctrl-Alt-Delete :-)

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Anonymous Coward

Re: He does have a point (for once)

Hardly helps his case it's not like over-the-air updates to phones work all the time, what's his suggestion when it bricks you $80K+ Tesla, stick three fingers in its power socket?

How about a ROM-based fallback mode like I see in proper systems designed to take OTA updates? That way, if an OTA update fails, it goes into fallback mode and fixes the problem from there. I've seen it happen in assorted embedded systems and the like. The only time the device bricks is when it's an actual hardware fault.

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Anonymous Coward

Re: He does have a point (for once)

"How about a ROM-based fallback mode"

Well, my old P4 based mobo has that. If the BIOS update fails for some reason, then it fails back. State of the art, right?

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Dealerships

I thought the reason for dealerships rather than direct sales was to stop the manufacturers from dumping product below cost to drive out competition. Also, brand name dealerships will sell used models from different manufacturers that they took as trade-ins. In effect, its a protection for consumers in the long run. I may be wrong on my perceived reason for dealerships,but if I'm right then Tesla's push for their own "boutique" dealerships may actually harm consumers. Whats wrong with letting Tesla open up their own dealerships that also peddle other used models?

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Re: Dealerships

I thought the reason for dealerships rather than direct sales was to stop the manufacturers from dumping product below cost to drive out competition.

err.. no. Dealerships were set up for the manufacturer's bottom line. They make the cars and sell them to the dealerships with a profit. They also sell parts to the dealerships with a profit. They also charge the dealerships a "franchise fee". If the dealer doesn't have the cash for his inventory, get a loan with interest from the manufacturer... guess who gets a profit. The maker saves the cost of the dealership... land, building, some liabilities, sales droiids, etc.

The dealerships can charge what they think the local market will bear for the cars, the parts, and servicing as well as financing to the buyer and they make their profit there.

So in Tesla's case, that $80,000 car will be more. Not sure how much more, but it will be. Also, Tesla looses control of the servicing and parts. In the States, dealers aren't required to buy many of their replacement parts from the automaker. They can sell, let's pick brake pads, from a lower cost supplier and sell them at the maker's price. More profit.

And then there is the "image"... Is it better to buy from the maker at a set price? Or wheel and deal with a salesman who's going to make his money no matter what you do. I see nothing wrong with letting Tesla sell directly.

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Anonymous Coward

Re: Dealerships

In the US the function of the dealership is to maintain the apparent value of a second hand car at an artificially high level. Depreciation is deprecated. I bought my used car (made in the US) in the UK for half the cost of the same car with double the mileage and a lower specification in the US. The US used car market is totally rigged. Also most auctions are trade only, so a cartel exists. The bait and switch selling technique seems to be universal.

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Re: Dealerships

"In the US the function of the dealership is to maintain the apparent value of a second hand car at an artificially high level."

It's pretty much the same here, Approved used BMW anyone?

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Re: Dealerships

Actually, the approved used BMWs have only been used for 3 months by an employee at the Cowley works. They get free use of the car for 3 months, as long as they take it back spotless and unscratched. Then it counts as used, and can be sold as such. My neighbour is currently driving around a BMW Maxi with the word Mini on the bonnet.

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Re: Dealerships

US auto dealerships are nothing more than the industry sales channel. They're the 'value added' reseller. That's it. My dad owned nine new car dealerships when I was younger, and screwing about on his lots was what drew me to engineering and away from the little empire my dad had built for me. It's an OK business, but I like the making more than the using.

My point in telling you that, was that there's a huge misconception about what new auto dealers do and how they make their money. They don't own the cars, they pay the manufacturer a small monthly 'floor plan maintenance' fee for each car. Sales people are paid with the money from reaching the monthly volume targets the manufacturer sets. In 1995 a brand new Oldsmobile Cutlass Supreme, completely decked out with Southern Region standards (no block heater, fully vented transaxle, stuff like that, cars in other regions have different standards so the price varies considerably) sold for about $24,000. The dealership got $212 of that for the actual sale, at sticker. On an average credit score with 48 month note the dealership got about $800 from the bank financing the customer. Warranty service is paid by the manufacturer, but as a deduction from the floor plan overhead, so it generates no revenue. Non-warranty service and parts are good revenue generators. That year, 1995, was when I sold the last of the dealerships I had inherited. Prices suck even more now.

The bulk of dealer money is made in the used auto side and fleet sales. Most people are ridiculously upside down when they trade cars and all that negative equity just gets added to the price of their new car, and their trade in is, effectively, the fee paid for rejiggering their financing. My friends and I made scads of money driving the trade ins to the auto auction twice a week. Just endless trips with six-eight cars, get in the van and go back for more (car hauling big truck trailers do more damage to cars than any other thing).

With no incentives, making $2,000 over the entire warranty period of a new mid-$20k car is a fairly good figure. With a good used car that originally sold in that same mid-$20k range I can make $5-6k in the hour it takes to transfer the title and get it to the auction and I don't even have to wash it.

Trade ins are where dealers get the money to send their kids to fancy schools. The customer always gets screwed, but that's the price of 'new car fever'. You're a fucking loon for trading a car in, but it's hard to sell them without a dealer involved. Banks and dealers have 'account performance' arrangements where the bank will finance a buyer sent by a dealer, but won't go nearly as far for a private seller.

Anyway, dealerships are just resellers left over from a long ago time when it really was a long trip to get to another town and color pictures were only available on canvas. States got involved because car dealers were selling things they wouldn't service and other fairly awful behavior. Look at the regulations for getting a auto dealers license, every State has a law requiring any auto dealer to have a lighted public restroom, water and 'reasonably priced' snack foods available. Those universally shitty waiting rooms with horrid coffee, moldy water fountain and pre-Nixon vending machines are required by law, not placed there for your convenience. Post WWII it was a common trick to keep customers waiting for hours for minor warranty repairs and with no restroom (with a light!), water or food customers would just give up and go home.

The lobby with accessories and zillions of other weird, archaic, non car related, laws are in place for dealerships and, truth be told, our society is a lot different than it was in the 1940's. The fact that people are willing to buy a car without actually driving the very one they might buy pretty much says it all. Everybody on your block used to come by and check out your new car. Today I'm nearly positive most people wouldn't even realize it was their neighbors car that ran them over.

Dealerships serve an important function, but should no longer be a requisite to selling, or buying, a new car. If you want traditional treatment go to a traditional dealer. If you're comfortable buying a car 'online', then you should be able to do so.

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Anonymous Coward

Touring California ? - pick up a Tesla

Drive the famous 101, recharge at Big Sur then ship your car back to gray old NJ

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Anonymous Coward

New traffic violation in NJ - Driving without a dealer

$1000 fine

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Silver badge

C'mon, it's Gov. Christie

He's about as corrupt as they come. Also, this is true of Texas and a few other "fine" and "upstanding" states who don't allow Tesla direct sales either. They weren't as obvious about it though. Most people I know just bought their Tesla in another state. It's not like they're going to suddenly decide "oh, a Ford's good enough" - they want a Tesla.

Florida doesn't allow test drives on motorcycles, so I bought my FJR & SV in Tennessee & North Carolina, where they do.

The car dealers make it such a horror story to buy a car, and the auto "mechanics" (both dealer and non-dealer) make it such an incredible pain to keep that car running, that I've given up and ridden bikes for the past 10 years. Is it like that in the UK?

A former roommate spent $3300 to have the mechanic replace every expensive electronic component in his Accord in the effort to track down a dead $5 relay.

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Re: C'mon, it's Gov. Christie

In the UK there's lots of independent mechanics in every town (good and bad) and so it's not a big deal. Since living in the US I've found there's too many Tuffy's and other big franchises more than willing to rip you off at every opportunity.

The governor in NJ is obviously corrupt in this instance though.

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Re: C'mon, it's Gov. Christie @Gene

You can't get on ballot in any state in the Mid-Atlantic region without being corrupt. That's a law. You've got to slip the clerk a $50 in the 'secret handshake' as the final hurdle to prove you're not going to be doing any of that nasty 'honest & upright' stuff. I do kind of wonder what they use for a 'grease his palms' substitute with Christie though. He looks like he would always have greasy hands.

You're spot on about mechanics too. I honestly used to think a lot of mechanics were simply inept and had just fallen into a career that doesn't require any licensing or literacy, but after I got married it was plainly evident something was wrong with the moral compass in a lot of mechanics. My wife would get these enormous bills from the garage. Even though she only drives 2-3k miles annually she likes to get the oil changed every three months. But she always got new intake, fuel and cabin filters and all new coolant. The final straw was when they repacked the grease fittings on a car that I knew good and well didn't have serviceable joints. I've got the same car and they never even offered me a new cabin air filter... Wife and I have different last names, so I guess they never put it together.

But here's what I don't understand, the guy who services our company vehicles has a garage that looks like one of those TV show garages. It's the cleanest automobile work area I've ever seen. He's fast, everything always works, he's expensive as hell, has a nice house and two kids at Georgetown as a single father. What I'm getting at is that you can obviously make a good life for yourself as a mechanic and you don't have to be all shady and shitty at it. Why don't we see more of that?

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Meh

Musk in salesman mode much?

"There are no oil, spark plug or fuel filter changes, no tune-ups and no smog checks needed for an electric car," Musk wrote.

This is literally true but a bit misleading:

From the Tesla website it appears that they charge $600 per year for maintenance.

My internal combustion Ford requires the following maintenance: Oil change, $25 every 7500 miles. Tune up (i.e. Spark Plugs) $100 every 100,000 miles. Fuel filter $50 every 100,000 miles, Smog checks never since OBD-II introduced in the mid 1990s.

Mind you I'm not siding with New Jersey on this, but keep in mind that New Jersey law requires that your car be fueled by a professional petroleum transfer engineer (no self-serve allowed).

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Re: Musk in salesman mode much?

But that's the prices to get your Ford fixed at Halfords. The annual "keeping the warranty" main dealer service costs on a $90,000 sports car is a lot more than $600

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Anonymous Coward

Re: Musk in salesman mode much?

I looked up in the New Jersey dictionary and it advises that a "professional petroleum transfer engineer" is a minimum wage employee or even less expensive illegal alien. Who knew?

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Anonymous Coward

Re: Musk in salesman mode much?

> New Jersey law requires that your car be fueled by a professional petroleum transfer engineer

Would that be someone with a geophysics engineering degree and a master on industrial safety?

I suspect not. :)

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"professional petroleum transfer engineer"

FYI, those are still REQUIRED in Oregon to pump your gas, you are not allow to do it yourself.

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