Tesla will not be able to sell their electric cars directly to consumers in Michigan after Governor Rick Snyder signed bipartisan legislation on October 21st that clarifies existing state auto sales laws. Tesla has been fighting with numerous states to maintain their preferred, and successful, business model of selling vehicles directly to consumers, as opposed to the traditional method of selling to franchised dealerships that sell to consumers.
The Michigan legislation isn’t unique; forty-eight states have had laws in place for years that ban or limit direct sales of automobiles. In the early years of the auto industry, manufacturers needed a system to distribute cars to consumers – since there was no highway system – and provide regular maintenance, so they made agreements with dealerships. To protect themselves from the car manufacturers, the dealership owners formed associations and subsequently laws were enacted banning direct sales [Journal of Economic Perspectives]. Dealers argue Tesla is violating these same laws. Tesla has been selling to date by claiming the various state laws may not apply, but that issue is now being examined.
Last month the Massachusetts Supreme Judicial Court gave Tesla the green light after throwing out a lawsuit aimed at blocking their direct sales approach [Reuters]. “[The original law] was intended and understood only to prohibit manufacturer-owned dealerships when, unlike Tesla, the manufacturer already had an affiliated dealer or dealers in Massachusetts,” wrote Justice Margot Botsford.
Andy Gavil, Debbie Feinstein, and Marty Gaynor, of the FTC, seem to agree with the Massachusetts ruling: “Many state and local regulators have eliminated the direct purchasing option for consumers, by taking steps to protect existing middlemen from new competition. We believe this is bad policy” [FTC blog post].
Should states allow car manufacturers to sell directly to consumers? What are the costs and benefits of the current laws requiring manufacturers to sell to dealerships?
As I recently explained in an op-ed, here in Michigan, we have just come through a very unfortunate incident in which the car lobbyists snuck a floor amendment into an… Read more »
Absolutely yes. The current barriers seem like a resistant auto industry unwilling to adopt and innovate at the scale and pass necessary to significantly address climate.
Tesla certainly should have the right to sell directly. I am quite sure that eventually state bans will be tested as in Massachusets in the courts and be negated by… Read more »
This is an interesting dilemma that has more nuances than most people consider. First, there have been recent cases about this in numerous states, some of the more recent being… Read more »
I agree with Daniel. As a Tesla owner, I can say that the experience of dealing directly with the Tesla for sales and service is superior to all other car… Read more »
Dan, Glad you’re enjoying the Tesla. With respect to your Apple/Best Buy comment, that is true, except that you could also buy that Mac at Best Buy as well. That’s… Read more »
Not really a difference since Apple decides whether or not to allow Best Buy to sell their Macs. There isn’t a law that says that Apple may only sell their… Read more »
Perhaps I confused things. I am not saying that Tesla should be required to only sell through dealers. I am saying that: 1. If Tesla can sell direct, other manufacturers… Read more »
Richard: I agree with you on (1). Regarding (2), it’s your car so you can have anyone work it. The issue is whether it voids the warranty. How can Tesla… Read more »
This article provides both pro and con views. It also presents this salient point: However, despite Tesla’s current combative nature toward the established dealership system—and in what might be a… Read more »
While I agree with the automobile dealer system for established automobile companies, there should be an opening for independent automobile dealers until they reach a certain size. The existing system… Read more »
We should keep in mind an important distinction between what’s a good business strategy for car manufacturers and whether the law should mandate any particular form of distribution. It may… Read more »
Local car dealers provide the most competitive, efficient and cost-effective model for the buying and selling of cars. And many state policymakers, recognizing that reality, have chosen the dealer model… Read more »
Jonathan: As a Tesla owner, I take issue with your statement “Local car dealers provide the most competitive, efficient and cost-effective model for the buying and selling of cars.” While… Read more »
Dan, you unfortunately misunderstand the term “middleman.” Look it up in the dictionary — a middleman is a business that buys from a factory and sells to a retailer. A… Read more »
Jonathan: I did look up “middleman” in the dictionary and you are wrong: http://www.merriam-webster.com/dictionary/middleman “: an intermediary or agent between two parties; especially : a dealer, agent, or company intermediate… Read more »
Jonathan, So much to say . . . First, to your point that the franchised dealer system is the most efficient means of distribution, great! If that’s true, you certainly… Read more »
Yes, as many others have already commented, of course Tesla and other manufacturers should be able to sell cars directly to consumers. Beyond that simple answer, this question highlights two… Read more »
We worked on this issue in Ohio. For us, it came down to a consumer choice issue. We believe the customer should be able to make the best choice for… Read more »