“It’s Not Just About Tesla”: FTC Urges Against Ban on Direct Auto Sale to Customers

FTC Backs TeslaElectric automaker Tesla is running into significant problems trying to sell its cars directly to consumers.  In Tesla’s mind, the consumer should have the choice of dealing directly with the company that made the car.  In response, car dealerships have argued that franchise laws were created to protect the franchised dealership from the manufacturer.  Tesla recognizes that these laws might sound nice to dealerships, but Tesla is arguing against the existence of dealerships at all.  In addition to franchising laws, there are numerous state laws in place to protect dealerships, which Tesla has somewhat unsuccessfully continued to fight.  Some states have outright banned Tesla from selling its cars direct to consumers, while other states are just now facing the issue.

However, the FTC has recently come to the defense of Tesla and other automakers, and is backing the no-dealer sales model.  The latest fight between car dealers and the FTC has come in the state of Michigan.  In October 2014, the Michigan legislature passed a law that made changes to strengthen the prohibitions manufacturer directs sales in the state.  Pressure from the car dealer lobby drove the new changes as dealerships saw Tesla grow into a force in the electric car arena.  Michigan is now debating whether passing the law was sound judgment, and a new bill (Senate Bill 268) has been introduced to help consumers buy vehicles direct from the manufacturer.

In response to a request from Michigan State Senator Darwin L. Booher, the FTC submitted comments to Michigan lawmakers, urging them to repeal the ban on direct auto sales to customers.  The FTC staff’s comment regarding the bill is that it is likely to promote competition and benefit consumers by opening a certain category of motor vehicles to competition in methods of distribution.  But in the FTC’s eyes, the bill doesn’t go far enough.  The bill as introduced, only permits manufacturers of “autocycles” to choose whether to sell directly to consumers, through dealers, or through some combination of the two.  Tesla is not a manufacturer of autocycles, and so would be left without the law’s protection.  According to the FTC, the bill as it stands would “largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers.”  Instead, the FTC urges Michigan lawmakers to totally repeal the law and “permit manufacturers and consumers to reengage the normal competitive process that prevails in most other industries.”

Tesla founder, Elon Musk, has said that he’s not totally averse to eventually using licensed dealerships to sell his vehicles.  “At some point we’d consider franchised dealers but we want to first establish a few stores of our own,” he explained, adding that he’s reluctant to hand off his vehicles to third parties who may not be prepared to sell them.  “It is hard to sell electric cars; it’s a lot more effort to sell it than a gasoline car. There’s a lot more education needed.”  For now however, it appears that Tesla isn’t prepared to totally rollover on its direct sales model, and the FTC’s backing may be the only way to repeal ancient laws banning direct auto sales in states around the country.

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