FTC Says Tesla Ban Hurts Michigan Car Buyers the Most

OHANNES EISELE/AFP/Getty Images

JOHANNES EISELE/AFP/Getty Images

Ever since Michigan lawmakers effectively snuck a Tesla ban through the legislature, critics have argued the state’s policies violate numerous principles of free-market enterprise. Add three prominent members of the Federal Trade Commission (FTC) to the list: As state lawmakers mull a Senate bill that would make exceptions for sales of autocycles like the Elio, FTC members went on the record saying Michigan consumers lose the most from the “special protections for dealers” now in place, The Detroit News reports.

‘An anomaly within the larger economy’

While noting the FTC as a commission was not making the written remarks addressed to State Senator Darwin Booher (R), senior officials from the Office of Planning, Bureau of Competition, and Bureau of Economics signed off on a letter that was authorized by the Commission as a whole. Citing Gov. Rick Snyder’s comments that an “open discussion [about the law] can and should be had,” the three FTC employees wrote, “A blanket prohibition on manufacturer sales to consumers is an anomaly within the larger economy.”

Going further, the officials said the law as written amount to “a special protection for dealers … that is likely harming both competition and consumers” in Michigan. Booher had asked for the Commission’s advice as the legislature weighed the merits of a bill allowing an exception for the Elio to be sold directly to consumers. By the logic that car buyers are only protected when a dealership stands between consumer and manufacturer, Elio would join Tesla in being unable to operate in Michigan once the three-wheelers enter production.

According to the three FTC members, not only should Elio be allowed to sell in Michigan; every automaker, including Tesla, should be allowed to join the party. Auto dealers, for their part, continue to maintain they keep prices down for consumers.

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Dealers: We save car buyers money

A spokesman for the National Auto Dealer Association (NADA)  repeated a familiar refrain to The Detroit News, saying “price competition by auto dealers lowers car prices for consumers, often by $500 or more.” However, the FTC officials noted there is no connection between a dealer network and lower prices. In many cases, prices are higher as a result of the system in place.

“[F]orcing firms to use inefficient distribution methods can result in higher prices and other forms of consumer harm,” they stated in the letter to Sen. Booher, adding that consumers are best served when they can decide for themselves. According to FTC research from the 1980s (cited by Marginal Revolution), prices were about 6% higher than they should have been as a result of the dealer system.

The power of the auto dealer lobby exists in the tax base (i.e., the large number of employees working in dealerships) as well as in regular campaign contributions, especially in a state like Michigan. It will take Tesla years to become big enough to contribute on the level of larger manufacturers, and it may be wishful thinking to think they will ever come close. The reality in Michigan — as in so many other states where direct sales are banned — is consumers will have to accept higher prices as a fact of life, or at least life under the U.S. political system.

Source: The Detroit News

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