Tesla’s Public Appeal Falls Short as Michigan Bans Direct Sales
Putting out legal fires around the country has become as much a part of Tesla’s (NASDAQ:TSLA) business model as building the electric cars it’s known for. To date, state legislatures in Missouri, Massachusetts, New Jersey, Arizona, Texas, and many others have mounted efforts — in almost every case backed by car dealership associations and lobbies — to make it illegal (or “strengthen the language”) for auto companies to sell their products directly to the consumer, cementing the dealers’ place between OEMs and the public.
Michigan, home to America’s three largest automakers, was the latest state to make that attempt, which became a successful one on Tuesday after Republican Gov. Rick Snyder signed Bill HB5606 into law. In his defense of the bill, Snyder said that “this bill does not, as some have claimed, prevent auto manufacturers from selling automobiles directly to consumers at retail in Michigan — because this is already prohibited under Michigan law,” and added that it only “clarifies and strengthens” an existing law that forbids direct sales of new cars in this state.
Tesla, after an appeal to the public in its blog asking Michigan residents to contact the governor and ask him to veto the bill after accusing dealers of making “a last-minute change to the bill in an attempt to cement their broader retail monopoly,” wasn’t buying Snyder’s attempt to skirt the issue. “Why would they make a change if it had no legal import?” said Diarmuid O’Connell, Tesla’s vice president for business development, per The Detroit News.
O’Connell said that the suggestion that auto dealers would pressure the legislature to approve a bill that only clarified existing law doesn’t pass the “basic sniff test.” The Detroit News reports him saying that the previous state law prohibited an automaker from selling new vehicles directly to retail customers except through its franchised dealers, and the new law removes the word “its,” which Tesla officials pointed out was an 11th-hour, “monopolistic strike at their upstart company that has no traditional dealerships,” according to the publication.
Essentially, the fight revolves around this: Many years ago, laws were passed requiring that automakers sell their wares through franchised dealerships as a means of consumer protection. The inter-competition between dealers would help keep costs of vehicles under control, and it would also prevent the automakers from charging exorbitant amounts for service and parts. But the issue at hand now is that most dealers make the bulk of their money through service, not on the sales of new cars. So a car like Tesla’s Model S — which doesn’t require oil changes or transmission services, et cetera — wouldn’t offer the financial incentive needed to prop up a dealership.
Therefore, Tesla has gone the way of direct sales, selling its vehicles online and through specialty retail locations, and overall, it’s been warmly received by consumers who enjoy the no-pressure, casual atmosphere. There’s no haggling over price and no waiting on managers (usually). Dealers are concerned that if Tesla is allowed to sell direct, thwn other automakers will find ways to follow suit and turn the entire dealership model on its head.
To remedy this, it seems they’ve turned to local legislatures to implement — or “strengthen” — bills that would undeniably prohibit direct sales of new automobiles. In doing so, however, they are running afoul of the supposed free-market economy and have drawn the ire of left-leaning EV enthusiasts and right-leaning free-market proponents alike.
Not surprisingly, the major automakers in the region supported Bill HB5606. “We applaud Gov. Snyder’s action of signing HB 5606. The bill will provide a level playing field for all automobile manufacturers selling vehicles in Michigan,” Ford said.
“We believe that House Bill 5606 will help ensure that all automotive manufacturers follow the same rules to operate in the state of Michigan,” GM echoed.
But here’s an another thought: If you’re committed to spending $70,000 at minimum on an electric luxury sedan, you’re more than likely committed enough to travel to one of Michigan’s neighboring states to pick up your Tesla there, where it’s not illegal for Tesla to maintain its retail space.
Alexis Georgeson, communications manager for Tesla, told Crain’s Detroit Business that Tesla will be spending $170 million on parts and suppliers in the state this year. But given the fact that there’s no real direct substitute for Tesla’s Model S — at least, not yet — consumers with their minds set on it will have no issue driving to Chicago or Columbus to pick one up, therefore pulling the business out of Michigan. Automotive News reported that for their part, suppliers opposed the change in legislation.
It’s also worth noting that this year is an election season, and in American politics, money speaks — and dealership associations generally have a lot of money. Snyder asked the legislature to resume the discussion next session, notably after the midterm elections. A law professor at the University of Michigan, Daniel Crane, described the bill as “corrupt politics at its worst” and added that the last-minute change was “a real travesty,” Green Car Reports noted.
“What’s good for GM’s customers is not necessarily good for Tesla’s customers,” Tesla said. “What’s good for gasoline cars is not necessarily good for electric cars.”
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