Welcome to Michigan.
It’s home to Detroit, otherwise known as Motor City, USA. It’s the birthplace of the modern assembly line, and the state that put a nation on wheels.
Michigan is home to the national and/or global headquarters of big manufacturers like Ford, GM and Fiat Chrysler. And while at one time, buying a foreign car in Michigan was akin to an act of treason, today you can find plenty of dealerships selling everything from Toyotas to Kias.
However, what you won’t find is a Tesla in a showroom anywhere in the state. Nope, no brand spankin’ new Teslas will be sold here, by golly.
Why? Because Michigan has a law requiring new cars be sold through franchised dealerships, and Tesla wants nothing to do with franchised dealerships.
Michigan is one of several states in which battle lines are being drawn over the issue of direct-to-consumer auto sales. It’s a fight that’s pitting the Federal Trade Commission against auto dealers, with both side insisting their position is the one that most benefits consumers.
FTC says states are wrong, wrong, wrong
Michigan is one of five states with an outright ban on the direct sale of cars from manufacturers to consumers. The others are Texas, Iowa, Arizona and West Virginia. In addition, a number of states have restrictions on direct-to-consumer vehicle sales, and legislation or court cases related to the issue are pending elsewhere. You can check out this map from Automotive News to see how your state lines up on the issue.
The FTC is none too pleased with states that have chosen to stifle direct-to-consumer sales. In a blog post in May, the commission wrote:
A fundamental principle of competition is that consumers – not regulation – should determine what they buy and how they buy it. … Our point: States should allow consumers to choose not only the cars they buy, but also how they buy them.
While the FTC has no jurisdiction over the matter, it’s been vocal in its opposition to the restrictions, posting to its blog and sending letters to legislators whenever possible. It notes that these state laws not only affect Tesla but may impact other businesses as well, such as the start-up Elio Motors that wants to produce affordable cars to sell directly to consumers.
NADA says dealerships save consumers money
On the other side of the issue are car dealers, represented by the National Automobile Dealers Association. This organization has put together a spiffy little video that highlights its argument against direct-to-consumer sales.
You can watch it here, but in a nutshell, it argues that by eliminating dealerships, you also eliminate price competition and potentially limit service options for consumers. What’s more, NADA argues dealerships provide additional employment opportunities for the local community and pay taxes that support schools, roads and other local infrastructure.
Money Talks News finance expert Stacy Johnson contacted NADA for an interview, but they declined. Instead, they sent this statement regarding their position.
When local new-car dealerships compete for business, consumers win with lower prices. Rigorous academic research shows that price competition among local dealerships lowers car prices by an average of $500 on the most popular models, yet the FTC staffers refuse to even consider that evidence.
Why Tesla isn’t backing down
A quick look online finds plenty of Tesla fanboys (and girls) raving about the cars’ sleek designs, stellar safety ratings and intuitive controls. These are the electric cars that are, in some people’s minds, going to spark a revolution and have us turning our backs on the gas-guzzling vehicles we have been driving for decades.
With so many people apparently clamoring for access to Teslas, why doesn’t the company simply enter into a few franchise agreements to expand access to its cars? Wouldn’t that make better business sense?
Maybe, but the answer appears to lie with company founder Elon Musk. Here’s what Karl Brauer, an analyst for Kelley Blue Book, told The Washington Post.
I think Elon wants to have full control of having the cars retailed through a system he has total say over. And, two, I think he enjoys the concept of upsetting the apple cart; he enjoys knowing that he’s breaking existing conventions on every level.
Plus, consider that Musk is worth $11.9 billion, according to Forbes. It would seem he has enough resources to bide his time and wait for states to come around to his line of thinking. Beyond that, given the price tag for a Model S — $75,000 in 2015 – anyone with the cash to buy a Tesla likely has enough to travel to another state to get it.
So here we are. Some states, like Michigan, say you can only buy through franchised dealers and allowing direct-to-consumer sales would undermine a dealership system that fosters lower prices and increased customer service. On the other hand, the FTC, Tesla and their supporters say limiting manufacturer sales is un-competitive and, well, maybe even un-American.
What do you think? Should states allow consumers to buy cars directly from manufacturers or should all new sales go through a dealership? Tell us your thoughts in the comments below or on our Facebook page.