Why You Can't Buy a Tesla

Michigan Capitol Confidential ^ | 12/6/2015 | Jarrett Skorup

[MichCapCon]

If a Michigan citizen wants to buy an iPhone from Apple, they can go to an Apple store, buy one from another merchant, or order it online.

But if a state resident wants to buy a Tesla, too bad — they'll have to go to Ohio or another state to get one. That's because a law meant to protect new-car dealerships prohibits a manufacturer from directly selling a car to a consumer.

At a luncheon hosted in Lansing this week by the Mackinac Center for Public Policy, Dan Crane, an associate dean and law professor at the University of Michigan, explained to legislators and others in attendance how these laws came to be and why they no longer make sense.

Crane said direct distribution of automobiles — manufacturers selling directly to consumers — is allowed in about half of the states, mostly along the coasts (though also recently in Ohio). In the other half of the nation, automakers are required by state laws to sell their products through a dealer.

“That’s bad for consumers, that’s bad for choice, that’s bad for efficiency and innovation,” Crane said.

The laws came about in the 1930s and 1940s, putatively to protect small dealerships from losing business through actions taken by the Big 3 automakers. At the time, the Big 3 controlled almost the entire car market. They sold directly to consumers, in addition to selling through franchised dealers and through other stores.

In contrast, today there are 10 automakers selling at least 100,000 vehicles per month nationwide, and the competition is fierce.

Crane argued that the economics of distribution mean that sometimes direct selling makes sense while other times third-party dealerships or a combination is better.

Apple and cell phone companies are an example of dual distribution, where the product is sold online directly from the manufacturer as well as through third parties. Other companies, as Gateway computers did years ago, sell only directly to consumers.

Companies like Tesla and Elio want to sell directly to consumers here, but can’t. Crane said from a public policy standpoint, “There is no reason why the law should favor one type of distribution or another.”

He added, “This is not an anti-dealer or pro-Tesla argument. … The system works best when competition drives the distribution strategy.”

Defenders of the status quo use four main arguments against lifting the restrictions, and Crane offered rebuttals to each.

"Direct distribution gives manufacturers a monopoly over retail sales."

Crane said the reality is the opposite; the model allows greater competition and lowers prices for consumers. He cited a 2009 Justice Department study that found direct distribution saves auto buyers some $2,200 per vehicle on average.

"Vehicle manufacturers won’t provide adequate levels of after-market services. So for example, a buyer who ended up with a lemon would have nowhere to go for repairs."

Crane said there is no evidence this happens in the states that allow direct sales. Manufacturers know their brand would collapse if this happened. Moreover, Michigan’s current system actually causes this problem right now, because Tesla wants to invest in service centers here but is prohibited from doing so.

"Fewer restrictions would lead to unsafe cars on the road."

Crane noted that current safety and quality issues at General Motors and Volkswagen are happening despite the franchise model. In any case, dealers don’t make recall decisions; federal regulators do.

"Direct sales is bad for local economies and small businesses."

This is the most frequent claim, and Crane cited studies that show direct distribution creates more local jobs, not fewer. Tesla and Elio want to invest in Michigan, build service centers and hire workers – but they cannot.

“If anything, this model is sending jobs to the Buckeye State,” Crane added. "This is not a story of big business versus small business; it is big business versus consumers."

He also observed that this isn’t a liberal or conservative issue. There is a broad coalition supporting reform that includes free-market supporters, environmentalists, and many in between.

"From the Sierra Club to the Koch Brothers," Crane noted.

He said that independent studies on this issue all conclude that more market freedom leads to better outcomes for consumers. That view is supported by a letter sent by the Federal Trade Commission last May to Michigan Sen. Darwin Booher. It said, “In our view, current provisions operate as a special protection for dealers — a protection that is likely harming both competition and consumers.”

Crane concluded that while regulatory policy is complicated and controversial, “On this issue, I do not know a single economist across the political spectrum, a single law professor across the political spectrum, who believes these laws are good for consumers or the economy.”

[CodeToad]

You can’t buy one because you cannot afford a $130,000 car.

[lacrew]

I’m all for letting manufacturers sell direct...but I would never buy from them.

Ever get a recall notice? Ever need warranty work?

Usually you just go to the nearest dealer. But with Tesla, your experience will be similar to sending an IPOD in to get the battery replaced.

[chajin]

Way back when, my father ordered a Chevy to be delivered to him in NJ, because we were moving back from Japan. We ended up living across the river in PA near the grandparents, but he still had to pick up the car in NJ. At the time, he paid NJ sales tax when he picked up the car, but then he had to pay PA sales tax on the same car when he registered the vehicle. I wonder if the same thing happens to MI buyers of Teslas in OH.

[DJ MacWoW]

Tis The Season
To End The FReepathon

Click The Pic To Donate

[discostu]

Not necessarily. My warranty on my Hyundai can be exercised at any ASE certified mechanic. Very easy for a manufacturer to make agreements with oversight bodies and even chains.

[PIF]

$130,000 car which is poorly rated piece of yuppy junk, which goes nowhere without either burning coal, gas or killing masses of birds and bats, not mention the horrendous pollution needed to make the battery.

[RightOnTheBorder]

Many states have reciprocal tax deals with each other. For instance I live in Texas but if I buy a car in Arizona I have to pay the AZ sales tax, along with the city and county taxes (which they disgustingly call a “transaction privilege tax”). When I register the vehicle in Texas the tax I have to pay is the difference between TX sales tax and AZ sales tax.

[equaviator]

Tesla? BFD!

[Dilbert San Diego]

This sounds to me like some regulations which should be looked at, based on changes in the world and technology since the regulations were enacted.

Maybe it made perfect sense at one time, decades ago, to compel manufacturers to sell cars to consumers only through franchised car dealers. But do the same conditions which caused so many states to enact such regulations decades ago still exist?

And is there a compelling governmental/societal interest in the business structure of the car business? Is there really a compelling interest in supporting the franchise business model for car sales???

[jjotto]

Nonsense. There are a number of Tesla owners in Michigan and other states where Teslas ‘aren’t sold’. Can’t buy a Maserati in Iowa, but any Iowan with the money can buy one in Chicago.

[Lurkina.n.Learnin]

And that’s the crux of it. You don’t want to buy that way and that is your prerogative. Choice is good.

[chajin]

Thanks for the info; I haven’t lived near a state border in over 35 years :-)

[wbill]

I've never driven a Tesla and know little about them, so take what's coming next for what it's worth.

I've only seen two Teslas (or the same one twice), and both times they were behind a tow truck. Once on a regular tow truck, the second time on a flatbed.

Was enough to get my attention. Doesn't matter, because I can't afford to buy one, anyway.

[Afterguard]

Pretty much unrelated to the OP, but yesterday I noticed that there is a Tesla dealer in the St Johns Town Center mall in Jacksonville. It’s located in what I think used to be a jewelry store. I just thought that was kind of odd...

[DannyTN]

I’d like to buy a Tesla and put him to work finding a way to get us out of this alternative reality.

[Zeneta]

OK, so, if I had the money to burn I would buy a Tesla.

And a Cadillac Escalade.

My Tesla wouldn’t have some smug vanity tag like;

SUN PWR

Watt

Plug In

LOL Gas

No TankU

No Gas

Eff Oil

C02 NoMo

and on and on.

My Tesla tag would be;

“COAL PWR”

and my Escalade?

“Tree Fdr”

[Quality_Not_Quantity]

$130,000 car which is poorly rated piece of yuppy junk, which goes nowhere without either burning coal, gas or killing masses of birds and bats, not mention the horrendous pollution needed to make the battery.

You've obviously never priced one out, as your figure is for the top-of-the-line model. Entry-level models are roughly 1/2 that much. And as far as the 'poorly rated' part, what are you talking about - the fact that they've had some recent problems with door handles?

Regarding pollution, I'm sure that the production of 'regular' cars produces some amount of pollution as well - so let's not pretend otherwise.

Have you ever driven one?

[PLMerite]

"You can't buy one because you cannot afford a $130,000 car."

If I had $130k to drop on a car, it wouldn't be that one.

Maybe one of these:

Beacham Jaguar Mk2.

[shotgun]

In 1965 ( I was five and my brother was 7) my father worked for the Ford Motor Company as an automotive engine mechanic instructor at the first ever Job Corps facility. As an employee he could have purchased up 7 vehicles a month at cost. When my brother and I got into our middle and late teens we asked him how come he didn’t by a few 427 Shelby Cobras.

He responded with a “What the hell would I want those for” even after we explained that they were worth several hundred thousand dollars at that time.