Posted on 10/25/2014 8:35:33 AM PDT by Kaslin
Against the interests of Michiganders, Governor Rick Snyder has signed a bill banning Tesla Motor’s direct-to-consumer automobile sales in the state.
The original focus of House Bill 5606 was on determining how franchise-dealership fees are charged. Then, right before the vote, an amendment banning automobile sales directly to consumers was added by State Senator Joe Hune. This backhanded maneuver shielded the amendment from public comment and debate.
Passed unanimously in the State Senate and with only one dissenting vote in the House, the “anti-Tesla bill” is an economic loss for Michigan. The state will miss out on tax revenue from sales of expensive Teslas (which can sell for over $100,000), but the negative consequences extend much further and speak to the widespread problem of special interests controlling politicians.
Unlike other car manufacturers, Tesla sells its vehicles directly to consumers in Apple-like retail locations without dealerships, outside salesmen, and price negotiations. Tesla is free to completely own the branding and ensure customer experiences meet its standards. This bypasses dealerships and their supporters such as the Big Three automakers who are, unfortunately, powerful political players.
The rationale for forcing people to buy cars at dealerships is not public safety. It is protecting favored industries that have contributed significant sums of money to politicians across the nation—especially in Michigan.
Governor Snyder has received more than $175,000 this election cycle from automotive companies. Is it any wonder that General Motors and Ford both said in statements that they “applaud” Governor Snyder’s decision. The Michigan Auto Dealers Association has been a long-time backer of Hune, and his wife is a lobbyist for auto dealers. While Snyder is calling for the legislature to eventually debate the merits of requiring automobile sales through dealers, if the results of the vote on HB 5606 are any indication, the Big Three and Michigan dealers have no reason to worry—they already have the legislature in their pockets.
The influence of these groups extends far beyond Michigan. The National Auto Dealers Association has spent $2 million on federal candidates during the current cycle. General Motors, Ford Motor Company, and Chrysler have spent a combined $34 million on federal lobbying and political contributions in the 2014 election cycle. Alternatively, Tesla has only spent $8,600.
The policies favored by automobile makers and dealerships raise prices for consumers. A Department of Justice report found that dealerships raise the cost of new vehicles, and advocates eliminating them. The report estimates that the cost of the current distribution system accounts for 30 percent of the vehicle price—and half of this increase is directly from dealerships.
The dealership model does have some benefits, such as flexible prices based on low financing rates. Dealerships also offer places for customers to service their vehicles. However, if dealerships benefit customers, why is it necessary to ban other manufacturers from using direct sales? If all consumers were truly benefitting, there would be no need to force everyone to shop at dealerships.
Technological advances are making direct order and delivery of automobiles economically feasible and appealing to certain buyers. Automobile companies that choose to sell directly to the public can also offer maintenance centers or direct their customers to qualified mechanics.
In other states that ban Tesla’s direct sales to customers the company still is free to offer “galleries” which do not sell vehicles, but let consumers learn about cars. Michigan is going a step further and banning informational galleries as well, so Tesla is not even free to talk to people about its cars. Apparently some hold entrenched business interests in higher esteem than free speech.
Consumers have very different preferences and reasons for purchasing vehicles, so one-size-fits-all systems make for poor policy. The market offers a variety of options for purchasing other consumer goods. Customers can choose from shopping directly with the manufacturer, visiting physical retail stores, or browsing online. Imagine if you could buy your next car on Amazon. The convenience and simplicity would appeal to many consumers who dislike the negotiating process and lengthy encounters with car salesmen.
Meeting the needs of diverse consumers requires retailers that are similarly diverse. Eliminating harmless transactions between consenting adults only strips consumers of choice and is detrimental to the interests of all involved—except entrenched competitors. When freedom of entry is limited, consumers lose.
In this case the legislature made it easier for Tesla to sell in Michigan.
“Are Teslas Federally subsidized like other electric cars? Are electric cars still subsidized?”
Are GM and Chrysler still federally subsidized?
Thank you for the web sites.
However, I also never pay MSRP on any new vehicles.
The dealerships will get their money with the maintenance and repair.
Dealers usually cut very good deals on ‘build-it’ models. No hassle in it for them. Customer does all the work on-line. The drawback is the wait!
Good post. Thanks.
“Anybody know why this is?”
If you buy a Ford that is crap do you take it back to the dealer, or haul it to Detroit?
Would you haul that Tesla back to California, or wherever that POS is made?
The law was to protect consumers.
I don’t like the idea of any auto manufacturer being forced to sell through a franchise but that’s longstanding law in Michigan and probably most other states.
Its ridiculous to believe what has become a very de-regulatory legislature under a very liberal “green jobs” republican would suddenly change direction to regulate Tesla out of the state.
My neighbor has a Tesla, bought in California. I’m not aware of any state preventing anyone from buying any brand of vehicle based on dealership location or lack thereof.
Aren’t these laws really about dealer license fees and storefronts with no protection for the buyer?
And Hussein picks who's gonna win, and who's gonna lose!
Yep. I agree.
But I don’t think some lib company should be exempt from the laws everyone else has to live under.
Buying a car here in Florida means talking to some slimey NYCer....generally the most disgusting people on the planet.
Id much rather buy a car direct and cut out the scum.....
I think you misunderstand what Tesla is trying to do. Here is a map of what they have done so far (red is current, gray is “coming soon”... notice the blank space over Michigan):
http://www.teslamotors.com/findus#/bounds/55,-70,15,-115,d?search=service
Tesla wants to run their *own* dealerships (complete with service centers and everything) instead of franchising them out. They believe that a franchisee that might also own other dealerships selling gasoline-powered cars would do a poor job of advocating the benefits of electric cars, since such a dealer would have mostly gasoline-powered inventory.
What this Michigan law has done is prevent Tesla from opening up local dealerships and service centers in Michigan using their manufacturer-owned business model.
“I read the article rather rapidly and maybe my question was addressed and I missed it but how does Tesla handle “trade ins” without dealerships being involved? Not allowed?” -Graybeard58
Tesla wants to run their own dealerships where all that kind of stuff would be handled. As far as you, the customer, is concerned it would be just like any other dealership except that the salespeople would not get paid based on commissions. Tesla is doing this in other states and this new law in Michigan ensures that it can't do it there, unfortunately.
“Prior to the change, automakers were required to sell through their own franchises. Now they can sell through any franchise. Ford can sell through Mercedes, Chevy can sell through a Toyota franchise. (Tesla needs lots of techs to fix the cars before any franchise will sell them)” -cripplecreek
Riiiiiight... so *that* was the point. I'm sure Ford and Toyota and Mercedes were all just waiting to hold hands and sell each others’ cars. /s
Posting images of the governor's baloney explanation proves nothing. Of course he doesn't want to admit that the only reason the law was changed was to ensure Tesla is locked out of Michigan.
“Its ridiculous to believe what has become a very de-regulatory legislature under a very liberal ‘green jobs’ republican would suddenly change direction to regulate Tesla out of the state.” -cripplecreek
It is ridiculous until you look at all the money that Joe Hune and Rick Snyder get in campaign donations from the dealers’ associations.
“I used to work for a major Ford dealership here in Michigan.” -cripplecreek
That explains a lot.
Oh goodie.
The Tesla sales liar has arrived.
It seems to me Tesla could implement a “work around” in about ten minutes.
Step 1 - Form a non-profit corporation in Michigan called “Tesla Automobile Owners Association”
Step 2 - Implement a program where Tesla donates cars to the TAOA for their employees to drive.
Step 3 - TAOA offers Michigan residents the opportunity to see the cars at an Enthusiasts Rally, held at the former site of the Tesla Gallery, which has now been donated to TAOA.
Step 4 - TAOA offers visitors the opportunity to preorder a used car from TAOA at a special discount (90% off with special financing, see below). TAOA informs Tesla of the configuration that TAOA wants donated and Tesla ships the car to TAOA.
Step 5 - TAOA registers the vehicle as new, drives the car 1 mile to make sure it is fully functional, then delivers the “used” car to the Michigan resident, and provides Concierge Service by an attorney to register the used car with the State.
Step 6 - TAOA donates the sales price of the “used car” to charity, minus expenses.
The Clincher - The Michigan resident finances the car through Tesla over 9 years with an interest only loan at 100% APR, or makes a prepayment penalty equal to 10% of the price of a new Tesla for each year left on the loan.
No doubt the plan can\\\ be adjusted to conform with State financing laws, but there should be a way to make this work out.
When you buy an electric car or a Chevy Volt the IRS takes up to $7500 less of your income at the point of gun.
So the claim is that a manufacturer doesn’t get to choose and impose conditions on a franchisee?
Personally, I suspect it’s probably just an attempt to keep hidden Tesla’s financial arrangements.
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