Commentary

Tesla Directs Consumers To Take A Direct Message To Michigan's Governor

Tesla Motors is urging consumers to take a direct message to Michigan Gov. Rick Snyder: Veto a bill by tomorrow’s deadline that would effectively prohibit Tesla from opening a store in the state to sell its high-end electric vehicles directly to them. 

“The bill originally was introduced in May to deal with an unrelated issue: standardizing how much new-car dealers charge customers for documentation fees detailing the car-buying process,” report Michael Martinez and Michael Wayland in the Detroit News. “… But the amendment containing the prohibition on sales by anyone other than franchised dealers was added quietly Oct. 2, right before the bill went to a final vote.”

Diarmuid O’Connell, Tesla’s VP of business development, tells the reporters that the company was “blindsided” by the move, which it claims in its blog was initiated by state Sen. Joe Hune. 

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“Unsurprisingly, Sen. Hune counts the Michigan Automobile Dealers Association as one of his top financial contributors, and his wife’s firm lobbies for the dealers,” according to the Oct. 16 post titled “A Raw Deal in Michigan.” Hune has apparently not responded directly to the charges although he accused his Democratic opponent in upcoming elections of “mudslinging” when she repeated the accusation, according to WHMI.com.

“This amendment was put in last-minute, under the cover of darkness, probably with a calculation that it would be much more difficult (to pass) in a public debate in the light of day,” Tesla’s O’Connell tells Martinez and Wayland. “There is a basic issue of fairness here; we didn’t have an opportunity to come and debate this bill.”

Synder, a Republican whose tagline is “Getting It Right. Getting It Done,” is reportedly doing his “due diligence” and has not reached a decision.

Forbes contributor Micheline Maynard points out that Detroit’s automakers don’t seem to have anything to do with the effort to preempt Tesla from setting up shop. “In fact, they seem intrigued by what [founder Elon] Musk has been able to do in the luxury car market,” she writes. 

“This year, the automaker also faced similar arguments with dealers from Pennsylvania, Ohio, New York, New Jersey, Missouri, and Georgia,” reports Menchie Mendoza in Tech Times. “All arguments, however, ended with parties reaching certain compromises.”

"States are fully within their rights to protect consumers by choosing the way cars are sold and serviced,” Charles Cyrill, a spokesman for the National Automobile Dealers Association, emails Mendoza. “Fierce competition between local dealers in any given market drives down prices both in and across brands. If a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.” 

In the New Jersey case, Gov. Chris Christie signed legislation in March that made it the third state (after Arizona and Texas) to ban direct sales of automobiles to consumers. In June, however, the New Jersey Assembly Consumer Affairs Committee unanimously passed a bill that allowed Tesla to sell cars through two existing dealers in the state to open up two more.

"The bill applies to all zero-emission vehicle makers, giving them the right to open up to four showrooms in New Jersey,” reports Darrell Etherington in TechCrunch.

One of the byproducts of that battle was an open letter to Christie that was written by Daniel Crane, a professor and associate dean for faculty and research at the University of Michigan Law School, and “signed by 72 of the most prominent economists and law professors in the country,” Crane maintains in an opinion piece published in the Detroit Free Press urging Snyder to veto the Michigan bill. 

“There are no good economic or policy reasons to prohibit direct distribution in today’s market,” the economists maintained. “A study by the Justice Department found that direct distribution could save consumers more than $2,200 per vehicle,” Crane continues. “The staff of the Federal Trade Commission have come out against restrictions on direct distribution, and not a single consumer, environmental, or civic association is taking the dealers’ side.”

Writing in USA Today, the Detroit Free Press’ Greg Gardner observes that “dealers have tolerated and learned to cooperate with online car shopping services such as Edmunds.com and TrueCar.com. But a manufacturer who bypasses the traditional franchise system to sell directly, either in physical stores or online, is a threat, even a low-volume automaker like Tesla.”

Musk’s ambitions, however are much grander — “he wants Tesla to be the next major American car company — shifting the paradigm of the last century from what has traditionally been known as the ‘Big Three’ to the ‘Big Four,’ as Nick Chambers puts it on AutoTrader.com.

And Christie Nordhielm, associate professor of business at the University of Michigan's Ross School of Business, tells Gardner that “the market will eventually push” in the direction Tesla is nudging it. “Rule one of distribution is there's only one customer, and that is the consumer,” Nordhielm maintains. “Everyone else is a middle man.”

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