By on October 16, 2014

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Sitting on Michigan governor Rick Snyder’s desk is a bill that would add the state to the list of places where Tesla cannot sell its vehicles directly to the public, waiting for his pen to seal the deal.

Automotive News reports Michigan H.B. 5606 was originally meant to determine whether or not automakers could stop their dealership networks from charging consumers certain fees when it was introduced in May, only for the anti-Tesla language to be appended to the bill by the state senate prior to passage — and without notice or debate — during the first two days of October. The bill then returned to the state house, passing 106 to 1 before landing on Snyder’s desk.

On the third day, Tesla contacted the governor’s office to have “a very open and productive dialogue” with those in the Snyder administration, according to vice president of business development Diarmuid O’Connell. He added that the automaker had been watching the bill since its introduction, citing its experience with other bills where anti-Tesla language had been stealthily implemented.

Meanwhile, Michigan Automobile Dealers Association executive vice president Terry Burns applauded the bill, proclaiming that while Tesla are “more than welcome” to do business in Michigan, he would hope they do so based on state law:

One good thing about being governor, you get to do whatever you think is appropriate at the time. We hope and look forward to him signing the bill and clarifying the language, and we hope he does it soon.

As for when the governor would decide the fate of H.B. 5606, a representative said the bill was being evaluated, but nothing has been decided thus far. Snyder has until October 21 to sign.

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37 Comments on “Michigan May Ban Tesla Direct Sales Pending Governor’s Signature...”


  • avatar
    DeadWeight

    Snyder will sign this & lose a massive amount of credibility & goodwill that he has built with many of his core supporters over the last 4 years.

    • 0 avatar
      cronus

      His choices are either to sign it and be known as the governor who is in the dealers pocket for blocking their competition or he can veto it and be known as the governor who is in the dealers pocket for vetoing a bill to reduce the fees that dealers can charge.

  • avatar
    CoastieLenn

    I guess I don’t understand what the big hooplah is about direct sales. I fully understand that the lack of a dealership network poses a loss for some miniscule amount of jobs and tax revenue, but the number of cars that Tesla produces and sells simply doesn’t warrant having the large overhead of a dealer network.

    Color me confused.

    • 0 avatar
      HerrKaLeun

      Because dealers are in the State and donate money to State campaigns. Manufacturer is in different State

    • 0 avatar
      VoGo

      Because Tesla is the camel’s nose in the tent. If you allow Tesla to sell direct, then you have to allow all automakers to sell direct.

      Which would put the local dealerships out of business. Which would rob local politicians of the millionaires who support their campaigns with contributions.

      • 0 avatar
        DeadWeight

        What Herr You VoGo said.

        I typed out a detailed, technical response and it never posted (I think Ruggles intercepted it).

      • 0 avatar
        redav

        I don’t think so. It was reported once that GM didn’t even know how many employees it had because they were so large & disorganized. Does anyone really think that adding an entire new structure to their business to handle dealerships would be wise for them?

        The big, existing car companies would not do well trying to own too many of their own dealerships. It’s just a different business model that wouldn’t work for them. According to autoline, Musk recognizes that if Tesla grows enough, then they may not be able to manage owning all their dealerships, either.

        Dealer associations have little to really fear, just like established businesses didn’t have that much to fear from all those web start-ups in 2000. However, those that reacted badly, resisted change, and didn’t leverage their existing strengths definitely suffered. Maybe Tesla is Amazon or maybe it’s buying groceries online. Either way, if dealership associations stick their head in the sand and deny the evolution of the world, they will fail.

        • 0 avatar
          stuki

          The early 2000s retailers, had not grown dependent on markups only available to those with exclusive franchises.

          Go to a car dealer and estimate the total costs inherent in keeping the place open. Then divide by the number of cars they sell in a given period. There’s plenty of flesh to cut.

          And that doesn’t even take into account that there are virtually no group of people with heavier representation amongst $5+million net worthers than auto dealers.

          We’re not talking about disrupting retailers with Walmart thin margins here.

    • 0 avatar
      DeadWeight

      The resistance to direct sales of passenger vehicles is among rooted in anti-monopoly laws of the early 20th century).

      Politicians and regulators feared that manufacturers would more easily be able to collude on fixing prices if there wasn’t a more fragmented, diverse distribution channel to foster price competition.

      This then led to massive and arcane legislation elevating the rights, and frankly, privilege of independent automotive dealerships, as someone sort of protected class to be protected/shielded from the “more powerful” hand of manufacturers, much in the same way that franchisees are seen as highly vulnerable to the power of the franchisor in the context of the modern day fast food outlet.

      The problem is that the legislation has not only outlived its essential function, given the incredible diversity of manufacturers today, and the global, intense competition on pricing that has resulted, but that these same laws now actually inevitably add layers of cost to the end bridesmaid by the consumer, given the incredibly inefficient independent dealership franchise model that has now developed through The National Automobile Dealers Association (NADA), now perpetuating its very own status as being protected and sheltered from many would be competitive pressures through the lopsided lobbying dollars that NADA funnels to elected officials (especially at the state and local levels of government).

      In summary, there is still 20th century legislation that is enforced based on a vision of the automotive manufacturing and retail world that no longer exists, and actually directly hurts consumers by increasing transaction costs associated with vehicle purchases.

    • 0 avatar
      jkross22

      Wouldn’t this mean additional revenue for Illinois, as Chicago has the closest Tesla dealerships to Detroit and the cars would simply be purchased there (as well as sales tax revenues going to somewhere other than MI)?

      Greed, in the long term, can be quite unprofitable.

  • avatar
    ras815

    I long for the day when all vehicles can be bought directly (or, say, through Amazon) and not through the pain-inducing middle men of car dealerships. Please keep up the good fight, Tesla.

    • 0 avatar
      jrhmobile

      Actually, there are a lot of people who consider Amazon a direct synonym for pain-inducing middlemen.

      I’m all for manufacturers selling direct, provided they back and support their products. Tesla has proven itself up to the task, and had never been encumbered by dealer/agent relationships. I see no reason, short of NADA’s lobbying to maintain its members’ rent-seeking status, why Tesla shouldn’t be able to maintain its direct sales channel.

      • 0 avatar
        DeadWeight

        Why not let a more free market oriented approach resolve those concerns?

        I understand that market failure occurs from time to time and that this necessitates a need for regularly & legislative intervention (classic case is externalities with pollution), but do you really, truly believe that the existing dealer-franchise model is an efficient one, or that large scale manufacturers who would choose to direct sell wouldn’t be forced by market conditions to price their products competitively and to guarantee repairs and service after the sale (state law requires this as is in almost every state, if not all, states, AFAIK)?

        Franchise-dealers really are a middleman inefficiency layer that drives up the final price of the vehicle to the end consumer, and arguably, they possibly (likely?) do a worse job in terms of customer satisfaction regarding the sales process than a manufacturer staffed facility would (e.g. Tesla).

        • 0 avatar
          Pch101

          Monopolies generally result in higher prices.

          If the retailer is a monopolist, then it will charge higher prices, since it has no retail competition. A universal direct sales model would make cars more expensive.

          Much of the world already has direct car sales, and they are paying more than we are. This direct sales nirvana does not exist.

          • 0 avatar
            DeadWeight

            How many manufacturers produce and/or have their cars/trucks sold in North America? I think there are over 30 manufacturers, no?

            How is letting that many manufacturers directly sell their vehicles to the public, given the extremely competitive market, akin to any monopoly?

            It wouldn’t even remotely constitute anything remotely close to an oligopoly.

            This isn’t the 1950s, where three carmakers controlled 98.7% of the sales taking place.

          • 0 avatar
            Pch101

            There is obviously only one place to buy a new Tesla. It isn’t possible to play the Tesla stores against each other because they are all owned by the same entity.

            Dealers can often be pitted against each other. Unlike the Tesla stores, they have to compete against each other for buyers of the same brand of car. They have an incentive to haggle, because they don’t want to lose the sale to a rival store.

          • 0 avatar
            ect

            Talk about naive…

            Auto dealers don’t lavish money on politicians to protect the poor consumer. Like liquor distributors, they’ve got a very good thing going, and they don’t want the free market to ruin it.

            As you should know, car pricing varies around the world based on local cost factors (labour, real estate costs and taxes come quickly to mind).

            When I travel to the UK or Europe, I tend to see the same numbers on price tags for most anything that I do in North America – the difference is the currency sign. So, it’s no surprise that a $20,000 car here is roughly €20,000 or ₤20,000 in European and UK markets.

            On this issue, Deadweight is right.

          • 0 avatar
            Pch101

            It’s nice that two of you don’t understand basic rules of capitalism. When shops have to compete against each other, prices get soft.

            Car prices in the US are lower for many reasons, the nature of the distribution network being one of them. There’s more retail competition in the US and dealers here hold inventory, which creates pressure on the retailer to turn it.

            Tesla doesn’t have that pressure when it builds to order and it doesn’t have stores that undercut each other, so cars are sold at MSRP on a take-it-or-leave-it basis. That makes cars cost more for the consumer, not less.

          • 0 avatar
            ect

            “It’s nice that two of you don’t understand basic rules of capitalism. When shops have to compete against each other, prices get soft.”

            In the textbook you read, maybe. But in the real world (the one that exists beyond your cubicle), it’s often rather different.

            Cars are sold by dealers in the US because state laws mandate it. The states have subverted the free market, with predictable results.

            We see that auto dealerships are extremely profitable, so that dealer associations have lots of money available to lavish on politicians – to ensure that their legislatively-created sweet deal doesn’t get changed.

            These excess profits are simply economic rent, which is paid by consumers.

        • 0 avatar
          MBella

          I, as a dealership employee, agree that the mandate one independent dealers is stupid. It just leads to dealers and manufacturers always trying to stick it to each other. In the end, the customers are who pays. When I do a warranty repair, the dealership orders a part from the manufacturer, and marks it up substantially, just to sell t back to them. How does this make any sense. It’s basically the Enron business model, just government protected.

    • 0 avatar
      Jerome10

      I’m not 100pct sure but aren’t there services today where you can basically do this? Everything done online and you just go to the dealer to get the keys?

      Or is it still not quite that simple.

      But I agree… I want it to be as easy as buying a television.

  • avatar
    mcs

    Musk was right about some dealers not properly marketing an EV. We have a local dealer, Kelly Nissan of Woburn MA, that went through the trouble of putting in a level 3 charger and a couple of level 2 chargers, but allows the used car manager to ice the spots. I have the optional surround birds-eye view cameras and can wedge my car in close enough to get a DC fast charge, but not everyone will do it. Potential Leaf buyers see the blocked-in spaces and probably get discouraged. Most dealers I’ve found don’t do that including the same dealerships Lynnfield MA store – although they don’t mark the space EV only.

    So, if the dealership doesn’t give a rats ass about the chargers, what else is going on. Nissan whines that they don’t have control, independent business etc. Sucks to have someone else dictating your companies marketing that may be contrary to your own goals. Oh, and Mass. Dealers association, if you’re reading this,next time you try to challenge Tesla in court, I have a nice friend of the court brief to file.

    • 0 avatar
      Toad

      You are angry because the local Nissan dealers do not dedicate parking spaces for you to show up to get free charging?

      Methinks you have entitlement issues. Get your own charger, pay for your own juice.

      • 0 avatar
        Luke42

        He did pay for a $30k car from a Nissan dealer, and whoever sold the to him told him that being able to use the chargers at the Nissan dealer was part of the deal. He has a point.

        I’ve been shopping for a Leaf, too, and my local dealer dismisses the car as “not useful around here”. (I live in a college town surrounded by corn&beans, and my other car is a minivan, so I have a use for a Leaf – but I haven’t pulled the trigger.) They said that the only reason they had one on the lot was that Nissan made them take it. They’ll be happy to take my money for a special order, of course, but they won’t try to actually sell the Leaf until customers start beating down the door and demanding it. If you really want to sell electric cars, working with this dealer would leave you with a chicken and egg problem. There are at least a few independent Nissan dealers who are far from being the the ideal partner – and a business isn’t going to succeed if they make strategic mistakes like picking a partner who has no interest in moving the metal.

  • avatar
    Jerome10

    Vogo and dead weight nailed this.

    This is throwing a bone to a constituency and maintaining a protected market.

    The auto dealer version of taxi medallions.

    And agreed that if Snyder signs, he’s gonna really p-off a lot of folks.

    Open the market to the best ideas, Tesla or from elsewhere.

  • avatar
    redav

    The simple fact that dealer associations act in dishonest ways is indication enough that they are not organizations that exist for the public good.

  • avatar
    Astigmatism

    Hey everyone, let’s have fun with Rick Snyder quotes!

    “We create the environment, the playing field for success, and let free enterprise work.”

    “We did good work there through the office of Regulatory Reinvention and the work of this body working together. If you look at it, we eliminated over 1,000 rules last year on a net basis. We’ve roughly eliminated ten rules for every new rule we’ve added. That’s how you create an environment that’s conducive to business, while still protecting our citizens that will generate jobs.”

    Come on, you can all join in!

    • 0 avatar
      MBella

      I relaized he was full of it when he first started running campaign ads. He was apparently this crazy genius nerd that had this very complicated plan to save the state that only he could understand. He posted this gift to humanity on his website. It was just 20 vague bullet points. Things like “bring back jobs to MI” and “Save manufacturing”

      On another note, why the need for a new law. Isn’t Tesla’s direct to customer business model already illegal in Michigan?

  • avatar
    stevelovescars

    Allowing Tesla to sell directly does NOT have anything to do with allowing all other manufacturers to do the same. These pro-dealer laws usually fall under franchise protection rules… in other words, protecting franchisees (dealership owners) from having to compete directly with the OEM. Since Tesla has no franchised dealers, there is nobody to “protect.”

    Other manufacturers who have franchise agreements in place still won’t be able to come in with factory stores.

    Michigan has traditionally had very pro-dealer rules. When I was growing up, it was commonplace for dealers to only be open past 5 pm one day per week and NEVER on Saturday or Sunday. This made cross-shopping (or any shopping, for that matter) difficult for consumers who had jobs. Dealers that started trying to expand their hours usually got bricks through their plate-glass windows. This wasn’t a law, but basically a form of collusion by dealers to limit competition. I think there were some unions covering dealer employees as well.

    This does seem like a lose-lose proposition for Gov. Snyder. Couldn’t happen to a nicer guy.

  • avatar
    Duaney

    Oh it used to be a free country!

  • avatar
    olddavid

    You morons who believe in the good will and intentions of Elon Musk are the same people who believe unions are a “good idea” with no place in modern society. Well, to you who will allow this “camel in the tent”, I wish you good luck in 2040 trying to get anyone’s attention on an engineered warranty claim. “But they promised……”

    • 0 avatar
      MBella

      Even today, it’s the manufacturer who decides if something will be covered under warranty. The dealership has absolutely zero say. If I believe something should be warrantied, and the manufacturer doesn’t, all I can do is talk about it in the comments section of an autoblog.

    • 0 avatar
      Luke42

      Limbaugh-style strawman arguments only work when the people you’re talking about are not in the room.

      I’m an EV enthusiast who lives in a strongly union state. I don’t have a problem with unions, at least so far, because the union guys I’ve worked with show up on time, do quality work, and ask for a living wage and a safe working environment in return. That’s a fair deal to me. I reserve the right to change my mind if they ask for a different deal or I get caught up in infighting between unions with overlapping work responsibilities – but so far, so good. I can probably keep it that way, too.

      But I’m under no impression that either car dealers or Tesla are out for my own good. They want to make as much money from me as they can. Some dealers/companies try hard to maintain a customer relationship over the long haul (Toyota), some just grab your wallet at the first opportunity (Volkswagen). Some try (Ford), but won’t sweat it if it doesn’t work out.

      Where will Tesla fall? Don’t know. I know they want my money, and they have a compelling product. Forums suggest that aftermarket support is good. But I’m not kidding myself about what they really want from their customers. I still want a Telsa because I’m a geek and it’s a nice eleictric car, but companies run on cold hard cash – regardless of what their founders say, and that’s what Tesla wants from me. Just like every car dealer I’ve ever done business with.

      The price competition is mostly between brands in my observations, without much difference in price between dealers.

      Yea, so quit it with the strawmen, OK? Starting with a poorly informed characterization of someone else’s argument, and smashing down your own characterization of it doesn’t teach anyone anything – and it only works if you’re preaching to the choir. When the well heeled liberal EV enthusiasts show up, though, you’ve got to argue with our actual opinions – rather than with a purposefully weak strawman of your own contruction, a strawman that doesn’t really exist.

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