Tesla Gains Renewed Support From FTC For Direct Sales Model

Cameron Aubernon
by Cameron Aubernon
tesla gains renewed support from ftc for direct sales model

In its battles for the right to sell its wares directly to consumers, Tesla has found a valuable ally in the Federal Trade Commission.

Though the FTC has supported Tesla in the past, the agency recently reemphasized its pro-direct sales stance via a post regarding a new proposal working through the Michigan Legislature allowing so-called “autocycles” – i.e., Elio Motors’ wares – to be directly sold to the public, TechCrunch reports.

The autocycle bill – SB 268 – comes just months after Michigan passed legislation to clarify its position on automakers directly selling to the public, which the state has said was always verboten. The clarification, however, left the door open for further conversation on the matter of direct sales, such as the one proposed by SB 268.

The FTC said the final decision involving the business model would remain in the domain of each individual state’s regulators, though it would prefer policymakers to leave said decisions on such business models to both automakers and their consumers “absent some legitimate public purpose” in prohibiting certain selling methods.

[Photo credit: Ming-yen Hsu/ Flickr/ CC BY-ND 2.0]

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  • Ruggles Ruggles on May 15, 2015

    RE: "If the state laws that prohibit OEMs selling direct all went away tomorrow, I don’t think that the OEMs would rush to buy up their dealership networks, as that would be both prohibitively expensive and disruptive to their business." There are State and Federal laws against breaking contracts. RE: "I do think they would move strategically to improve distribution in markets they consider important, but that are at present inadequately served, or that are simply key locations they fell a need to be visible in." Define "inadequately served." If you give an OEM the right to arbitrarily declare a market "inadequately served", you give that OEM the right to apply their own definitions rather than a universal definition. Hence, state laws that prohibit such abuses. There are MANY markets where OEMs have moved to place a dealer to serve a market where there previously was no representation. They do this in a variety of ways. Ford calls it Dealer Development. GM calls it Motors Holding. Chrysler calls it MID (Market Investment Division) These are separately capitalized stores with an investor/operator, who invests, then has the right to buy out the OEM out of profits. MANY dealers began their career that way. Perhaps they borrow the equity out of this house for the initial investment. The OEMs know an entrepreneur with skin in the game runs a dealership better than a corporate hack. They have learned this lesson the hard way. RE: "I also recall that Chrysler at one point tried to use corporate resources to bolster its sales network in California. This sort of selective investment would make sense." MID - See above. The factory might own the majority of the stock, but the designated investor operator runs the store.

  • Ruggles Ruggles on May 15, 2015

    The domestic OEMs once believed in vertical integration, although they didn't call it that back in the day. These days, auto OEMs buy assemblies from suppliers and fasten them together. Ford used to produce their own steel, paint, and glass. No more.

    • See 1 previous
    • Ruggles Ruggles on May 15, 2015

      @Pch101 So true. There are many experts who are stumped by the car business. Many are convinced it is quite easy. The business has taught humility to many. There are many failures. There is nothing like being wiped out financially to teach life long lessons. The theorists don't have to deal with that. They stay on the sidelines, probably working as employees for others, while telling entrepreneurs how to run their business. And, like a broken clock, the are occasionally right.

  • Ruggles Ruggles on May 19, 2015

    RE: "selling margins are not factors in those decisions." Really. That's news to me.

    • See 4 previous
    • Ect Ect on May 21, 2015

      @ruggles The valuation methodology for acquisitions is pretty consistent across companies and industries. I get that you don't like the public companies' buying up scads of dealerships. They do however, achieve levels of profitability for their investors that are well above average, and certainly well above the OEMs they represent - see my reply to pch below. Will they ultimately crash and burn, as you hope? I don't have an opinion on that, one way or another.

  • Ruggles Ruggles on May 20, 2015

    Car car manufacturer making a 3% return wouldn't be around long unless they were propped up by a government wanting to maintain employment. That said, Tesla would love to be showing a consistent 3% return. Perhaps someday they will, and more. I am amazed that people have invested so much in Tesla without solid results. But there are many who invest in the sizzle. If they wait for the steak I guess the presume the big money opportunity will be gone. That's why they call it speculation. Monday I asked an attorney from the FTC why the agency allows staff members to post their opinions on the FTC official website. She didn't know what I was talking about. Perhaps she did but didn't want to talk about it. She was either evasive or ignorant about another issue that also involved the CFPB. I don't mean ignorant in a bad way. She graduated from Harvard Law. The point is that FTC is a huge agency and one hand doesn't always know what the other is doing. But the media gets hold of an opinion piece and construes it as if the post is agency policy. This isn't. I'll be asking the same questions from a recently retired attorney from 30 years at FTC to see if he has more information. This should be interesting.