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.
WHAT?! What are we supposed to do with those 500,000 batteries per year tesla is going to build at their plant outside of Reno now? Is there really gonna be a need for that many batteries? Guess that’s elon musk dreamin’ big.
Are Teslas Federally subsidized like other electric cars? Are electric cars still subsidized?
I don’t understand why it evolved, that car companies sell cars through franchised dealers. Apparently there is a requirement that retail car dealers be set up as franchises, and that the manufacturers are required to sell through franchised dealers.
Anybody know why this is? Does a retail car dealer have to be a franchise? What about all the independent used car lots which sell many different brands of cars?
They overlook the fact that if you want to register your Tesla in MI you will still have to pay the same sales tax.
Most states do have strong laws protecting the rights of Dealers..from the consumers and from the manufacturers. They are a powerful lobby just like real estate brokers.
I would, if i had the Money! LOL!
BOL!
Sure if I was an up and coming wealthy young yuppie working for Google or Apple, and I was a faux enviral wanting the tax payers to fund a large % of my purchase. Then I could smuggly drive in the HOV lanes and claim to be a real enviral!
Why can’t consumers buy cars directly from the manufacturers
I would love to buy a car with my own specs and not pay for all those add-ons that the dealers put on and charge a premium for.
But, the manufacturer-dealer relationship is mutually beneficial, as the manufacturers also dump some of the less popular cars on the dealers.
Sell them out of state. Let Michigan twist in the wind on this nonsense.
I hear you.
(I should have added a /s tag...LOL)
I had one customer who had a Tesla, and you would not believe what he had to install on the side of his house to charge the thing.
I asked him where THAT electricity, going through that monster cable, was coming from.
As far as I know, every manufacturer allows you to custom order and build a vehicle (it’s easiest on-line). Autos are high maintenance. You really want to send it back to the manufacturer when something odd happens with it?
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?
Long ago a college professor lectured that “the primary purpose of licensing is to restrict competition” ;I think that is one time the professor got it right.
Dealerships are franchises. The car company has lots of control over how the dealership looks and runs. The dealership is the face of the car company so this makes sense.
I wrenched my way to shop foreman in three different dealerships. I now spin my wrenches for an independent shop. Car dealerships are the most wretched hives of scum and villainy outside of government.
I have no use for Tesla and government subsidized electric cars. But the no dealership model is a good idea. As long as factory trained technicians and parts suppliers are available for warranty work, I side with Tesla and free market folks.
Years ago, I went to a dealer to order a car with specific color and interior. Nope, won’t do it. Maybe things have changed.
There will always be dealerships around, because they make most of their money on maintenance and repair and used car sales.
I find it “amusing” that so many supposed capitalists we elect are actually against capitalism.
Corporations own just about everyone now.
Every auto maker web site has a ‘build-it’ feature. Not every vehicle is available with every color is factory available, if that’s what you mean.
http://www.toyota.com/configurator/
I used to work for a major Ford dealership here in Michigan. The owner drove a Jaguar. Despite the fact that his Ford dealership had garage, body shop, service center taking up half the block, I still drove his Jag to the Jaguar dealership in Grand Rapids for even minor things like oil changes.
He told me that he trusted his mechanics but they were certified Ford Mechanics. He would have hired a certified Jag mechanic but there simply weren’t enough Jags in the county to make it worth keeping one on the payroll. In the 1990s, for him to have a certified Jaguar service center would have required him to open it as a separate business from his Ford Dealership and his used car dealership. Only a fool would spend hundreds of thousands to open a business that might get 2 or 3 customers per month.
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