The Federal Trade Commission weighed in on the on going battle between Tesla Motors and the franchised automobile dealer laws that control how cars are sold in most states.
At the dawn of the age of automobiles, manufacturers had almost unlimited power over their dealers. They could revoke a franchise almost at will or grant one for a new dealer right across the street. Existing dealers were powerless to do anything about it.
Most states enacted special legislation to protect dealers and give them some power in their relationships with car makers. But over time, those laws resulted in established car dealers having enormous power of their own. Being a car dealer is often referred to as having a “license to print money.” The dealers used their special status to limit competition and increase profits. The whole notion of free enterprise that consumers should be able to bargain for the best possible price has been subverted.
Now along comes Tesla with the novel idea that it will sell its cars directly to the public without using franchised dealers. “Wait just a darn minute!” cried the established dealers, who saw in a flash that direct sales would mean less money in their pockets. Tesla has led the fight to overturn or liberalize dealer franchise laws in many states, but it is still prohibited from selling directly to customers in 10 states, including Texas and Michigan.
Now, the FTC has again raised its voice on behalf of Tesla and other companies like Elio Motors. The fledgling Louisiana company says it has more than 40,000 reservations for its three wheel commuter car which it says will get better than 80 mpg. A post on the FTC web page says, “A fundamental principle of competition is that consumers – not regulation – should determine what they buy and how they buy it. Consumers may benefit from the ability to buy cars directly from manufacturers – whether they are shopping for luxury cars or economy vehicles. The same competition principles should apply in either case.”
Tesla’s approach has been not to upset the entire apple cart in each state but rather to get a special provision inserted in restrictive franchises dealer laws that will give it the right to sell directly but not others. While that may be smart politics, the FTC would go further.
“Opening the door by a crack is a step in the right direction, and we urge policymakers in Michigan to take this small step. But beyond company-specific fixes lies a much larger issue: who should decide how consumers shop for products they want to buy? Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law, which extends to all vehicle manufacturers, even those like Tesla and Elio who have no interest in entering into a franchise agreement with any dealer.”
“Absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products.”
The way motor vehicles are sold has stayed the same for almost a century. But changes are coming and, as usual, Elon Musk is leading the parade. BMW is experimenting with mall stores and is selling its cars online through Amazon.com in Japan. The times they are a’changing, as Bob Dylan would say, and automobile dealers will have to change with them — or face extinction.