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FTC Calls on States to Lift Direct-to-Consumer Sales Bans

May 14, 2015

By Gregory Arroyo

LANSING, Mich. — The debate over whether motor vehicle manufacturers should be allowed to sell directly to consumers in the state has resurfaced after last year’s passage of a law that added tighter restrictions on direct-to-consumer sales. This time, the Federal Trade Commission has weighed in.

Reigniting the debate over direct-to-consumer sales of motor vehicles is a bill, S.B. 268, introduced on April 15 by Sen. Darwin L Booher (R-Evart, Mich.). The legislation, which is currently being considered by the Senate’s economic development committee, would allow Elio Motors and other manufacturers of three-wheel “autocycles,” to choose whether to sell directly to consumers, through dealers or through a combination of the two.

The legislation comes after last October’s controversial passage of legislation that was originally intended to prohibit vehicle OEMs from dictating fees a franchised dealer can charge customers. But thanks to a procedural loophole, state lawmakers were able to toss in a last-minute amendment without public comment or debate. And that amendment reinforced the state’s prohibition on selling vehicles directly to consumers, effectively banning Palo Alto, Calif.-based Tesla Motors, which called the law a “raw deal.”

Michigan Governor Rick Snyder urged lawmakers after signing the bill to discuss whether the franchise system and the state’s ban on direct-to-consumer sales were good for state consumers. “We should always be willing to re-examine our business and regulatory practices with an eye toward improving the customer experience for our citizens and doing things in a more efficient and less costly fashion,” he said at the time.

In January, Elio Motors rolled into Michigan to show off its new autocycle. Booher introduced his measure after Elio announced plans to build its three-wheelers at a former General Motors Plan in Shreveport, La., starting next year. He also requested comment from the Federal Trade Commission.

The federal agency responded in an 11-page letter issued to Sen. Booher on May 7. In the regulator's view, according to the letter, “the bill does not go far enough.” It was signed by Marina Lao, director of the Office of Policy Planning, Deborah Feinstein, director of the Bureau of Competition, and Francine Lafontaine, Director of the Bureau of Economics.

“Rather, the narrow scope of the bill would largely perpetuate the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers,” read the letter, in part. “FTC staff believes Michigan’s consumers would more fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers, rather than the enactment of any limited, selected set of exceptions.”

The FTC did not offer an opinion on whether the franchise model was superior or inferior to direct-to-consumer sales, but it did urge Michigan lawmakers to allow consumers to choose which vehicle they want and how to buy them.

The letter also noted that Elio Motors has accepted more than 41,000 reservations for its vehicle as of March 29. The company, the letter continued, also plans to have Pep Boys handle warranty service, as Elio does not intend to establish a dealer network.

On May 11, the FTC posted a blog authored by Lao, Feinstein and Lafontaine. It called on other states to lift bans on direct-to-consumer sales of motor vehicles. “FTC staff supports the movement to allow for direct sales to consumers — not only Tesla and Elio, but for any company that decides to use that business model to distribute its products,” the blog post read, in part. “Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy.

“Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law, which extends to all vehicle manufactures, even those like Tesla and Elio who have no interest in entering into a franchise agreement with any dealer.”


  1. 1. David Ruggles [ May 14, 2015 @ 04:57PM ]

    *Marina is the Director of the Office of Policy Planning, Debbie is the Director of the Bureau of Competition, and Francine is the Director of the Bureau of Economics. The views expressed are their own, and do not necessarily reflect the opinion of the Commission or of any individual Commissioner."

    I'll be asking Joel Winston next week if he knows why FTC allows agency officials to write stuff on FTC heading that has nothing to do with FTC thinking. It creates chaos. A number of blogs have taken this as new FTC policy. It ain't.

    I personally oppose any legislation that would prohibit Tesla from selling direct as long as they have to adhere to the same laws that other dealers have to. For example, if a dealer for a legacy OEM has to have a service department connected to his/her sales facility, then Tesla should also have to.

    As a practical matter, what is keeping consumers in states like Texas from buying a Tesla direct from a Tesla outlet in another state? Not much. There are Tesla's all over Texas and a couple of friends have delivered many of them.

  2. 2. Bob Wuensch [ May 14, 2015 @ 06:10PM ]

    Tesla wants to keep all of its profits and cut out dealers. But let's look at this. The auto industry accounts for about 1 in 7 jobs in the US. And the franchised dealers account for most of those. If the manufacturer were to be allowed to sell direct to the consumer 2 things would happen. The first is thousands of Americans would be put out of work. Dealer jobs are good jobs and if the makers take over sales most of those jobs will go. Second, customer service will be down the drain. You will have lower paid, less skilled people doing the job of experienced salespeople. I also think prices will go up because the manufacturer will set the price and that's it. They will not compete with their own stores. Bad deal all the way around.

  3. 3. David Ruggles [ May 14, 2015 @ 07:50PM ]

    I don't see anything wrong with Tesla keeping all of its profits. What on earth is wrong with that? They won't be successful in their attempt, but I'm happy to see them try.

    The cotton gin put a lot of people out of work. So have robots. Show me a successful economy that has artificially propped up jobs where things could be done more efficiently. Should IBM have somehow propped up jobs at the Selectric plant?

    Dealers exist because the auto OEMs needed access to the capital, expertise, and local relationships of business people in the various markets. That hasn't changed.

    Is anyone worried that Ford, Toyota, GM, or Toyota might try to sell direct to consumers, undercutting their partner dealers? If so, stop worrying about it. That ain't going to happen either. Frankly, I wonder why anyone is concerned about it.

  4. 4. Bob Wuensch [ June 17, 2015 @ 07:32PM ]

    David, Ford has already tried to sell direct to consumers. It didn't work. But they learned from it and I will tell you this, if they could, they would. The manufacturers would eliminate they dealers in a heartbeat and keep all of the spread for themselves. Do you think they would lower prices? Not a chance. And customer service would suffer also. Tesla has a right to make as much money as they can. I'm not saying they are making to much. But if they had a good dealer network it would be better for them and the consumer. The government should stay out of it.


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