Bill Would End Monopoly on New Auto Sales

People who wish to purchase a new car can do so only through an auto dealer, and not directly from the manufacturer. A new company could break that practice, but it will need help from the Legislature first.

Under what some have called the anti-Tesla law, direct-to-consumer sales of motor vehicles are currently prohibited in Michigan. House Bill 5312 would end that prohibition, meaning that Tesla and other companies could sell their vehicles directly to consumers, provided the sale takes place at least 10 miles away from existing auto dealerships.

“Gov. Snyder said he wanted the Legislature to have an open discussion about whether we should keep doing business the way we have been doing it,” said Rep Aaron Miller, R-Sturgis, the sponsor of House Bill 5312. “I’m responding to that. I want us to have that discussion.”

The trade group Auto Dealers of Michigan, which has what’s considered a very formidable lobbying presence in Lansing, has been a strong supporter of the current anti-Tesla law.

“Sure, I think this legislation will likely be opposed by the auto dealers,” Miller said when asked about his proposal. “But this isn’t anti-auto dealer legislation. It’s about freedom of choice and allowing businesses to choose how they want to sell their products. In other states where Tesla has a history of being able to sell the way they want to sell, auto dealers haven’t been going out of business. So this definitely is not anti-auto dealer legislation. In my opinion, this is about standing up for free-market principles.”

Currently, Tesla is allowed to sell its vehicles directly to customers in more than 20 states. House Bill 5312 was introduced only weeks after the group Freedom 2 Buy was launched; a development that signaled that the anti-Tesla law would become a legislative issue this year.

During autumn 2014, interest in changing the law was piqued when language was inserted into another piece of legislation, House Bill 5606, that said manufacturers could not “sell any new motor vehicle directly to a retail customer other than through franchised dealers, unless the customer is a nonprofit organization or a federal, state, or local government or agency.” Before that, the bill dealt with the unrelated issue of the fees auto dealerships charge for preparing documents.

Tesla and other entities — including some elements of the news media — called on Gov. Rick Snyder to veto the bill. The governor said Michigan law already prohibited direct-to-consumer sales of motor vehicles and his signing of House Bill 5606 would not change that. But he also attached a letter in which he said he welcomed a “healthy, open discussion” on whether the state should change the prohibition.

A few months later, in early 2015, Sen. Darwin Booher, R-Evart, asked the Federal Trade Commission for input on a related issue involving autocycle manufacturers. FTC staff responded, in part, by asking Michigan lawmakers to consider repealing the anti-Tesla law.

“In our view, current provisions operate as a special protection for dealers — a protection that is likely harming both competition and consumers,” the FTC staff wrote. They noted that "consumers are the ones best situated to choose for themselves both the vehicles they want to buy and how they want to buy them."

Miller was asked if his legislation had much support in the House.

“There is some support in the caucus; actually, even some bipartisan support," he said. Rep. Jeff Irwin, D-Ann Arbor, is one of the co-sponsors of the bill

While Tesla pursues a legislative solution, it is also seeking other remedies. In November 2015, the company applied to the Secretary of State for an auto dealership license. It is believed the company made this move as a prelude to possibly taking the issue to the courts.

Kurt Berryman, the director of legislative affairs for the auto dealers, did not respond to a phone call offering him the opportunity to comment.