-Tesla’s direct-to-consumers sales model has kicked off a long and ongoing debate across the U.S. While some states are opening exemptions to their decades-old laws that limit new-car sales to independent franchise dealerships, others are doubling down, writing new laws that further enforce existing bans on direct car sales—like Michigan, whose aggressive, GM-backed anti-Tesla law won that state the Information Technology & Innovation Foundation’s Luddite Award for 2014.
We’ve long held that the direct sales model Tesla uses is a benefit for consumers—one that adds competitive pressure to a market that has been artificially limited to franchise dealerships for far too long. And it turns out, none other than the Federal Trade Commission agrees with us, as evidenced by this strongly worded blog post the organization just published.
-The usually-staid FTC comes out swinging in the first sentences. “A fundamental principle of competition is that consumers—not regulation—should determine what they buy and how they buy it,” the commission states. “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.”
-Here, the FTC is referring to the many state laws that prohibit carmakers from selling directly to consumers through brand-owned showrooms. Almost universally, those state laws were put into place through the political clout and largesse of state dealership associations. It’s a classic case of protectionism, and a pretty blatant one at that.
-While the conversation around state car sales laws has been largely driven by Tesla Motors’ many fights to overturn these laws, the FTC is careful to point out that it’s not just coming to bat for Elon Musk’s electric carmaker. “FTC staff supports the movement to allow for direct sales to consumers—not only Tesla or Elio, but for any company that decides to use that business model to distribute its products,” the blog post reads. “Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy.”
-In fact, the FTC was moved to make this statement in response to a recently introduced Michigan bill that would provide a franchise law exemption for another American automotive upstart: Elio Motors, whose stumpy little three-wheeler promises 84 mpg and a price under $7000. The Michigan state legislature is considering an exemption to allow makers of “autocycles” (three-wheeled vehicles that aren’t quite automobiles in the eyes of the law) to sell direct to consumers.
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The FTC says, in essence, why stop there? “Most manufacturers and suppliers in other industries make decisions about how to design their distribution systems based on their own business considerations, responding to consumer demand [. . . ] Typically, no government intervention is needed to augment or alter these competitive dynamics—the market polices inefficient, unresponsive, or otherwise inadequate distribution practices on its own.” If the government does intervene, the FTC says, it should be “no broader than necessary,” and clearly linked to specific policy objectives. In other words, it should be for a better reason than bald-faced protectionism.
-“Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law,” the FTC says. “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.”
-We couldn’t have said it better ourselves.
-This story originally appeared on roadandtrack.com.
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