News Story

Feds to Michigan: End Anti-Competition 'Tesla Ban'

Federal Trade Commission wants state to repeal ban on direct-to-consumer car sales

Michigan law is tilted so much in favor of traditional auto dealers that the staff of the Federal Trade Commission considers it anti-competitive, and has now said so in writing.

Earlier this year, Sen. Darwin Booher, R-Evart, introduced Senate Bill 268, which would slightly dent a state-imposed prohibition against direct-to-consumer sales of motor vehicles by allowing autocycle manufacturers to sell new vehicles directly to consumers.

Seeking input on the measure, Booher contacted the FTC and asked for comment. In response, the staff of the FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics, said that Senate Bill 268 is likely to promote competition and benefit customers.

However, the FTC staff went further, urging Michigan lawmakers to consider repealing the state’s ban on direct-to-consumer motor vehicle sales.

“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 response said. “We therefore appreciate this opportunity to provide our views as to the probable impact of the proposed legislation on competition and consumers.”

“FTC staff offer no opinion on whether automobile distribution through independent dealerships is superior or inferior to direct distribution by manufacturers,” another portion the response read. “Rather, staff’s principal observation is 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.”

Booher explained that when he asked the FTC for comment he did so in the context of Senate Bill 268 and was not making a general inquiry concerning the state’s overall ban on direct-to-consumer motor vehicle sales.

“I contacted the Federal Trade Commission and requested its opinion on the competitive effects my bill would have on the economy and for consumers as we gather feedback and prepare to consider the bill in committee,” Booher said. “I appreciate the commission’s support of my bill and the reasons why I believe it would be beneficial to allow autocycle manufacturers to sell directly to consumers, as we do with so many other goods. While the commission’s response was supportive of my bill, it recommends further expansion of direct sales, which my bill does not do.”

Attention was called to Michigan law concerning direct-to-consumer motor vehicle sales last October when language was inserted into 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 retail customer is a nonprofit organization or a federal, state, or local government or agency.” Before the addition of this language, House Bill 5606 had been a measure about an unrelated issue pertaining to fees auto dealerships charge for preparing documents.

Electric vehicle company Tesla Motors, which uses direct-to-consumer sales, sounded the alarm over the changes to House Bill 5606. After articles about Michigan’s laws concerning direct-to-consumer sales of motor vehicles appeared in The Wall Street Journal and the Automotive News, House Bill 5606 was dubbed the “anti-Tesla bill.”

Supporters of House Bill 5606 argued that Michigan law already banned direct-to-consumer sales of motor vehicles anyway, an argument which could have some validity. Meanwhile, others asked what the purpose was in having the new language inserted in House Bill 5606 if it really didn’t change anything. Ultimately, House Bill 5606 was passed and signed into law.

Joel Sheltrown, vice president of government affairs with Elio motors, a company that hopes to produce and sell autocycles, said many lawmakers voted for House Bill 5606 without realizing its full ramifications.

“I don’t believe the legislature was fully aware of the recent and significant intrusion into our free-market system,” Sheltrown said. “Surely most would agree, a free-market system means Michigan consumers should be allowed to make their own vehicle purchase decisions, deciding what they want, where they want and how they want to purchase, without dictation from the government.”

Senate Bill 268 has been assigned to the Senate Committee on Economic Development and International Investment, chaired by Sen. Ken Horn, R-Frankenmuth.

Kurt Berryman of the Auto Dealers of Michigan did not respond to a phone call offering the opportunity to comment.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.