Weekly Recap: Tesla's sales ban fortified in Michigan as franchise laws draw fire

"Tesla's quest to own its stores has brought to light issues that have long faced the industry." – Adam Jonas

Tesla's fight to challenge dealer franchise laws moved to the home state of the American auto industry this week, as the governor of Michigan signed a controversial bill that excludes Tesla from selling its electric cars directly to consumers.

Experts agree it was probably already illegal for Tesla to sell cars in Michigan, as the state's franchise laws require that cars be sold through dealerships. But, the legislation closed a gap in the law that Tesla might have been able to exploit.

Ironically, the bill sailed through both houses of the state legislature with little fanfare this year, as voters and officials have been preoccupied with midterm elections. It's not even a new law: just an amendment to an existing rule that touches on a number of issues, including transaction fees charged by dealers to consumers during the sale process.

The controversy seemingly exploded overnight, as a last-minute change in the language of the bill – which appeared aimed at Tesla – strengthened Michigan's franchise laws. It wasn't until the bill was already on the desk of Gov. Rick Snyder that most of the public was even aware of it, or of the implications of the 11th hour changes.

Not surprisingly, Tesla was peeved.


The company didn't respond to a request for comment from Autoblog, but it's faced similar fights in other states. In a post titled "A Raw Deal in Michigan," which was published before Snyder signed the final bill, Tesla laid out its case, arguing that franchise laws are bad for competition and consumers. It also questioned why the changes were made so late (though legally) in the legislative process. "The dark-of-night tactics highlight the dealers' concerns that their arguments don't stand up well to public scrutiny," Tesla said.

The automaker sells its cars to consumers without franchised dealers in other states, and has run into legal wrangles across the country as it tries to fight entrenched rules governing auto sales.

Proponents of the bill – including the state's dealer association – argued it merely clarified existing rules already on the books, and said that Tesla should follow the law.

Proponents of the bill – including the state's dealer association – argued it merely clarified existing rules already on the books, and said that Tesla should follow the law.

"We really thought that this was a clarification of the law," said Terry Burns, executive vice president of the Michigan Automobile Dealers Association. "Gov. Snyder took a detailed analysis and asked for counsel from the attorney general ... I don't think the bill changed anything."

That echoes comments made by National Auto Dealers Association chairman Forrest McConnell earlier this month in Detroit.

"Personally, I think Tesla's a great car," he said. "I don't have anything against Tesla. I think the franchise system is the way to go."

Franchise laws have come into focus in recent years, helped in part by Tesla's repeated challenges in different states. As Tesla has grown in size and prestige, it has brought increased strength to its conflicts with dealers and dealer associations, many of which have strong allies in state and national governments.

Though General Motors supported the legislation in Michigan, industry watchers say revamping the sales process could end up helping established automakers.

"Tesla's quest to own its stores has brought to light issues that have long faced the industry," Morgan Stanley analyst Adam Jonas wrote in a note to investors. "As Tesla grows in significance and expands its sales network, we expect more debate at the Federal level on the double standard in the application of dealer franchise laws."

"Tesla is the only OEM [original equipment manufacturer] that can truly control the customer experience at many of its stores, while the rest are prevented by law. We see this is a major advantage for Tesla and a disadvantage for all others."

Jonas' analysis raises a salient point: Each side – Tesla and its auto dealer adversaries – believe the other has an advantage or is doing something illegal. Regardless of the outcome, that all but ensures they will continue to clash.

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