In October 2014, Michigan Governor Rick Snyder signed a bill, which was initiated by the Michigan Automobile Dealers Association, to “clarify” an existing law banning automakers from owning or operating car dealerships in the state, ultimately forcing them to go through a third-party franchise model.
The new bill effectively banned Tesla from selling cars in the state due to the company’s direct sales model. Today we learn that despite the ban, Tesla applied for a dealership license in Michigan.
Secretary of State spokesman Fred Woodham talked to local news about the application:
“Tesla applied for a “Class A” dealership license to sell new and used cars. Under the classification, it also must have a “repair facility as part of their business or have an established relationship with a licensed repair facility,”
On its website, Tesla currently lists a Detroit service center as “coming soon”. The application process started in November and Tesla submitted additional information requested by the state in recent weeks. The automaker can expect a decision “in the next month or two”.
Tesla recently confirmed skipping the Detroit Auto Show due to Michigan’s direct sales law. At the time, Tesla’s vice president of business development Diarmuid O’Connell said:
“The reason we’re not at Detroit this year relates to the issue here. We use shows to sell cars, and this is a show in Michigan. If we can’t sell cars here then why would we be marketing cars here? You know, it’s many factors but it relates specifically to that.“
Tesla Motors’ General Counsel Todd Maron went before the Federal Trade Commission (FTC) earlier this month to argue against the prohibition of direct sales in the auto industry in certain states. In the past, the FTC has been vocal against these bans, but as of now the consumer protection agency is not intervening and leaves the decision to the state legislatures.
If Tesla’s application is approved in Michigan, the company could immediately set up shop and start selling cars in the state, and even more importantly, it will be able to facilitate the servicing of the estimated 400 Model S owners in Michigan.
In the meantime, Tesla keeps investing in the state and last year it bought an auto supplier named Riviera Tool in Grand Rapids, which it renamed “Tesla Tool and Die”.
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Wouldn’t Tesla’s solution to the ban on sales in certain states be to create a “shell corporation” to be anointed as the franchisee? If that’s all the states are demanding then why not game the system and go this route?
most direct sales prohibition laws include manufacturers having any control over the dealerships, meaning any type of subsidiary wouldnt work.
I think the strategy here is to apply for the license and when the state rejects the application, take it to court. Once in the court system, at least some of the influence of the dealers lobby is reduced. And, if the courts declare the laws unconstitutional, or unenforceable, Tesla wins and can take the precedent to every state with a similar law.
If the license is granted, Tesla is free to conduct the business any way they want.
Keeping old rice bowls intact is such a joke in a supposedly free-market capitalist country.
I think we have a winner here.
January 19, 2016 : Tesla refutes dealership model at Federal Trade Commission – Auto Distribution Workshop.
So it seems that something is cooking but we still don’t know what.