Michigan Governor Signs Bill Banning Direct Auto Sales

[William Maley]

The latest state to ban direct sales of vehicles is Michigan. Today, Governor Rick Synder signed a bill into law that would ban such automakers as Tesla from directly selling vehicles to consumers. This bill also allows dealers to make the decision whether or not to charge the transaction fee.

"This bill does not, as some have claimed, prevent auto manufacturers from selling automobiles directly to consumers at realign in Michigan. That is because this is already prohibited under Michigan law. The current law states that a manufacturer shall not "ell new motor vehicle directly to a retail customer other than through its franchised dealers…" the Governor wrote in a letter to legislators.

The bill updates a current Michigan law by removing the word 'its'. This elimination causes Tesla and any other OEM who decides to do direct sales in the state not to be able to do it. Instead they would have to sell through a network of franchised dealers.

Supporters of this bill includes the Michigan Automobile Dealers Association and General Motors.

"We believe that House Bill 5606 will help ensure that all automotive manufacturers follow the same rules to operate in the State of Michigan; therefore, we encourage Governor Snyder to sign it," GM said in a statement.

Tesla on their part isn't happy with this law and blasted GM for its support of the law.

"What's good for GM's customers is not necessarily good for Tesla's customers. What's good for gasoline cars is not necessarily good for electric cars. Tesla is selling a new product with a new technology,” the automaker said in a statement.

“The evidence is overwhelming that a traditional dealer-based approach does not work for electric cars. Moreover, GM distorts the purpose of the franchise laws (including in Michigan), which are in place not to cement a monopoly for franchised dealers but rather to prevent companies with existing franchises from unfairly competing against them. Tesla has never used franchised dealers, so these concerns are simply irrelevant."

Source: The Detroit News

William Maley is a staff writer for Cheers & Gears. He can be reached at [email protected] or you can follow him on twitter at @realmudmonster.

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[G. David Felt]

I have to say this stinks of unions and status quot. We are in the 21st century and people should be able to buy how ever they want not be forced to have to deal with a dealer who may or may not really care about customer service. I feel this is a mistake and will come back to eventually bite the state once it goes through the normal legal challenges and ends up in the supreme court who I can easily see throwing out this law.

[Robert Hall]

I assume NADA is behind this and trying to keep their obsolete 20th century business model intact.

Edited October 21, 2014 by Cubical-aka-Moltar

[William Maley]

I assume NADA is behind this and trying to keep their obsolete 20th century business model intact.

 

By proxy of the Michigan group.

[G. David Felt]

I am surprised that GM has signed onto this as they could really change things up down the road by endorsing direct sells.

[Robert Hall]

Maybe GM wants to limit competition for their full electric premium models.  Of which they have none..

 

Tesla the company and their cars are game changers and disruptors, traditional car makers are scared. 

Edited October 22, 2014 by Cubical-aka-Moltar

[loki]

game changing... if tesla and all can succeed... makes saving GM and chrysler co (at tax payer expense) look more stupid.

[frogger]

Very lame move by very lame parties.

[G. David Felt]

Maybe GM wants to limit competition for their full electric premium models.  Of which they have none..

 

Tesla the company and their cars are game changers and disruptors, traditional car makers are scared. 

Sounds like the Tucker Torpedo all over again. I would think they would love to get rid of excessive costs and move to a better way to sell with better profits.

 

I for one would love to be able to order direct from GM, have the auto delivered to my house and go to an approved repair place only when needed.

[ZL-1]

Glad to know the spirit of free enterprise is so alive and well in the state of Michigan.

[riviera74]

Instead of GM supporting auto dealers (which have been a boat anchor for several years now), GM should compete directly with Tesla and build a $25K all-electric car.  No Tesla is cheaper than $50K right now.

 

Remember when about 1000 dealers from GM/Ford/Chrysler were shuttered as part of the bankruptcy?  Now, Tesla wants to end this bad idea, but the states do not want to because so many state legislators either get paid by auto dealers or or own auto dealerships themselves.  Protecting NADA and its members amounts to a stupid state-sanctioned cartel that must end.  Too bad no one else is willing to do just that.

[daves87rs]

Granted, I am not sure why they are so worried....I don't see Telsa selling anything but Higher end products....there is much more money there anyways.

 

 

Trust me when I say it will not last long either....Telsa will sell here soon....

[A Horse With No Name]

Granted, I am not sure why they are so worried....I don't see Telsa selling anything but Higher end products....there is much more money there anyways.

 

 

Trust me when I say it will not last long either....Telsa will sell here soon....

I hope it does.  And perhaps Michigan could kick Snyder to the curb.  I have no problems with Republicans per se, but Snyder is an asshat.

Edited October 23, 2014 by A Horse With No Name

[daves87rs]

 

Granted, I am not sure why they are so worried....I don't see Telsa selling anything but Higher end products....there is much more money there anyways.

 

 

Trust me when I say it will not last long either....Telsa will sell here soon....

I hope it does.  And perhaps Michigan could kick Snyder to the curb.  I have no problems with Republicans per se, but Snyder is an asshat.

 

Not worried too much about Snyder...he pissed off one too many retirees.....

[G. David Felt]

Rather than put your head in the ground and hide being blind to change they should support new models of selling and still collect their sales tax and move on. Technology has continually changed the way people do things in the 21st century. Change or be left in the dust and forgotten.

 

Sounds like most people are ready for change in that state and the politicians will feel it and see it this fall. Incumbents out, new blood in and time for term limits.

[smk4565]

Can't Tesla still sell it over the Internet or if they can sell it in a neighboring state, people can just drive a few hours and bring it back. If people want a Tesla they will find a way to get one.

And over time more and more people will buy Teslas and Michigan will probably lose money and business in the long run. It is this type of backward thinking that has led many of Michigan's cities to be bankrupt and living in depression.

[A Horse With No Name]

Interesting to see how this works out...

Edited October 28, 2014 by A Horse With No Name

[SoCalCTS]

I think California is going to have to lead the nation again and require that auto manufactures sell directly to consumers. If Michigan can protect their auto manufacturers then California should do the same.

[G. David Felt]

The federal government should step in and update to 21st century ways to sell things.

[hyperv6]

A lot of people have a lot of jobs and money at stake here build around  system that they were forced into years ago. They have tried to change things many times and never have been let loose.

 

If Tesla can change this then they all should be able to join in. But in the end someone is going to lose a lot of money.

 

There is a difference between should and can.  To negotiate this one out is going to be a tough one for both sides.

[G. David Felt]

Yes I agree that some one will lose, but then technology we have today was not around when these out of date laws went into affect. As such, the politicians who are supposed to work for the public need to update and change for the public not the unions or business special interests.

[hyperv6]

Here is the deal Unions are not effected here at the dealer level.

As for big business they are only looking to not be at a disadvantage here.

 

Union are not even in this picture.

 

Here is the deal. You cut Tesla loose all the major MFG are at a disadvantage as they are saddled with all the dealers they were forced to work through via government regulation. Now if offered a deal where GM, Ford and everyone else can do a company dealer and dispense of all the small dealers they would take that deal in a heartbeat. Hell they would love to sell just on the web direct if they could.

 

But the government will not let that happen either as the local dealers too often lose out of their investment.

 

This is a house of dominos The bottom is the MFG that has to support the dealer they were forced to sell through. You remove the bottom domino and the whole thing collapse with the small guy on the top falling the hardest.

 

It all comes down to this. You let all the auto MFG sell cars direct and not be responsible to the dealers or you make them all have dealers. That is the only fair thing. The government dug their hole on this when they forced the trade agreements on the MFG and now that it is place they need to either stick to it or the government need to be responsible to the dealers that are forced out.

 

Fairs fair. The MFG did not chose to be in this system so why should they pay for what they were forced into and why should one company get to skip on it just because they don't want to play by the rules others are forced to live with.

 

Hey I am all for no independent dealers and sell direct with set prices but it has to be everyone not just one who was lucky enough not to have been around when the government enforced this system.

 

Also be wary as if companies control the markets there is always risk here too.

 

I am not a fan of dealers unions or politicians. But I am a fan of fair and equal here and one set free while others remain stuck with a dealer system is not fair. One set of rules for this game for everyone.

[Z-06]

I agree with hyper, although he may pull a Ron Burgundy to agree to disagree on calling San Diego as Whale's vagina. The action Tesla is seeking is nothing different than how Japanese car manufacturers started selling cars in the 60s. If Elon has a good product, why is he scared of the dealership? If his stock is hovering at a P/E of infinite value with no chance of turning profit with the turn of the decade, he should invest that capital to create a dealership network with a difference.

 

It is always easy to side the small guy, but here the small guy is being slippery and sneaky. If he gets the privilege then so should the other manufacturers.

[hyperv6]

Well I am not a Elon fan but I understand why he wants to do as he wants to do. There is not a MFG that would not want to sell direct as Chrysler tried it in California before they were shut down. I even had a Ford owned center here that was to sell only lease used cars direct but folks were buying new there till they got shut down.

the problem is we have a knotted up mess of a system and to undo it someone has to lose and lose big. The MFG's even though they hate the way things are will stay with the old system if they are forced to buy out all the dealers. So that is not going to happen.

 

The Dealers do not what to take the loss. Yes some can become factory pick up and service sites but how many will you need. maybe a 20% at best.

 

And the politicians are lobbied on all three sides and as long as they remain neutral they will continued to be lobbied with the perks that come with that so why act.

 

So until some on is willing to pay to dissolve the dealer system as it is and pay for it I do not see much change. The only way I can see a major change is If the SCOTUS acts with a ruling and then at that point the dealers are out cold and the lawsuits will arrive.

 

To me the dealer system is like setting off a Nuke. Once you have done it there is no easy painless way to undo it and someone is going to suffer.

 

I suspect things over time will remain the same. Elon can make a lot of noise but in the end even he is limited to what he can do. At that point he will deflect off to tube shooting people 1,000 MPH from NY to LA. He did that gain this week as I predicted on another site where the day before they reported his stock dropping 9%. The next day a Tube story came up again.

 

Elon fancies himself as Tony Stark but lacks the Ironman suit.

[Drew Dowdell]

A lot of people have a lot of jobs and money at stake here build around  system that they were forced into years ago. They have tried to change things many times and never have been let loose.

 

If Tesla can change this then they all should be able to join in. But in the end someone is going to lose a lot of money.

 

There is a difference between should and can.  To negotiate this one out is going to be a tough one for both sides.

 

See, I don't see that at all. Tesla doesn't have any franchises, so it's not like Tesla is competing with Tesla franchises by opening their own stores.  There is absolutely ZERO consumer protection being done here.  Fisker had franchises and the owners of those cars are just as far up the creek without a paddle as if they were sold the cars by Fisker directly.  Saab owners are being saved, not by dealers, GM, or Spyker, but by a third party company that sees a business opportunity in manufacturing parts. 

 

This is protectionism for the existing manufacturers. Not the dealers. 

[hyperv6]

That is the whole point Telsa has no dealers or franchises. This is what most MFG would love to do but in their case they were forced into the franchise system and now if they want to get out of it if the laws are changed the dealers or the companies will have to lose.

 

As for the customers while I think they will find service a little more consistent since they are dealing with one network vs. many different networks of franchises they will not see major savings in the long run. If there are profits the companies will take them for the most parts.

 

As for protection? Well if a company goes down like Fisker not much there. In the case of Saab many of the parts new and old are still there and available thorugh GM for so far back. But even in the case of a 80's Chevy Citation if it is not a common mechanical part and it is not reproduced good luck! Just the nature of the business as companies just do not keep on these parts forever anymore.

Case in point the Console skeleton on the Fiero is broken in 75% of the cars left. Even the low mile ones they fracture with age. Where do you get one. Well you don't.

 

The bottom line is there are good and bad to both sides but even if you wanted to make the change how to you fairly get out of this system and not damage someone financially.

[Drew Dowdell]

But see the laws as they were applied originally were to protect franchises from having to compete directly with the manufacturers of a product.   That doesn't apply to Tesla because it has no franchises. 

 

Furthermore, if the original premise were true, why are we not "protecting" McDonalds franchises from corporate owned stores?  There are McDonalds corporate stores out there.  Same goes for Marriott.  There are corp owned Marriotts right next to franchise owned Courtyards.  Why are we not protecting Best Buy from the Apple owned stores (the answer there is that Apple price fixes their products, but that's another worm)?

 

It is inconsistent logic. 

[hyperv6]

I agree the law was put in place to protect the dealers from the MFG.

 

But anyone getting into the game also has to follow the same rules as all other MFG and not sell direct to the customer as written law by most states. These laws are state to state but vary a little.

While Tesla does not have dealers ships they are required as most law state to sell through a franchise system. This is why they want to change the law.

 

But back to the existing MFG and Dealers. Ok if you change the law how do you untangle the mess you have at that point. Do you tell the local dealers tough luck you lose? Do you let the dealers go after the

[hyperv6]

I agree Tesla has no franchise. But the laws are written that they are to sell through a franchise system and that is why they want to change the law. If there were no law or I should say laws since it is state to state then what is stopping them and making them to try to change the law?

 

The real question is ok change the laws but how do you untangle the mess?

 

Do you tell the thousands of dealers good luck and nice knowing you? Do you let them go after the MFG's for billions of dollars in court cases? Do you force the MFG to buy out the franchises you forced on them in the first place? Do you leave it all the same and force Tesla to sell car like everyone else in the system that is so tangles there is no simple way out?

 

Yes you are right it is a bad law but it is one in place with little way out. This is like that scene in Saw where the guy need get out to stop a murder but the only way he can get there is to saw off his leg. It is a no win on many levels.

 

Now if they wanted to work out some kind of deal where it brought change over a length of time and worked to bring change to where things could get worked out then you may have an answer that all would be happy with but even then how would you do it.

 

If you just strike the law MFG's and Dealers today will be out a lot of money and the courts will be tied up for years. Only winners will be the Lawyers, Tesla and the many Chinese automakers that will come in once they get their act together. Yes the Chinese will exploit this to the end as while they are behind they will in do time have cars people will buy since we are giving them so much technology to sell cars in country there. Also they will be cheap.

 

As for pricing there is a lot more going on out there than you think. I see it often at work were MAP pricing is laid out on many products. While there may not be a lot of laws dealing with it retailers do use and abuse these laws. The larger retailers buy in numbers where they can under cut pricing of smaller retailers. The MFG tries to shut down the larger retailers non compliance but often the retailer just says ok we will drop you. In many cases as the ones I see first hand the companies we drop we are well over 50%-75% of their business. After about 1-2 months they cave and we pick them up again. I have had several MFG tell me that if not for us they would have shut their doors.

 

In the mean time the little retailers are getting crushed.

 

Companies like Best Buy get around Map buy making the price only available in the cart or they play the Sony game where they sell you the PS4 and then give you a gift card for $50.

 

I could go on with more examples but the games are played and the larger retailer rule. In the case of the MFG's the Dealers would die a quick death as most people have little loyalty to them and the Automakers really would love to sell direct and take all the money.

 

But again who do you pick to lose here? Dealers or MFG or even both as I would expect if the law was just killed?

 

If you do not chose then give me a plan on how you can cleanly make this go away with no losers. And sorry no you can not say Tesla can go with out dealers and the old MFG's have to keep there. You have to be fair to all MFGs as they are either all in or all out.

 

It is not inconsistent logic it a law that would be selectively in-forced as you state it and that would be inconsistent law.

 

That is like taking a class of school kids and saying ok all of the kids who have been here for years have to take Math but the new kid that just got here you don't have to take math because you did not start the year here with a book.

Edited January 18, 2015 by hyperv6

[Drew Dowdell]

I mean that the logic behind doing a law such as this is inconsistent.  Why do car dealership franchises need this sort of protection but not hotel franchises or food store franchises?   Giant Eagle, a grocery store chain here in Pittsburgh is a mix of Franchise stores and mostly corp owned stores. 

 

Franchises compete with parent company all the time in the marketplace, what make automobile dealerships so special that they deserve special protection?

[G. David Felt]

I am sure there was valid reasons for the time to protect franchise but no more. This out of date thinking needs to be retired like most over the hill out of touch politicians.

[hyperv6]

I think we all agree it is out of date but the real question that needs to be answered is how do you kill this law and not cost the Dealers or MFG's billions of dollars or cost a lot of jobs?

 

Sure it would be easy to kill this law but the real issues is how do you deal with the fall out. Just look at the flack GM took on the dealers they tired to kill because they have too many. It will be 20 times worse here.

 

If you want to resolve this how do you negotiate a way to let the MFG take over the retail end and close down the dealers. The trick is you can not expect the MFG to buy out the franchises and you can not expect the franchises to eat all the cost of losing their businesses. You know full and well if they MFG's cut off the dealers this would all end up in court and the dealers will all win out of court settlements that would cost the MFG's Billions.

You can not expect the MFG to be penalized for this law they did not ask for it nor the dealers. You also know the government is not going to pay for the break up either. Hence this is why the law will remain in place unless it can be overturned by the SCOTUS.

 

GM would kill off the dealers today a any MFG would if they could sell direct. But they know that unless someone eats the cost it is not going away and they know since they have more money than the dealers they are more likely to get hit with the cost they can not afford.

 

So if you want to continue this argument provide a reasonable workable solution and you might do something some of the best legal minds can not sort out. This is one of those damned if you do and damned if you don't.

 

The other issues is you also can not just let new MFG's come in not saddled with dealers and gain a advantage you can not give all the other MFGs. So don't even go there. Tesla is not the issue here but the many Asian companies that want to come here and undercut the prices of our cars will be an issue. You can pick or choose your solution has to be for all or no one.

 

Lets hear it!

[G. David Felt]

Simple, if the MFG's want to go retail like Tesla, then they have to purchase out the franchises for a fair market price and run them as delivery / repair centers only.

[hyperv6]

No that is not going to happen as it would cost them billions and why should they be forced to pay for something they never asked for or wanted?

Sorry it is not just that easy or simple.

 

You have to find a way out that the Dealers and MFG are neither hurt or penalized.  Give me a solution that entails that and you have solved the problem here. But the fact is there is nothing like that you can do and in the end someone will be hurt for a lot of money. Or the Government chooses to keep the old game in place and make Tesla joint the club and anyone else that follows

 

The bottom line is the automakers can not afford to buy out the dealers and why should they? Two the politicians do not want the blood money on their hands for costing many family business their dealers. And finally Tesla is not the issue but if a large number of Chinese MFG send their product here we could be faced with many low price cars built at near slave labor rates and no dealer network to add to their expenses.  The perfect storm to upset the recovery of the American auto industry.

When playing this game you have to use all the cards and not just the trump ones.

 

You are holding the Grenade in a mall and have no pin and have no where safe  to throw it.

The only way out I can see is a slow break down of the system and slowly let things unwind. It would take a lot of negotiation and work but it could be done but it would take years to let things die out on their own and to let deals be made to make sure few are hurt. It is not a simple or fast solution but it is about the only thing that would work. The first difficult step is to get most parties to agree to this. The Dealers would do their best to fight it but if you can offer them something over time they may see it as a way to retire or move out.

[G. David Felt]

I disagree with you Hyper, it makes perfect sense, if an auto company wants to drop the franchises and move to a delivery / repair  style of store, then why not have them buy back what will become their own retail chain. They could do this over time state by state and turn all the dealerships into delivery centers with service. This could be a very profitable way for them to drop the required Franchise and have better up to date delivery centers.

 

Yes they would have a select group of auto's on the lot for those that drop in to buy but most people could order up online and then pick up the auto when ready after being built.

[Drew Dowdell]

I think the law should be "If you have franchises, no corporate owned stores. If you don't have franchises in the state, then corporate owned stores are ok"

 

That way, the existing stores will be fine and new entries can join the market in either fashion.   Tesla may do corporate owned stores because it has the money to do so, but a company like Coda or Fisker may do franchises because they don't have the money to build a network of stores on their own.

 

I think that satisfies both sides.

[hyperv6]

Defelt
Yes they would buy some of the dealers for delivery and repair but not all of them. GM has about 3 times the dealers they need as franchises now and if they go to the delivery dealer concept they would only need about 1/4 of the dealers they have now.

So you would be left with a great number of dealers who would not be bought out and would be getting legal representation to force you to buy them out at a cost you really don't have the money for.

 

Just consider the billions on legal suits and pay outs for dealers on top of the ignition deal and how that money is really needed in developing new product.

While you have part of this right you still have the massive 600 pound gorilla in the corner really to take a big bite out of your budget you have set to make better products.

Like I said this is a very complex issue and is not one that would be easily resolved.

 

You now need to come with a plan on the dealers you don't buy out and how you deal with them to keep them from taking you to court or costing you large amounts of money.

 

God knows GM has tried to kill many dealers already and just look how bad that has gone. It is a PR nightmare closing down many long time Family owned dealers and not giving them a thing. We just saw that 5 years ago till the government stopped them.

Edited January 21, 2015 by hyperv6

[hyperv6]

Drew For those couple companies yes.

But it solves nothing of the Detroit 3 and letting them be competitive on the same level as the other non franchised companies.

Then the cheaper Asian cars come in with little to no overhead or added cost of a franchise and they price you out of your own markets.

 

You need to take this back to the drawing board as it is not a fair or feasible plan.

 

You have to either come up with a plan that is fair to all or you have to live in a system that can not easily be resolved unless you can find a way out and at this point there is little way out.

All three Detroit firms would love to be direct sales but they can not get out of the position they were place in by government rules. So if they can not get out they are now supporting keeping the franchise system in place at Tesla as they do not want any new comers to have a leg up on them.

 

The way you have it the present automakers in the franchise system have one arm tied behind their backs and you want to let in new blood with both arms free. Is that fair? No!

 

Now bring me a plan that is fair to all. If you can you could make a lot of money selling it to them.

 

You can not just think in basic terms here you have to deal with winners, losers and fall out from the losers. Also you have to deal with fair trade as if the Chinese get in with direct sales that would make NAFTA look like a kids game. Then finally the PR aspects of this.

 

Note guys read the book What Did Jesus Drive. Killer book on PR in the auto industry. Not much GM but it is a good lesson on how things work and don't work in the industry. I give it two thumbs up!

Edited January 21, 2015 by hyperv6

[Drew Dowdell]

The Asian companies have franchises now, so they're out.

 

The only ones that would be able to do this would be Tesla and maybe the chinese.

[hyperv6]

And drew this is the problem.

Tesla is not going to be a major factor in this but the Chinese is the 600 pound Gorilla in the corner I speak of.

 

You let them in untied to a dealer network and they will be at a supreme advantage before they sell their first car. They could do a lot of damage here if they can produce a reliable decent looking car. It will be tough enough with their low labor but add in no dealer required for them is like handing the keys over to the market.

 

So unless someone has a real workable idea I expect things not to change. What politician wants to be seen as the one who let the Chinese in with a great advantage. Not going to win them much votes in the next election.