opinion

Crane: It’s Time for Michigan to Say Yes to Tesla

A year ago, Gov. Rick Snyder signed into law a statute that made it impossible for Tesla Motors to sell or service its innovative electric vehicles in Michigan. The new law prohibits a car manufacturer from opening its own sales outlets or service centers in the state, requiring it instead to use franchised dealers. Since Tesla believes that franchised dealers will not do a good job of selling or servicing its vehicles, it has declined to enter into franchise agreements. This means that Michigan customers must drive across the border to Buckeye territory to test drive a Tesla or visit a Tesla service center.

Prohibiting car companies from dealing directly with customers is bad for the people of Michigan. In response to the new law, the Information Technology & Innovation Foundation gave Michigan one of its dreaded Luddite Awards for thwarting innovation. The U.S. Federal Trade Commission, which has responsibility for protecting the interests of consumers, has strongly advised Michigan to permit selling to consumers without a state-required middle man. A U.S. Justice Department study suggests that direct distribution could save consumers over $2,200 per vehicle. Earlier this year, an unusual “big tent” coalition of environmentalist groups, consumer and competition organizations, technology foundations, and free-market advocates released a public interest letter calling on state legislatures to permit direct distribution. Even Snyder’s usual allies at The Wall Street Journal took him to task for “driving off the road” with the anti-Tesla bill.

The near-universal opinion of economists and other experts on product distribution is that prohibiting a car manufacturer from dealing directly with consumers results in higher prices and fewer innovations. In 2014, a group of over 70 economists and law professors from across the political spectrum analyzed the arguments in favor of these kinds of restrictions and found them all erroneous. As they explained, the only beneficiaries of these laws are car dealers who seek shelter from competition.

There is no good reason to prohibit a manufacturer from dealing directly with customers. A customer who shops at an Apple store for an iPad or iPhone is hardly being exploited. Many other states like California, the hub of innovation, allow car manufacturers to deal directly with consumers. I am unaware of any evidence that manufacturers are doing a worse job than dealers in taking care of their customers.

Although the Michigan law was specifically aimed at blocking Tesla, it negatively affects competition and innovation more broadly. Several other car companies, including startup companies with innovative new technologies, have stated that selling through dealers is not a viable option for them. Prohibitions on direct distribution limit consumer choice in Michigan and prevent environmentally friendly choices from reaching the market.

As Gov. Snyder recognized when signing the bill a year ago, “We should always be willing to re-examine our business and regulatory practices with an eye toward improving the customer experience for our citizens and doing things in a more efficient and less costly fashion.” He was right. It’s time for Michigan to allow direct selling to consumers.

– Dan Crane is associate dean for faculty and research and the Frederick Paul Furth, Sr. Professor of Law at the University of Michigan. He is a leading expert on antitrust law and economic regulation and has been a leading advocate for the right of an automobile manufacturer to distribute its vehicles directly to consumers.