Brent Snavely

Detroit Free Press

DETROIT -- Tesla's sales model of selling cars directly to consumers would eventually lead to higher prices if the electric carmaker is allowed to move forward in Michigan, the chairman of the National Automobile Dealers Association says.

Tesla filed a lawsuit last month in federal court against state officials, escalating its multiyear battle to sell vehicles directly to consumers in Michigan. Tesla alleges that the state Legislature adopted legislation that unfairly blocks it from doing business in Michigan.

There are about 260 Tesla galleries or retail locations in the U.S., but none is operated by a franchised dealer. If someone in Michigan wants to buy a Tesla, they may go hundreds of miles to Tesla stores in metropolitan Chicago or Indianapolis, Columbus, Cincinnati and Cleveland. Nationwide, various states have taken different approaches to Tesla’s efforts to set up customer-direct retail centers, with some states seeking to ban the practice entirely, some allowing exceptions with restrictions, and others not objecting at all.

NADA Chairman Jeff Carlson, whose association represents nearly 16,500 new car and truck dealerships, said that automotive retailing is different from other types of retail because the transaction often involves bank financing and the purchase of a used car that the customer is trading in.

Carlson says competition between dealers leads to lower prices. The competition leads to a price reduction of up to $700, according to a study NADA commissioned from the Phoenix Center for Advanced Legal and Economic Public Policy Studies.

"Every state has to look to their consumer and decide what’s best for them," Carlson said in Detroit at an event hosted by the Automotive Press Association this week. "Either they can continue to support the franchised dealers' discount of up to $700 ... or, the choice for the policy makers is they can offer the consumer a vertically integrated model that prices vehicles at retail."

While Tesla's lawsuit against the state is in the early stages, Carlson said it will still be up to the state to regulate the industry.

"The public policy makers are going to go to the consumers and say which (model) do you want? The discounted product? Or the product at retail?" Carlson said.

Carlson also pointed to a memo that surfaced last month from Tesla CEO Elon Musk telling all employees to abide by the company's “no negotiation and no discount policy” the company has followed since its inception.

Tesla’s Model S and Model X are priced between $75,000 and $115,000, but late next year Tesla intends to launch a new Model 3 that will be priced about $30,000 after federal tax credits.

"It's very unfortunate that residents of Michigan who own our cars have to drive to Ohio or Illinois to have their cars serviced," Tesla Vice President of Business Development Diarmuid O'Connell said last week.

In Michigan, the secretary of state rejected Tesla's application for a dealership and service facility in Grand Rapids. The license was denied because a state law in 2014 requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles.

Tesla, in its lawsuit, referred to the law as "protectionist legislation ... effectively giving franchised dealers a state-sponsored monopoly on car sales within Michigan."

O'Connell argues the two systems — franchised auto dealers and Tesla's company-owned retail stores — can coexist.

"We didn’t get into this to upend the franchise dealer system," O'Connell said last week. "We're in the business of launching new technology and Michigan, as the birthplace of the industry, should be in the vanguard of that movement."