Federal Trade Commission Fights For Tesla Direct Sales Model

FTC goes to bat for Tesla as states ban Tesla from selling its cars direct to consumers.

Posted in News

— Electric automaker Tesla might be having problems with selling its cars direct to consumers without going through dealerships, but it's clear the Federal Trade Commission (FTC) is backing Tesla in its no-dealer sales model.

Tesla sells and services its cars through company-owned stores and service centers which cuts out the middleman in the sales process. That middleman is the standard auto dealership that buys cars from a manufacturer, then sells those cars to consumers. Price mark-ups, sales commissions and haggling over "seat protectant" and other add-ons are common when buying a new car at a dealership.

To Tesla, this only hurts the consumer who should have the right to deal directly with the company that made the cars.

Here Come the Laws

Car dealerships argue franchise laws, around for decades, were created to protect the franchised dealership from abuse from the manufacturer. That might sound nice for a manufacturer/dealership model, but Tesla says it doesn't want dealerships anywhere.

In addition to franchise laws are the pesky state laws created to protect local car dealerships. The money and politics involved is what has kept the old-fashioned car sales practices in place. Politicians create laws to empower local car dealers and in turn, those car dealers and their lobby helps keep those politicians in office.

Tesla has been trying to fight these ancient laws by providing sound answers to every auto dealer argument, but the dealership lobby is strong among politicians. Some states have outright banned Tesla from selling its cars direct to consumers, while other states are just now facing the issue.

The FTC is taking a strong stance behind Tesla and other manufacturers that want to throw out the third-party dealership model, now going so far as to say blocking Tesla only hurts true competition.

FTC vs Detroit

The latest fight being fought by the FTC is concerning the state of Michigan. In October 2014, the Michigan legislature passed and the governor signed legislation that made changes to strengthen the prohibitions on manufacturer direct sales in that state. Pressure from the car dealer lobby drove the new changes as dealers watched Tesla grow into a dominant force in the electric car arena.

However, Michigan is now debating that law and its effects on consumers, and a new bill has been introduced to help consumers buy vehicles direct from the manufacturer. However, the law doesn't include Tesla. Instead, any changes to current law would cover only "autocycles" from a company called Elio Motors.

The autocycle is a three-wheeled enclosed vehicle that sells for a base price of only $6,800. Elio has been taking orders for the vehicles even though the start of manufacturing won't be until 2016. But as with Tesla, Elio said it wants to sell direct to consumers without dealerships taking a cut of the pie.

Does Tesla Stand a Chance?

Considering the strength of the auto dealer lobby and its past negative effects on consumer choice, the Federal Trade Commission might be the only agency that can stand up to those who want to keep the dinosaur auto sales laws created over 100 years ago.

"Absent some legitimate public purpose, consumers would be better served if the choice of distribution method were left to motor vehicle manufacturers and the consumers to whom they sell their products." - The Federal Trade Commission

Read what the FTC is doing to increase competition and give consumers the choice of where to buy their new vehicles.