Snyder weighs pulling plug on direct Tesla sales

Michael Martinez and Michael Wayland
The Detroit News

Gov. Rick Snyder is deciding whether to veto or sign into law a bill containing an 11th-hour amendment intended to prohibit automakers — including Tesla Motors Inc. — from selling cars directly to customers.

The bill, which passed through the Senate and House earlier this month, stops automakers from selling cars “directly to a retail customer other than through franchised dealers,” with exceptions for nonprofits and government agencies. It does not specifically name Tesla, although the California-based electric-car maker is the only one looking to sell vehicles directly.

Dave Murray, Snyder’s deputy press secretary, said the governor’s office was “doing their due diligence and looking at it very closely” but has not made a decision. The governor has until Tuesday to decide.

Tesla contends that current Michigan law would allow them to sell directly in the state, since they don’t already have franchised dealers here. However, the Michigan Automobile Dealers Association, which told The Detroit News it had a hand in adding the amendment, says it believes Tesla cannot legally sell cars here now.

Diarmuid O’Connell, Tesla’s vice president of business development, said, “This amendment was put in last-minute, under the cover of darkness, probably with a calculation that it would be much more difficult (to pass) in a public debate in the light of day. There is a basic issue of fairness here; we didn’t have an opportunity to come and debate this bill.”

The bill originally was introduced in May to deal with an unrelated issue: standardizing how much new-car dealers charge customers for documentation fees detailing the car-buying process. The maximum Michigan dealers now can charge is 5 percent of a car’s price, with a $200 cap. The new law would prevent automakers from telling dealers to charge less, and would require them to charge all customers the standardized rate — or nothing at all.

But the amendment containing the prohibition on sales by anyone other than franchised dealers was added quietly Oct. 2, right before the bill went to a final vote. O’Connell said Tesla was “blindsided” by the bill.

There are 50 Teslas registered in Michigan, according to IHS Automotive, despite the absence of dealers. The closest showroom to Detroit is in Columbus, Ohio. Unlike other automakers, Tesla sets up its “galleries” — typically in shopping malls — and sells directly to buyers.

Elon Musk, Tesla’s co-founder and chief executive officer, has said that the company’s advanced electric cars are best sold by the manufacturer.

Daniel Crane, a law professor at the University of Michigan who follows Tesla, called the last-minute amendment “a real travesty.” He wrote to Snyder asking him to veto the bill.

“Whoever did it slipped it in in a way that was not transparent,” Crane told The Detroit News. “It’s corrupt politics at its worst.”

Michigan Automobile Dealers Association Executive Vice President Terry Burns, whose organization initiated the original bill, said the amendment is simply a “clarification” that the law applies to all manufacturers who “sell, service, display or advertise vehicles in the state.”

“There’s no attempt to back-door anything here,” he said. “It’s just a clarification to make sure that there’s no ambiguity.”

Burns said the amendment was added to avoid future litigation as to who the law applies to. Current law allows manufacturers’ dealers to sell its vehicles; the amendment specifies they must be “franchised” dealers.

Tesla argues it would be allowed to sell directly in Michigan under the current law, since it doesn’t already have franchised dealers in the state.

“The current law is ambiguous,” said Todd Maron, Tesla’s general consul. “That ambiguity is why the dealers, through these last-minute tactics, have gone to change the law.”

Tesla has clashed with dealer groups in other states, including New Jersey, New York and Ohio, before reaching agreements.

“People have asked me is this an attempt to keep Tesla out. No,” said Burns, adding he’d welcome the electric car manufacturer into the state’s dealer system. “We would expect if Tesla wanted to operate in the state of Michigan that they would follow the laws.”

Burns said every manufacturer in the state uses the franchised-dealer system, and there’s an “excellent opportunity for Tesla” to do the same.

Republican Rep. Tom McMillin of Rochester Hills cast the only “no” against the final legislation. He said he opposed the bill because he didn’t think government should be involved in deciding contract content between manufacturers and dealers and whether they can bill for paperwork.

McMillin said he also disagrees with the Tesla ban. “If a company wants to try to distribute their product different than through dealerships, they certainly should be able to,” he said. “The only winners in that would be the consumers.”

The National Automobile Dealers Association supports Michigan’s franchise network. “For consumers buying a new car today, the fierce competition between local dealers in any given market drives down prices both in and across brands,” spokesman Charles Cyrill said. “If a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.”

O’Connell said Tesla wants to open retail and service locations in Michigan: “We have every intention to coming to Michigan ... this kind of action forecloses that opportunity in a very definitive way.”

Detroit News Staff Writer Melissa Burden contributed.