Snyder signs bill banning direct auto sales

Michael Martinez and David Shepardson
The Detroit News

If you live in Michigan and want to buy one of those hot, $71,000 Tesla electric cars, be prepared to drive to Chicago, Indianapolis or Columbus to get one.

Gov. Rick Snyder on Tuesday signed a bill banning automakers from selling vehicles directly to customers in Michigan.

The new law closes a loophole that California-based Tesla Motors Inc. has used in other states to maintain company-owned retail stores, bypassing the dealership route.

Snyder said the bill, approved overwhelmingly by both houses, “clarifies and strengthens” an existing law that prohibits direct sales of new cars in this state.

“This bill does not, as some have claimed, prevent auto manufacturers from selling automobiles directly to consumers at retail in Michigan — because this is already prohibited under Michigan law,” Snyder said in a letter to lawmakers.

Snyder, citing a legal analysis from GOP Attorney General Bill Schuette’s office, contended that the new law merely appears to let manufacturers without their own franchised dealers sell through another carmaker’s dealer network.

Tesla executives, however, weren’t buying that explanation.

“Why would they make a change if it had no legal import?” said Diarmuid O’Connell, Tesla’s vice president for business development.

He and Tesla’s general counsel, Todd A. Maron, disagreed with Snyder’s contention that the bill didn’t make a major change in existing law. O’Connell said the suggestion that auto dealers, a powerful lobbying group in Lansing and Washington, would push the Legislature to approve a bill that only clarified existing law doesn’t pass the “basic sniff test.”

The previous state law prohibited an automaker from selling new vehicles directly to retail customers except through its franchised dealers. The new law removes the word “its,” which Tesla officials said was a last-minute, monopolistic strike at their upstart company that has no traditional dealerships.

Maron said the law Snyder signed was comparable to deleting the word “not” — and “turns the entire sentence on its head.” Tesla believes the bill may restrict its ability to even open a gallery — often found in shopping malls — where cars are displayed but not sold.

O’Connell, in an interview Tuesday, said Tesla had been in talks for a year with the Michigan Secretary of State’s office to open a store in the state.

He said Tesla hasn’t decided if it will legally challenge the new law.

Maron said the automaker wants to work with Snyder and the Legislature next year to “get a law that makes more sense.”

The governor urged the Legislature to engage in a “healthy, open” discussion in the 2015-16 session about whether the business model in Michigan is working.

GM, Ford back ban

General Motors Co. and Ford Motor Co., both of which have large dealer networks to sell their products, supported the direct-sales ban.

“We believe that House Bill 5606 will help ensure that all automotive manufacturers follow the same rules to operate in the state of Michigan,” GM said in a statement.

Added Ford: “We applaud Gov. Snyder’s action of signing HB 5606. The bill will provide a level playing field for all automobile manufacturers selling vehicles in Michigan.”

Fiat Chrysler Automobiles had no comment.

In a blog post, Tesla blasted GM for its stance; O’Connell said GM’s actions were anticompetitive.

What if, he asked, decades ago computer companies such as IBM had tried to block upstart computer companies Apple and Gateway from selling directly to consumers?

GM has weighed in against Tesla in Ohio and Pennsylvania, and O’Connell called GM’s effort “unsurprisingly regressive” on the part of a dominant player in the market.

GM, he said, has “decided to press a regulatory point to a competitive advantage.”

“What we are doing is creating a new market for everyone to exploit,” O’Connell said, noting that Tesla has published its patents and made them available to inspire competition. “This has never been about us versus them (Detroit automakers).”

GM spokeswoman Heather Rosenker denied the automaker was being anticompetitive. “We know our customers want assurances that they are taken care of,” she said, saying the company supported its dealers and franchise laws.

“The playing field should be competitive and balanced.”

Not scared of Tesla senior analyst Michelle Krebs said Michigan dealers and the mainstream auto industry aren’t necessarily scared of Tesla, but are instead concerned about what comes after Tesla, such as Chinese auto companies that may opt to enter the state to sell cars here with a cheaper business model.

“Automakers and dealers worry that foreign automakers will enter the U.S. — perhaps from China — and set up operations that skirt franchise laws by having factory-owned stores. Existing automakers and their dealers fear that would put them at a competitive disadvantage and open the flood gates to even more such operations,” she said.

“That’s why they are trying to close those gates securely to Tesla and any of those that follow.”

Tesla sells in about 20 states — but is legally barred in about four major states, including Texas and Arizona.

Palo Alto, California-based Tesla expects to be able to build 100,000 vehicles annually by the end of 2015, up from 35,000 this year. Elon Musk, Tesla’s co-founder and chief executive officer, believes the company’s advanced electric cars are best sold by the manufacturer.

There are 50 Teslas registered in Michigan, according to research firm IHS Automotive, despite the absence of dealers.

Coincidentally, the Tesla S gets 208-265 miles on a charge, depending on model, and that’s just about the distance between Detroit and the closest company-owned Tesla stores: Chicago (280 miles from Detroit) and Columbus (200 miles from Detroit).

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Staff writer Melissa Burden and Bloomberg News contributed.