A Blog by Jonathan Low


May 14, 2015

US Regulator Agrees With Tesla That Consumers Should Not Be Forced To Buy Cars Only From Dealerships

Another blow struck for disintermediation. Tesla has argued that it should be able to sell cars directly to customers. Car dealers, a numerous and financially powerful force in most regions, beg to differ.

States like Michigan, Texas and New Jersey have passed laws preventing such direct sales.

The problem is that car dealers, in addition to selling a lot of cars, employ a lot of people and pay a lot of taxes.

While Tesla's point seems fair enough - and the FTC's non-binding opinion is logical - no one, as usual with technologically-driven changes, seems willing to consider how to pay for the public policy impact. The result is that the ostensible benefits of competitive advances are reduced as society finds itself bearing the cost of the least efficient but most politically expedient alternative. JL

Nathaniel Mott reports in Pando Daily:

People “may benefit from the ability to buy cars directly from manufacturers,” and “blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy” that is simply anti-competitive.
The Federal Trade Commission has come out in support of Tesla and other vehicle-makers that want to be able to sell their products directly to consumers.
States like Texas, Arizona, and New Jersey currently prevent manufacturers from making those sales, supposedly because it’s better for consumers and small business owners if independent dealerships don’t have to compete with the companies that actually make the products they’re attempting to sell off.
As Pando’s David Holmes explained after New Jersey implemented a sales ban on Tesla, and other states cracked down on its plans to cut out dealerships:
This is ‘rent-seeking’ in its purest form. The dealers have nothing to offer consumers that Tesla isn’t willing or capable of providing. As I wrote last month, this isn’t about a tech company circumnavigating regulations designed to protect consumers, like in the cases of Airbnb and Uber. This is a group of incumbents using its political power to pass laws – or enforce otherwise intended existing ones – that are harmful to newcomers and wasteful to customers.
The FTC makes similar points in its own blog post, in which it argues that people “may benefit from the ability to buy cars directly from manufacturers,” and that “blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy” that shouldn’t be allowed to continue.
And, the commission points out, it’s not just about Tesla. Other startups want to be able to sell their vehicles — such as Elio Motors’ three-wheeled vehicle, which has a starting price of $6,800 — to consumers instead of through dealerships. Preventing these companies from doing just that is simply anti-competitive.
The commission drops the mic — or comes as close as a government agency can come to doing so with a blog post about car sales, with this statement:
But beyond company-specific fixes lies a much larger issue: who should decide how consumers shop for products they want to buy? Protecting dealers from abuses by manufacturers does not justify a blanket prohibition like that in the current Michigan law, which extends to all vehicle manufacturers, even those like Tesla and Elio who have no interest in entering into a franchise agreement with any dealer.
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.
Consumers want to be able to purchase vehicles from manufacturers, especially when they’re looking into alternative vehicles like Tesla’s electric cars or Elio’s tricycle. These companies want to be able to sell those products, too, and the FTC’s blog posts makes its support for this business model abundantly clear.
But so long as auto dealerships are willing to support local politicians with campaign contributions, it seems like the painfully obvious idea that people should be able to buy a car from whoever they’d like won’t progress very far. As Business Insider put it: “If the way to win hearts and minds in the Legislature was paved with gold, Tesla let the car dealer’s lobby push them off the road.”


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