Tesla Sues For Right to Sell its Cars in Michigan

In the latest round in a multiyear, high-stakes battle to sell its battery-powered luxury cars directly to Michigan consumers, electric carmaker Tesla Motors has sued state officials over a law it says creates a state-sponsored monopoly.

The lawsuit, filed Thursday in the U.S. District Court for the Western District of Michigan, names defendants Michigan Secretary of State Ruth Johnson, who last week rejected Tesla’s application for a new-dealership license, as well as Gov. Rick Snyder and Attorney General Bill Schuette.

In other states, Tesla sells its vehicles directly to consumers, but that is illegal under Michigan law, which requires a dealer to have a contract with an auto manufacturer.

The carmaker asked for a dealership license last fall for a retail gallery in Grand Rapids, but a panel of administrative law examiners dismissed it last week. In a statement, Johnson said the license was denied “because state law explicitly requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles.”

Tesla, though, says it should be able to sell its cars directly to consumers without a franchised dealership, the same way Apple sells its products, at preset prices that relieve customers of the burden of having to “haggle over the price of the car, wonder if they could get a better deal across town or puzzle over confusing add-on products,” according to the complaint.

Related:

• FTC Tells Michigan to End Ban on Direct Tesla Sales
• Does Tesla Ban Go Too Far: Patch Poll

“While customers have welcomed Tesla with open arms, groups of industry incumbents, including some dealer associations across the country, have viewed Tesla as a threat to their local monopoly power over automobile distribution,” Tesla said in the complaint. “Rather than try to compete with Tesla, some of these well-connected players have tried to block Tesla from local markets altogether by lobbying state legislatures for protectionist legislation.

“Particularly egregious protectionist legislation was passed by the Michigan Legislature in 2014,” the complaint continued. “Under pressure from the deeply entrenched automobile dealer’s lobby, the Michigan Legislature quietly enacted an outright ban on Tesla’s direct-to-consumer sales model, effectively giving franchised dealers a state-sponsored monopoly on car sales within Michigan.”

Tesla is asking for a declaratory judgment that Michigan’s ban on direct sales “violates the Due Process, Equal Protection, and Commerce Clauses of the Constitution as applied to Tesla by prohibiting Tesla from selling its vehicles directly to consumers and by precluding Tesla from performing service and repairs within the State.”

Legal History

The law, backed by the Michigan Auto Dealers Association and General Motors, didn’t specifically mention Tesla, but it was commonly known as the “anti-Tesla bill” when the Legislature passed it and Snyder signed it.

The law’s quick movement through the Legislature to the governor’s desk has been called a “classic David-versus-Goliath tale, where Goliath wants the state of Michigan to take away David’s slingshot.”

Most experts said the new law didn’t change much in Michigan, because the state’s franchise laws already required that new cars be sold through dealerships, but it closed a gap that Tesla might have been able to exploit. The new law deleted one word – its – from existing language that stated a manufacturer could only sell new vehicles to consumers through “its” own network of franchised dealers.

Snyder defended the ban, saying the bill did 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.”

“This change would merely allow manufacturers that do not have their own franchised dealers to sell through another manufacturer’s network of franchised dealers. They will be required, just as they are now, to sell through a franchised dealer, and not directly to consumers,” Snyder said in a statement at the time.

At most, the governor said in the statement, the new law “clarifies the existing requirement in Michigan law.”

In May 2015, the Federal Trade Commission called out Michigan leaders for the ban, which it said perpetuates “the current law’s protectionism for independent franchised dealers, to the detriment of Michigan car buyers.”

Instead, the FTC urged Michigan lawmakers to consider a “complete repeal of the prohibition on direct sales by all manufacturers, rather than the enactment of any limited, selective set of exceptions.”

Photo by theregeneration via Flickr Commons