Tesla Sales Banned In Michigan Decades Ago – Passage Of HB 5606 Actually Beneficial To Tesla?

3 years ago by Eric Loveday 27

Tesla Store

Tesla Store

Tesla Store

Tesla Store

You may have heard that a bill (HB 5606) is sitting on Michigan governor Rick Snyder’s desk right now that, if signed, will ban Tesla from selling direct in the state of Michigan.

While true that the bill contains Tesla-specific language, it matters not if Snyder signs it into law, as Tesla sales are already banned in Michigan.

Here’s the wording directed at Tesla in HB 5606:

[A manufacturer may not] “Sell any new motor vehicle directly to a retail customer other than through franchised dealers, unless the retail customer is a nonprofit organization or a federal, state, or local government or agency.”

And here’s what’s been on the books in Michigan (last amended in 1998) for decades and what’s used by the Secretary of State in confirming compliance with the law:

MCL 445.1574 states [a manufacturer may not] “Sell any new motor vehicle directly to a retail customer other than through its franchised dealers, unless the retail customer is a nonprofit organization or a federal, state, or local government or agency.”

Notice the difference?  “…other than through ITS franchised dealers.”

HB 5606, if passed, would actually benefit Tesla by allowing the electric automaker to possibly in the future sell Tesla EVs through ITS franchised dealerships, as well as existing OTHER dealerships.  The change in wording would not require Tesla to sell only through ITS own franchised dealerships.

Terry Burns, executive vice president of Auto Dealers of Michigan, told MLive: “there’s no regulatory change at all in the amendments,” which is basically a true statement.

Bill sponsor, Republican Aric Nesbitt, R-Lawton, adds:

“It seems like they’re [Tesla Motors] using this as kind of a red herring to talk about their issue, which is already covered under current law.”

So, to recap, direct sales are currently prohibited in Michigan under a decades-old piece of legislation.  HB 5606 doesn’t change that.

Regardless, Tesla is putting up a stink in this A Raw Deal In Michigan” blog post:

On October 1, the Michigan Automobile Dealers Association succeeded in passing a bill that is harmful to consumers. The bill, HB5606, was originally a single amendment to existing law designed to ensure that the car dealers can tack additional fees on to the purchase price for all vehicles (from any manufacturer) sold in Michigan. Such fees have a controversial history, are generally regarded with skepticism and have been the subject of consumer concern in other states.

Not content with enshrining their ability to charge consumers dubious fees, on the last day of the legislative session, the dealers managed to make a last-minute change to the bill in an attempt to cement their broader retail monopoly. Using a procedure that prevented legislators and the public at large from knowing what was happening or allowing debate, Senator Joe Hune added new language in an attempt to lock Tesla out of the State. Unsurprisingly, Senator Hune counts the Michigan Automobile Dealers Association as one of his top financial contributors, and his wife’s firm lobbies for the dealers.

By striking a single, but critical, word from MCLA 445.1574(14)(1)(i), the law governing franchise relations in Michigan, the dealers seek to force Tesla, a company that has never had a franchise dealership, into a body of law solely intended to govern the relationship between a manufacturer and its associated dealers. In so doing, they create an effective prohibition against Tesla opening a store in Michigan.

This amendment goes even further. It also seeks to prevent Tesla from operating a gallery in Michigan that simply provides information without conducting sales. We could even be barred from telling people about our car.

This anti-competitive behavior mirrors similar tactics in New Jersey and Missouri, where dealers have resorted to backroom political maneuvers to shore up their monopolies. The dark-of-night tactics highlight the dealers’ concerns that their arguments don’t stand up well to public scrutiny.

Indeed, no consumer unaffiliated with dealers would ever want this. Officials at the Federal Trade Commission have spoken out about the potentially harmful consequences of the dealers’ anti-competitive behavior, saying “competition ultimately provides the best protections for consumers.” Leading economists have also weighed in, saying dealer monopolies come “at the expense of consumers and innovative technologies.” And in September, in considering a similar body of law, the Massachusetts Supreme Court handed down a ruling that made it clear that such laws were not intended to exclude a manufacturer without franchise dealerships from selling to consumers directly.

While the car dealers’ anti-consumer bill has made it through the legislature, it has yet to be signed into law. The bill is now on Governor Rick Snyder’s desk. We are calling on concerned consumers to contact the Governor and urge him to veto this legislation and return the issue to the legislature for a full and open debate in 2015.

Please make your voice heard.

Other ways to contact Gov. Snyder:

Phone: 517-373-3400
Address: 234 West Baraga Avenue, Marquette, MI 49855
Mail: P.O. Box 30013, Lansing, MI 48909

Governor Snyder has until October 21 to act on the bill.

Source: Bloomberg

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27 responses to "Tesla Sales Banned In Michigan Decades Ago – Passage Of HB 5606 Actually Beneficial To Tesla?"

  1. David Murray says:

    Maybe somebody needs to create a non-profit business who’s sole job is to buy cars from Tesla (without going through a dealer) and re-sell those cars at no profit to the person who wants to buy the car.

    1. CD says:

      Definitely Supreme Court time! I can buy almost any product from a manufacturer over the internet or over the phone and have it shipped to my home even though the same product is sold locally in stores. That’s legal!! But because it’s a car, I can’t order it and have it delivered to my home?????????????? Time for the Supreme Court!!!

  2. scott franco says:

    You pick the nearest neighboring state and self-import. This entire thing is juvenile political theatre.

    1. TomArt says:

      That is an unnecessary complication, and it’s not the point – the point is that there are laws that are not serving the people that must be amended or reversed.

  3. ItsNotAboutTheMoney says:

    The wording at issue, inserted as a very late amendment, would prevent Tesla from having galleries. The other language change is of absolutely no help to Tesla because it’s never, ever, ever, ever, ever going to want to sell through _franchised_ dealers due to the laws that cede control of the sales process and pricing. If it ever would sell through a 3rd party it’d be an FM deal, not an independent franchise.

  4. Josh Bryant says:

    This is a similar situation to Texas. The laws were squared away against direct sales long before Tesla existed. They tried to pass a carve out for Tesla for up to 5k sales per year, but it never even made it to vote.

    Perry said he would sign it if it hit his desk, but I am sure he know it would never even get close. He was probably trying not to piss off Musk as they were getting the SpaceX spaceport deal done at the time.

    There might be another push at it this year, Texas only meets every 2 years for laws.

  5. Josh Bryant says:

    The language was added in last minute. Does that mean they almost dropped the ball, accidentally removed the direct sales ban?

    Or was someone supporting Tesla sneaking it through?

    1. Josh Bryant says:

      Reading a little more, it sounds like this bill was just an amendment to the original bill. The original language would have stayed in place.

      That would mean they are changing the language. Tesla’s stance is that it would not only prevent direct sales, but also “galleries” like we have in Texas. Is this true? Any lawyers out there care to weight in on what the word changes really mean?

  6. MDEV says:

    Supreme court anyone?

    1. Fabian says:

      +1 Million.

      This BS needs to end. It is a waste of everyone’s time. The game is OVER for the profit hoarding dealerships.

      1. Nelson says:

        I Agree.

        +1 Million again.

        NPNS! SBF!
        Volt#671

    2. Nix says:

      Supreme Court has ruled multiple times that dealership laws are constitutional. Sorry.

  7. Nelson says:

    To me,
    MCL 445.1574 states [a manufacturer may not] “Sell any new motor vehicle directly to a retail customer other than through its franchised dealers, unless the retail customer is a nonprofit organization or a federal, state, or local government or agency.

    implies Tesla CAN sell directly to a retail customer because they have no franchised dealers. The law does not state auto manufactures must franchise.

    HB 5606 removing the “ITS” is trying to imply auto manufactures must franchise to sell to a retail customer.

    NPNS! SBF!
    Volt#671

    1. kdawg says:

      That’s how I’m understanding it. By removing “its”, now the ADA can prevent Tesla from saying “we don’t have any franchises to sell from”. Because the lawyers will just say, “oh, you can sell from any franchise, it doesn’t have to be *your* franchise. As long as there are *any* franchises, you can’t sell direct. Sowwy.”

      As a Michigander, I messaged Gov. Snyder and told him to veto.

  8. Could a ban on Tesla Motors displaying it’s vehicles in a public “gallery” provent it from appearing at the NAIAS (North American International Auto Show) in Detroit, MI this January?
    http://www.naias.com/the-2015-show/overview.aspx

    Some rumors indicate this event could be when the Model X would be first shown in final form.

    1. Josh Bryant says:

      I know the way the law were in Texas, Tesla was allowed to do “special events” for test drives. Similar to what happened in Iowa recently that the ADA threw a fit about. Not sure if this also prohibits special events.

      If it does, wouldn’t that also mean that every auto company (chinese, european exotics, etc.) that has not entered the Michigan market yet, would not be allowed to attend?

      That seems like it would be a major negative headline for the state.

    2. Nix says:

      That is a private event, where you have to pay admission to get it. It isn’t public.

  9. Tech01x says:

    Mr. Loveday, maybe a more careful reading is necessary. The big problem is this line that was added to the Senate version and subsequently adopted in the House version:

    “3) This section applies to a manufacturer that sells, services, displays, or advertises its new motor vehicles in this state.”

    In other words, Tesla potentially can’t show or service their cars in the state.

    1. kdawg says:

      Well that is just saying who it applies to, not saying they can’d do those things.

      1. Tech01x says:

        Well, combine #3 with parts 1 and 2

        1. UrNiD10t says:

          If you combine parts 2 and 3 with 1, then it simply states that you can’t sell directly to consumers. Part 3 simply defines that this rule applies to any manufacturer who sells, services, displays, or advertises it’s product. So if Tesla sets up a show room to advertise it’s cars, but doesn’t sell them from that location, then Tesla is certainly within the law.

  10. Jakey says:

    I don`t think your interpretation is correct or the ADA would not go through the trouble of changing a single word (and to think they would make an amendment that would benefit Tesla is laughable).

    I think the removal is as others have pointed out: to change the law so that it Tesla can’t use the same tactic that worked in Massachusetts by arguing the law doesn’t apply given it specifies manufacturers with franchises (the critical “its” franchises as opposed to just franchises without a modifier).

  11. EVer says:

    Mi-S***-Gan

  12. Angelo says:

    Oh, oh! Looks like Apple Computer and their computer store are going to be in big trouble, if this nonsense continues. Where’s the Supreme Court, when you really need them?

  13. Ludus says:

    It’s pretty clear that removing “it’s” wasn’t intended to make it easier for Tesla. It’s unclear what the purpose of this article was if not to just misdirect and confuse the public.

    If you don’t want Tesla excluded from Michigan by the Auto Dealers, ask Gov. Snyder to veto the bill and let this be an open debate in 2015.

  14. Chris O says:

    Reading Tesla’s response it occurred to me that one of the biggest arguments against the mandatory franchise dealerships system may be its corrupting influence on politics.

    Dealer organisations and politicians are interlocked in a deeply unhealthy relationship where the dealers basically need to pay politicians protection money to safeguard their privileged position and clearly there is plenty of politicians out there willing to take their money and deliver the goods.

    Nothing eats away at the glue of society like corruption and the franchise dealership system in its current form definitely contributes to that.

  15. David says:

    If Tesla wants to take this issue to the courts, there is plenty of room to argue that it doesn’t apply to them. First of all, they do no manufacturing in Michigan, therefore are not subject to Michigan laws regulating car manufacturers. The law prohibits manufacturers from owning “dealers” “located” in the state. Tesla can argue that there is no dealership agreement in place between it and its showroom and service operations, and therefore they are not “dealers”. They can also argue that the “dealers” are not “located” in Michigan since Tesla Motors Inc is the owning entity and it is incorporated in Delaware and headquartered in California. There is a quaint provision in the Michigan law stating that it does not apply to dealers not “located” in the state. If physical presence of a dealer-type facility were all that was required to qualify as “located” in the state, then there would be no need for that provision, since dealers with no physical presence in the state are ipso facto outside the jurisdiction of the state of Michigan.