The Federal Trade Communications Commission (FTC) urged the Legislature in Michigan to repeal its direct sales ban on new vehicles to owners. The shares of Tesla traded higher on Tuesday.
The stock price of Tesla Motors closed $244.74 per share, up by more than 2%.
Direct sales ban: protectionism for car dealers
The FTC sent a letter to Michigan State Senator Darwin Booher in response to his request for comment on the potential impact of the proposed Senate Bill 268 on competition. The proposed legislation would create an exception to the current law that prohibits car manufacturers from selling new vehicles directly to consumers.
Last October, Governor Rick Snyder signed a bill that prohibits automakers such as Tesla Motors from selling vehicles to consumers in Michigan. A majority of the lawmakers in the state approved the bill, which was supported by car dealerships.
Gov. Snyder previously stated that the law “clarifies and strengthens” the long-standing law that prohibited the direct sales of new cars in Michigan.
During an event in Detroit on Monday, the Governor said he was unaware of the letter from the FTC urging the state legislature to reconsider the direct sales ban on new vehicles in Michigan.
The FTC emphasized in its letter to Sen. Booher that the provision in the Michigan law that prohibits car manufacturers from directly selling new vehicles to consumers is a special protection for car dealers. The Commission said such protectionism for car dealers “is likely harming both competition and consumers.”
According to the FTC, the Senate Bill 268, which will allow manufacturers of a category of vehicles known as “autocycles” to sell vehicles directly or through dealers will likely promote competition and benefits consumers. The Commission also commented that the bill does not go far enough.
The FTC emphasized its belief that Michigan consumers would fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers, rather than the enactments of any limited, selective set of exceptions.”
“FTC staff believes Michigan’s consumers would more fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers, rather than the enactment of any limited, selective set of exceptions.
FTC says direct auto sales to consumers is not just about Tesla
The FTC has been campaigning against the prohibition direct auto sales to consumers by manufacturers in blog posts and comment letters to legislators over the past year. The Commission emphasized that the fundamental principle of competition was the consumers–not regulation– should determine what they buy and how they buy it.
The FTC noted reports that Tesla Motors have been facing challenges in selling its luxury electric cars directly to consumers for several years now. The Commission clarified that its support for direct auto sales to consumers was not just about Tesla Motors.
Aside from Tesla Motors, Elio Motors plans to manufacture an innovative, low-cost, high-mileage, enclosed three-wheeled vehicle and to sell its products directly to consumers at a base price of $6,800. Its price is significantly cheaper than Tesla Motors’ electric cars.
Elio Motors already received more than 41,000 reservations for its three-wheeled vehicle as of March 29, 2015.
“FTC staff supports the movement to allow for direct sales to consumers—not only Tesla or Elio, but for any company that decides to use that business model to distribute its products. Blanket prohibitions on direct manufacturer sales to consumers are an anomaly within the larger economy,” according to the Commission.
Tesla allowed to sell directly in Maryland
Separately, Tesla Motors is now allowed to sell its cars directly to consumers in Maryland. Governor Larry Hogan signed a bill allowing Tesla Motors to sell its electric cars to consumers in Maryland starting in October.
The Maryland law allows “a manufacturer or distributor to be licensed as vehicle dealer the manufacturer or distributor deals only in electric or non-fossil fuel burning vehicles.”