Feds Tell States to Stop Picking on Tesla

FTC officials says laws protecting car dealers hurt competition and consumers.

People look at a Tesla Motors vehicle on the showroom floor at the Dadeland Mall on February 19, 2014 in Miami, Florida. Tesla said today it earned $46 million in the fourth quarter on a non-adjusted basis, or 33 cents a share, causing shares in the company to jump 12 percent.
National Journal
Laura Ryan
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Laura Ryan
April 24, 2014, 1:43 p.m.

Fed­er­al reg­u­lat­ors want auto deal­ers and state law­makers to play nice with Tesla.

The Cali­for­nia-based car man­u­fac­turer prides it­self on sleek show­rooms and white-glove ser­vice to sell its elec­tric sports cars, which start at $70,000. 

But Tesla’s prac­tice of selling its elec­tric vehicles dir­ectly to con­sumers has made the young car­maker un­pop­u­lar with auto deal­ers, who say the com­pany is vi­ol­at­ing many loc­al and state fran­chise laws meant to en­cour­age com­pet­i­tion.

Seni­or of­fi­cials at the Fed­er­al Trade Com­mis­sion dis­agree, say­ing in a blog post Thursday that these laws are bad for con­sumers and com­pet­i­tion. Con­sumer choice about where to shop is just as im­port­ant as what to buy, ac­cord­ing to the post. 

“We hope law­makers will re­cog­nize ef­forts by auto deal­ers and oth­ers to bar new sources of com­pet­i­tion for what they are — ex­pres­sions of a lack of con­fid­ence in the com­pet­it­ive pro­cess that can only make con­sumers worse off,” Andy Gavil, dir­ect­or of the Of­fice of Policy Plan­ning; Debbie Fein­stein, dir­ect­or of the Bur­eau of Com­pet­i­tion; and Marty Gaynor, dir­ect­or of the Bur­eau of Eco­nom­ics at the FTC, wrote in the blog post, not­ing that the opin­ion rep­res­en­ted their views and not ne­ces­sar­ily the com­mis­sion’s.

They also point out that Tesla is hardly a threat”“only 22,000 of the 15 mil­lion cars sold in the U.S. in 2013 were Teslas, ac­cord­ing to the post.

The fran­chise sys­tem of in­de­pend­ently owned and op­er­ated car deal­er­ships dates back to the auto­mobile’s early years, when auto man­u­fac­tur­ers used in­de­pend­ent deal­ers to jump-start sales around the coun­try. As the auto­mobile in­dustry ma­tured, states ad­op­ted laws to pro­tect deal­ers from “ab­us­ive prac­tices” by man­u­fac­tur­ers.

But these laws have be­come “pro­tec­tion­ist” in­stead of “pro­tect­ing,” ac­cord­ing to the FTC of­fi­cials.

This feud between Tesla and auto­mobile sales­men came to a head last month when New Jer­sey’s Mo­tor Vehicle’s Com­mis­sion ad­op­ted a new reg­u­la­tion that re­quires every car deal­er­ship to op­er­ate as a fran­chise, ef­fect­ively block­ing the Tesla sales in the state.

“The ra­tionale giv­en for the reg­u­la­tion change that re­quires auto com­pan­ies to sell through deal­ers is that it en­sures ‘con­sumer pro­tec­tion,’ ” Tesla CEO Elon Musk wrote in re­sponse to New Jer­sey’s move. “If you be­lieve this, Gov. Christie has a bridge clos­ure he wants to sell you!”

Tesla is ap­peal­ing New Jer­sey’s ban, and dir­ect sales of Tesla are blocked in a hand­full of oth­er states, in­clud­ing Ari­zona and Texas. 

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