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FTC: Direct Sales of Autos Should Be the Consumer’s Choice

Elon Musk didn’t just set out to change the way automobiles are powered, the cofounder of PayPal also set out to change the way they are sold. Rather than recruit a nationwide network of dealers, Musk thought it better to open company-owned showrooms where people could inspect his Tesla electric cars (above) and then order models to their specifications online. But auto dealers, who sponsor one of the nation’s most intensive lobbying efforts to ensure their existence, protested vehemently. Arizona, Michigan, and New Jersey subsequently passed laws making direct-from-manufacturer car sales illegal. Texas went one better, compelling Tesla to meet special requirements just to advertise Tesla autos.

Yesterday the Federal Trade Commission, spurred on by some alterations made to those state laws, published a blog reinforcing its commitment to the principle that consumers—not lawmakers—should determine how they buy products. The FTC lauded New Jersey for amending its law in March to allow direct sales by manufacturers of zero-emission cars like Tesla’s. But the agency called into question changes the Michigan legislature made to its law last October that made direct sales of automobiles even more difficult.

“Many manufacturers choose some combination of direct sales and sales through independent retailers,” the FTC wrote. “Typically, no government intervention is needed to augment or alter these competitive dynamics. If the government does intervene, it should adopt restrictions that are clearly linked to specific policy objectives that the legislature believes warrant deviation from the beneficial pressures of competition, and should be no broader than necessary to achieve those objectives.”

A new bill was recently introduced in Michigan that would ease the direct-sales prohibition on a category known as “autocycles”—lower-priced, fuel-efficient, covered three-wheeled vehicles. Via the internet, Elio Motors has booked more than 40,000 pre-orders for its three-wheeled vehicles (left) which carry a base price of only $6,800. The company plans to begin production next year at a plant in Shreveport, LA.

The FTC blog applauded Michigan for opening the debate on the issue with the introduction of the autocycle bill and urged the state to pass it. However, the agency also let it be known that it favors an even wider latitude for direct sales in the industry.

“Beyond company-specific fixes lies a much larger issue: who should decide how consumers shop for products they want to buy?” the FTC argued. “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.”

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