Law signed by Gov. Rick Snyder could make Michigan most anti-Tesla state in the country

A University of Michigan professor said that legislation signed Tuesday by Gov. Rick Snyder could make it the most restrictive state in the union for electric car maker Tesla Motors.

DETROIT, MI – A University of Michigan professor said that legislation signed Tuesday by Gov. Rick Snyder could make it the most restrictive state in the union for electric car maker Tesla Motors.

As he signed HB 5606 – now Public Act 354 of 2014 – Snyder said it simply reinforces existing law as it pertains to automobile dealerships and the fees they charge in Michigan. He noted that selling cars directly to consumers, as Tesla does, was already prohibited in Michigan.

But University of Michigan law professor Daniel Crane said the legislation enacted Tuesday goes further than other states where the Palo Alto, Calif.-based electric auto manufacturer has run into trouble, such as Texas.

"In Texas, Tesla can't have showrooms or service centers, but they can have galleries in malls," said Crane, who specializes in anti-trust laws. "However, the salespeople working at those galleries – if you could even call them that – cannot quote you on a price or show you a car. That's embarrassing enough that that's a law. But the bill now in Michigan says Tesla can't even do that."

At issue, according the both Crane and Tesla's legal counsel, is in part a section near the end of the legislation that says a manufacturer shall not do any of the following:

"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. This subdivision does not prohibit a manufacturer from providing information to a consumer for the purpose of marketing or facilitating the sale of new motor vehicles or from establishing a program to sell or offer to sell new motor vehicles through franchised new motor vehicle dealers that sell and service new motor vehicles produced by the manufacturer."

While Crane said time will need to run its course to see how the legislation takes effect, he said it "could become the most restrictive law in the county on Tesla." An especially bizarre, possible side-effect: The law may even ban Tesla from showing its cars at the North American International Auto Show at the Cobo Center in Detroit in January, he said.

Like Tesla, Crane said groups backing the traditional car dealerships, such as the Michigan Auto Dealers Association, snuck the amendments in at the last minute.
He said the dealership groups saw what happened in Massachusetts, which until Tuesday had a similar dealership franchising law on its books to Michigan.

But in Massachusetts, the state Supreme Court cleared the way in September for Tesla to sell directly to consumers in the state. The ruling stemmed from a case that began with Tesla opening an auto gallery in a mall in Natick in 2012. Some car dealers and the Massachusetts State Automobile Dealers Association challenged Tesla's ability to sell without the use of a dealership.

In short, the court ruled that dealerships could not challenge Tesla on the law because it doesn't apply to Tesla, as it has no dealerships.

Crane said Tesla appeared poised to make that same argument in Michigan before HB 5606 was passed and then signed by Snyder.

Some dealerships maintain that Tesla needs to play by the same rules applied to major auto manufacturers. Bill Walters of the Texas Automobile Dealers Association told ABC's "Nightline" as much after backing one of the country's stricter laws against Tesla.

"This happens all the time, someone wants an exception to the franchise laws, and our policymakers don't want to make a n exception," he said, adding that Tesla could even do better business through a franchise network of its choice.

Terry Burns, executive vice president of MADA, told MLive before the Michigan legislation was signed that amendments to it were to clarify the bill's application to all deals, as some have tried to claim exemptions in the past. It doesn't represent a regulatory change, he said.

"All the original equipment manufacturers in the world that do business here comply with the law, and it's worked very well," Burns said.

Snyder said in a release Tuesday that the change in law merely allows manufacturers who do not have their own franchised dealers to sell through another manufacturer's network of franchised dealers. From Snyder's office:
"They will be required, just as they are now, to sell through a franchised dealer, and not directly to consumers. HB 5606 does nothing to change this fact. At most, it clarifies the existing requirement in Michigan law."

Snyder added that lawmakers should also discuss the current business model of car dealership networks to determine whether it's best for consumers.

"We should always be willing to re-examine our business and regulatory practices with an eye toward improving the customer experience for our citizens and doing things in a more efficient and less costly fashion," he said.

Tesla sells its cars in at least 20 states and has more than 50 showrooms throughout the country. And although Michiganders may not be able to visit a Tesla showroom in their state any time soon, they can still buy cars from the company website and from private sellers.

Incorporated in 2003, the company began producing the Roadster electric two-seat sports car in 2008 with a base price of $109,000 in the U.S. It began selling the Model S sedan in 2012 with a starting price of $69,900. The Model S has shaken some of the competition, winning accolades such as Consumer Reports calling it the best car it has ever driven and the National Highway Safety Administration saying it's the safest car it's ever tested. 

While it's easily its largest production vehicle, as of September Tesla has only sold 47,000 units of the Model S globally. That pales in comparison to the production and volume of established manufacturers; General Motors for example sold almost 2.5 million cars in the third quarter alone.