Policy Research

Direct-to-consumer Auto Sales: It’s not just about Tesla

Marina Lao, Debbie Feinstein, Francine Lafontaine

Summary

Although written by the directors of the Office of Policy Planning, Bureau of Competition, and Bureau of Economics this article does not necessarily represent the view of the Federal Trade Commission (FTC). The authors argue that competition, not regulation, should determine how and what consumers purchase. Arguing for the end to protectionist policies such as auto franchising laws, the authors believe that auto sales should not be limited by regulations (auto franchising laws). States should allow customers to choose not only the cars they buy, but also how they buy them. The authors believe that changing the laws incrementally, such as in New Jersey, is not the answer. Instead of allowing companies such as Tesla Motors to open only a few outlets under exceptions in the laws, the laws should be scrapped altogether. In Michigan the state government has taken a step in the opposite direction. Instead of amending laws to allow manufacturer to consumer sales they have doubled down on the franchise laws. Although the Governor welcomes a “healthy, open discussion.” The authors conclude that consumers would be better served if the method of distribution were left to manufacturers and consumers, not enshrined in law.

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Policy Implications

Arguments against state franchising laws are coming from the directors of three bureaus of the Federal Trade Commission. As opposition to auto franchising laws mounts, state governments are under pressure to repeal, replace, or amend them. Although the Free Trade Commission is reluctant to come out with a firm statement on the matter this article is a tell tale sign that those within the Commission favor an end to the laws. As of now it is a state-by-state issue but if the FTC decides to take the side of direct-to-consumer sales method it will put greater pressure on state legislatures to repeal the laws.