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Tesla v. State of Michigan

Recently the Michigan Legislature passed a package of Bills aimed at making Michigan a center of innovation for autonomous vehicles. This legislation will aid in spurring the next generation of vehicles and transportation. A statute in the package of bills provides authorization for the construction of the planned “American Center for Mobility” which would furnish the automobile industry with a facility to test concept vehicles and new technologies. With this political and economic investment in the advancement of the automobile industry coupled with the push to reestablish Detroit as a center of innovation, it seems counterintuitive for the state of Michigan to prevent a company that has revolutionized the automobile industry a permit to sell its vehicles in the state. Tesla Motors, a company that has challenged the industry status quo, is unable to sell its vehicles in Michigan due to franchise laws that prevent direct-to-consumer sales, which is Tesla’s preferred sales model, basically taking away any incentive for Tesla to invest in Michigan and the new American Center for Mobility.

Tesla is the only auto manufacturer to have a road-ready vehicle equipped with full self-driving Michigan Capitol Frontcapabilities that is available to the general public. Its current research and dedication to creating a new era in transportation could benefit the auto industry as well as the Michigan economy. For the better part of a century Michigan has been known as the center for all things automotive. It only seems natural that Tesla would gravitate towards Detroit to further its research and development. But due to the current laws pertaining to automotive sales Tesla has been effectively shut out. In 2014, the Michigan Legislature updated a law concerning auto-franchising which was nearly a half century old. The state argues the revised law, HB 5606, provides more clarity to what the law means and does not make it more restrictive.

The representative who proposed updating the law, House Majority Floor Leader Aric Nesbitt, argues that Tesla is still welcome to market and sell its vehicles in Michigan as long as Tesla complies with current state laws. This would require Tesla to begin offering independent franchises rather than opening company owned galleries or showrooms where they can not only present but also sell vehicles. Currently the only way to purchase one of Tesla’s vehicles in Michigan is to order online through the Tesla website. Representative Nesbitt and many others in the Michigan Legislature point out that the current state franchising laws were put in place to protect the consumer, seller, and manufacturer. Current state laws also mandate that every manufacturer abide by the same rules when selling vehicles to the general public and that none may deviate from the current system of independent dealerships. The argument is that independent dealerships drive down costs to consumers, protect consumers from price gouging, along with making it easier for consumers to negotiate warranties, service packages, and other concerns a buyer may have.

After Tesla Motors was denied a permit to become a licensed vehicle dealer it announced that it would sue state Secretary of State Ruth Johnson, Attorney General Bill Schuette, and Gov. Rick Snyder. The lawsuit filed with the U.S. District Court in Grand Rapids, MI claims that these officials had infringed on the company’s rights and violates the “the Due Process, Equal Protection, and Commerce Clauses of the Constitution” as applied to Tesla, by prohibiting Tesla from selling its vehicles directly to consumers and by precluding Tesla from performing service and repairs within the State.” Currently, Tesla is facing similar bans on direct-to-consumer sales in Texas, Utah, Connecticut, and Missouri.

Tesla Motors has stated that this lawsuit is its “last resort” to change state laws regarding dealership franchising. It hopes that a ruling in its favor in Michigan will create a domino effect that will see bans in other states struck down as well. It is clear that the Michigan Automobile Dealership Association does not want Tesla to win this case. This powerful lobby along with the Big Three sees a threat from Tesla. Not because of its sales figures, but because Tesla can shake up the way the automobile industry has functioned for decades.

Works Cited

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