Tesla sues Michigan over sales ban

Electric automaker Tesla Motors filed a lawsuit Thursday against Michigan state officials, escalating its multi-year battle to sell vehicles directly to consumers.

The California automaker named Michigan Gov. Rick Snyder, Secretary of State Ruth Johnson and Attorney General Bill Schuette in a lawsuit filed in federal court.

Tesla's action comes less than a week after Johnson effectively rejected the automaker’s application for dealership and service facilities by asking for proof that Tesla is a franchised dealer. Tesla, unlike other automakers, sells its cars directly to consumers through company-owned stores in other states.

The Palo Alto, Calif.-based automaker's lawsuit takes aim at the heart of the traditional dealership sales model, alleging it amounts to a state-sponsored monopoly.

"Tesla Motors brings this lawsuit to vindicate its rights under the United States Constitution to sell and service its critically-acclaimed, all-electric vehicles at Tesla owned facilities in the State of Michigan," the automaker said in its complaint.

Tesla submitted an application for a dealership license in fall 2015 with a plan to open a retail gallery in Grand Rapids. In a Sept. 7 hearing, a panel of administrative law examiners led by Jay Thomas Todd heard arguments. Last Thursday, they rejected the license for Tesla.

"The license was denied because state law explicitly requires a dealer to have a bona fide contract with an auto manufacturer to sell its vehicles," Michigan Secretary of State Ruth Johnson said in a statement.

Tesla wants to sell its high-end battery-powered cars directly to consumers without a franchised dealer, much like Apple sells its products.

The automaker's lawsuit asks a federal judge to declare that the state violated the Due Process and Equal Protection Clauses of the Fourteenth Amendment to the U.S. Constitution and the Constitution’s Commerce Clause.

Snyder signed a law in October 2014 that prohibited Tesla from selling cars directly to consumers by requiring all automakers to sell through a network of franchised dealers.

"Particularly egregious protectionist legislation was passed by the Michigan Legislature in 2014," Tesla says in its complaint. "The Michigan Legislature quietly enacted an outright ban on Tesla’s direct-to-consumer sales model, effectively giving franchised dealers a state-sponsored monopoly on car sales within Michigan."

Some lawmakers and others have urged the state to change the legislation. House Bill 5312 — offered this year by state Rep. Aaron Miller, R-Sturgis — would lift the direct-sales restriction on Tesla.

Jarrett Skorup, a policy analyst with free-market think-tank Mackinac Center for Public Policy, which supports changing the law, said that people should be able to freely sell goods and supports Tesla’s position that it has a right to sell vehicles in Michigan without interference from dealerships.

However, the Michigan Automobile Dealers Association, which represents dealers statewide, counters that dealerships benefit consumers.

"For consumers, new-car franchises create intra-brand competition that lowers prices; generate extra accountability for consumers in warranty and safety recall situations; and provide enormous local economic benefits, from well-paying jobs to billions in local taxes," according to the National Automobile Dealers Association.

The association also argues that the system is the most efficient and effective way to distribute and sell automobiles nationwide becaue independent dealers are more motivated to invest in their dealerships and are more effective than manufacturers in selling cars.

Tesla, in contrast, argues that its model for selling cars is better than the high-pressure sales environment found at traditional auto dealerships where sales people make money based on commission.

Tesla currently operates stores in 23 states and the District of Columbia. To buy a Tesla now, Michiganders have to drive to Chicago, Cleveland, Columbus, Cincinnati or Indianapolis, where the automaker operates galleries, mostly in upscale shopping malls.

Tesla’s Model S and Model X are priced between $75,000 and $115,000, but late next year Tesla intends to launch a new Model 3 that will be priced about $30,000 after federal tax credits. The automaker has said 373,000 customers have paid to reserve Model 3 cars.

Follow Detroit Free Press reporter Brent Snavely on Twitter @BrentSnavely.


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