Michigan passes bill to ban Tesla!

[Red Sage]

Because the power granted to those acts are justified by interstate commerce. So you need to first prove how this has any relevance to interstate commerce. Now that is not to say that it can't happen, but you would need favorable judges to rule in such a way. Because under a strict interpretation it won't hold.

It has been said that the argument for interstate commerce involves the fact that the corporate offices for Tesla Motors are in California, they do not have a presence in Michigan at all, so the state cannot regulate its sales practices at all. That is why the law was modified, because there was a potential loophole that was closed here:

'...other than through [its] franchised dealers...'

'...other than through franchised dealers...'

Now Tesla may have options open, for example. Tesla can bring the Model 3 to the auto show, claiming it to be a concept car. Since the car is not for sale and is only a concept at that point. It would slide by the law.

Good point!

I am also not sure about Michigan used car laws.

Nope. The newly signed law won't allow Tesla Motors to be involved in direct sales of either new or used cars.

 

[chickensevil]

“States are fully within their rights to protect consumers by choosing the way cars are sold and serviced,” Charles Cyrill, an NADA spokesman, told Bloomberg News. “Fierce competition between local dealers in any given market drives down prices both in and across brands. While if a factory owned all of its stores, it could set prices and buyers would lose virtually all bargaining power.”
Michigan to Tesla: Dealers only - Fortune

This is the stated purpose of the legislation and the reason behind why the government passed the bill. Really, we all know that the reason the bill passed was because of the strong auto dealer lobby and its campaign contributions but those facts don't fly in court. In court, it will be a given that the government can protect consumers but the grounds for that protection must be based on sound facts.

Here's how dealers currently price vehicles:

"A car dealer orders vehicles from the manufacturer for inventory and pays interest (called flooring or floorplanning). Dealer holdbacks are a system of payments made by the manufacturers to their dealers.[SUP][2][/SUP] The holdback payments assist the dealer's ability to stock their inventory of vehicles and improves the profitability of dealers. Typically the holdback amount is around 1% to 3% of the vehicles' manufactures suggested retail price (MSRP).[SUP][3][/SUP] Hold-back is usually not a negotiable part of the price a consumer would pay for the vehicle, but dealers will "give up" the dealer holdback to get rid of a car that has been sitting in its inventory for a long time or if the additional sale will bring them up to the manufacturer's additional incentive payments for reaching unit bonus targets.[SUP][4][/SUP] The holdback was originally designed to help offset the cost the new car dealer has for paying interest on the money that is borrowed to keep the car in inventory, but is in effect lowering the dealer's gross profit, and thus the sales commissions paid to employees.[SUP][5][/SUP] The holdback allows dealerships to promote at or near invoice-price sales and still achieve comfortable profits on such transactions.[SUP][5]"
[/SUP]
What this means is that the manufacturer has all the control when it comes to price, and the dealer can only negotiate away its profit. Given these facts, the "Fierce competition between local dealers in any given market [CANNOT POSSIBLY!] drive down prices both in and across brands". This is because that "fierce competition" relates solely to the dealer's profit but does not have any effect at all on the manufacturer's price to the dealer. This system is entirely different from retail systems designed to drive down manufacturer's costs, with the Wal-mart system being the best example of that approach - which is extremely rare in the retail market.

I see car dealers as akin to real estate agents. Before the internet they held the information consumer's needed (MLS for real estate agents) and actual manufacturer's prices for car dealers. That's no longer the case...

"With the advent of the Internet, the process of selling cars has undergone a considerable change. More than 70% of car purchases in the United States start with research on the Internet. This empowers the buyers with the knowledge of features of comparable cars and the prices and discounts offered by different dealers within the same geographic area. This helps the buyers during price negotiations and puts further pressure on the profit margin of the dealer.[SUP][6]"[/SUP]

Which is all a price that is MORE than what the manufacturer is actually willing to part with the vehicle for. There was a great chart that showed the supposed dealer "competition" vs the sale of a 100k Tesla in which all the dealers were listing the prices at dollar points above the 100k.

In the absolute best case you convince the dealer to part with the vehicle at break even because they are making their money on that sale due to other incentives... Not getting the best price should be the exception... Not the standard. The only people getting extorted for a higher than "break even" price are the ones buying a Tesla through a third party in countries that don't have any stores yet (it is happening in Eastern Europe) everyone else is paying the EXACT same price as the guy who ordered before them and after them... Whether they are in NY, CA, or MI.

Could Tesla sell the car for cheaper? Well technically, yes. They are making a heavy Gross Profit on the list price of the car... But there is no competition from other manufacturers forcing Tesla to lower their internal pricing. Having dealerships would not change Tesla's high targeted Gross Margin and as long as people are willing to continue to pay 106k ASP on a Tesla they aren't going to drop their price... Again, a dealership wouldn't change this lack of competition.

 

[Chickenlittle]

Which is all a price that is MORE than what the manufacturer is actually willing to part with the vehicle for. There was a great chart that showed the supposed dealer "competition" vs the sale of a 100k Tesla in which all the dealers were listing the prices at dollar points above the 100k.

In the absolute best case you convince the dealer to part with the vehicle at break even because they are making their money on that sale due to other incentives... Not getting the best price should be the exception... Not the standard. The only people getting extorted for a higher than "break even" price are the ones buying a Tesla through a third party in countries that don't have any stores yet (it is happening in Eastern Europe) everyone else is paying the EXACT same price as the guy who ordered before them and after them... Whether they are in NY, CA, or MI.

Could Tesla sell the car for cheaper? Well technically, yes. They are making a heavy Gross Profit on the list price of the car... But there is no competition from other manufacturers forcing Tesla to lower their internal pricing. Having dealerships would not change Tesla's high targeted Gross Margin and as long as people are willing to continue to pay 106k ASP on a Tesla they aren't going to drop their price... Again, a dealership wouldn't change this lack of competition.

I don't think so. Not gap profitable

 

[Phoster]

There is a fairly good op-ed piece in Bloomberg, Want a Tesla? Start Voting

Imagine if Snyder lost the race in a close one, and the politico pundits floated the theory that his signing the anti-Tesla bill was enough to tip the balance and cost him the election. I am sure that would raise the price NADA and their state chapters would have to pay to buy state legislators in the future.

 

[evme]

It has been said that the argument for interstate commerce involves the fact that the corporate offices for Tesla Motors are in California, they do not have a presence in Michigan at all, so the state cannot regulate its sales practices at all. That is why the law was modified, because there was a potential loophole that was closed here:

'...other than through [its] franchised dealers...'

But Tesla can sell in Michigan through California just fine. What is being regulated is Tesla's ability to set up a gallery. I mean if Tesla really has no presence in Michigan, they may be able to run advertisement but that would be about it.

Nope. The newly signed law won't allow Tesla Motors to be involved in direct sales of either new or used cars.

Do you know which part of the bill says this?

 

[chickensevil]

I don't think so. Not gap profitable

I was just stating that technically Tesla could charge the consumer less money but as it stands they are setting the price as they see fit because their "competition" is either the Leaf (not exactly a fair comparison) or the other "large luxury sedans" (which isn't exactly a fair comparison either). Tesla sorta has their own... New market as it were, which is why they are canabalizing sales across multiple markets (I upgraded from a civic of all things, some come from Prius types, some from the E and F segments, etc). So the point was if you wanted to really get price competition (and the dealers claim) the solution is not some fake price competition that hurts the consumer, because there are few "winners" in that scenerio, but real manufacturer competition where, say, Mercedes releases a large luxury electric vehicle with similar features, specs, and performance as Tesla has. Then the consumer has real choice like iPhone vs Galaxy instead of iPhone from Best Buy vs iPhone from Walmart.

- - - Updated - - -

Do you know which part of the bill says this?

You partially quoted what was changed. It is the removal of the word "its" from the language... So now all the rest of the law applies to everyone not just those who have engaged in a franchise agreement. So manufacturers are only allowed to sell through a dealership.

 

[Duckjybe]

Tesla absolutely should unveil the final Model X at NAIAS. It would be the talk of the show!

 

[Krugerrand]

Tesla absolutely should unveil the final Model X at NAIAS. It would be the talk of the show!

Especially if it's said, after the fact, to have been against Michigan law to do so. How entirely ridiculous that would come across.

 

[green1]

Especially if it's said, after the fact, to have been against Michigan law to do so. How entirely ridiculous that would come across.

You've actually got a point. Per the text of the new law, I'm not entirely sure that it is legal for Tesla to appear at the show at all... (what a ridiculous piece of legislation!)

 

[evme]

You partially quoted what was changed. It is the removal of the word "its" from the language... So now all the rest of the law applies to everyone not just those who have engaged in a franchise agreement. So manufacturers are only allowed to sell through a dealership.

I meant the part that addresses used car advertising.

 

[Red Sage]

Having dealerships would not change Tesla's high targeted Gross Margin and as long as people are willing to continue to pay 106k ASP on a Tesla they aren't going to drop their price... Again, a dealership wouldn't change this lack of competition.

I don't think so. Not gap profitable

Chickenlittle: I'm pretty sure what chickensevil meant was that if forced to sell through 'independent franchised dealerships' at this juncture, the amount that Tesla Motors currently charges as retail would not go down for the benefit of that distribution system. It would effectively become their wholesale amount, because Tesla has already determined how much money they must make per car in order to properly expand. Thus, if the 'independent franchised dealerships' were to be presented with a $69,900 Invoice price for the Model S 60, then they would mark that up to 'what the market can bear' for retail sales.

I recently saw an interview with a guy from NADA who claimed that on average 'independent franchised dealerships' have a 'razor thin' margin of only 2.2%... This is far worse than what I've heard 'independent franchised dealerships' claim in times past, because they said there was about a 5% margin on average. Personally, I believe both estimates are a bald-faced lie at worst, and absolute balderdash at best.

Their 'out' is the word 'average', of course. I think they count that so-called 'average' only after all conceivable expenses for the entire fleet of new cars parked on the lot, rather than being clear about how much they literally make on a per car basis. I think they add up all the worst case scenario expenses for financing, upkeep, and missing sales targets. I think they don't include the 'holdback' amounts, incentives, and bonuses from 'factory cash' they receive. I think they don't point out the huge intake they make from used car sales of trade-ins. I think they also leave out the money that they make from their Service Departments. They are disingenuous about everything financial, just to make it seem as if 'independent franchised dealerships' are 'the little guy' in the transaction.

If the 'independent franchised dealerships' get their way, the Tesla Model S 60 will sticker for $105,000 and the Model S P85D will cost $250,000. The base version of the Model ☰ might not ever come out at all, or would be released for $60,000 -- three-to-five years late. It would not allow Tesla Motors to accelerate the advent of sustainable transportation at all. It would slow them down to a crawl, and threaten to destroy the company utterly. And Naysayers would be able to rejoice in their eternal claim that, "They ONLY make TOYS for the RICH!"

Imagine all those people who have posted in favor of haggling with 'independent franchised dealerships' and their supposed glee at being able to 'negotiate a better deal' to break down prices... So that they would only pay $95,000 for a car they would have bought from Tesla Motors for $69,900 without the middleman. Oh, but at least they can say, "I didn't pay MSRP!" Yeah, right. Whatever. Never mind the middleman behind the curtain.

 

[Red Sage]

But Tesla can sell in Michigan through California just fine. What is being regulated is Tesla's ability to set up a gallery. I mean if Tesla really has no presence in Michigan, they may be able to run advertisement but that would be about it.

I'll say this again... Anyone in the United States of America is allowed to BUY a Tesla Motors product. No one can stop that.

This law says that Tesla Motors cannot SELL their products, in the state of Michigan.

That is the real problem involved.

Do you know which part of the bill says this?

Yes, I do.

The People of the State of Michigan enact:

Sec. 14. (1) A manufacturer shall not do any of the following:

(h) Directly or indirectly own, operate, or control a new motor
vehicle dealer, including, but not limited to, a new motor vehicle
dealer engaged primarily in performing warranty repair services on
motor vehicles under the manufacturer’s warranty, or a used motor
vehicle dealer.
​

Now you do too.

I meant the part that addresses used car advertising.

Tesla Motors doesn't advertise. But a strict interpretation of the law might claim that any attempt to promote, market, facilitate the sale of, demonstrate, or display a vehicle is in effect, an attempt to sell them in the state of Michigan. The law says that an attempt by a manufacturer to sell direct to a consumer, without using an 'independent franchised dealership' is illegal. This is all similar to the change in policy that took place in Idaho, where based merely on the complaint of 'independent franchised dealerships', Tesla Motors lost the right to do any of those things because of an interpretation of the law that found they were 'acting as a dealership' simply by giving test drives.

 

[chickensevil]

I'll say this again... Anyone in the United States of America is allowed to BUY a Tesla Motors product. No one can stop that.

This law says that Tesla Motors cannot SELL their products, in the state of Michigan.

That is the real problem involved.



Yes, I do.

The People of the State of Michigan enact:

Sec. 14. (1) A manufacturer shall not do any of the following:

(h) Directly or indirectly own, operate, or control a new motor
vehicle dealer, including, but not limited to, a new motor vehicle
dealer engaged primarily in performing warranty repair services on
motor vehicles under the manufacturer’s warranty, or a used motor
vehicle dealer.
​

Now you do too.


Tesla Motors doesn't advertise. But a strict interpretation of the law might claim that any attempt to promote, market, facilitate the sale of, demonstrate, or display a vehicle is in effect, an attempt to sell them in the state of Michigan. The law says that an attempt by a manufacturer to sell direct to a consumer, without using an 'independent franchised dealership' is illegal. This is all similar to the change in policy that took place in Idaho, where based merely on the complaint of 'independent franchised dealerships', Tesla Motors lost the right to do any of those things because of an interpretation of the law that found they were 'acting as a dealership' simply by giving test drives.

Iowa, not Idaho. But otherwise yeah pretty much...

 

[dalalsid]

You've actually got a point. Per the text of the new law, I'm not entirely sure that it is legal for Tesla to appear at the show at all... (what a ridiculous piece of legislation!)

They could still show up at the auto show with a giant banner stating that it is illegal for them to display their cars at the show. No cars, no information about cars, just a statement that they are banned. Maybe followed by fine print about who got how much money in the state from auto dealers. Maybe the statement of support from GM followed by how they are afraid to compete with a better car. Maybe something about how it is easier for someone in China to experience/buy the best car in America than someone from Michigan.

 

[JST]

 

[Joel]

I may have to get the Michigan car decal and add the "legalize it" language for my Model S. Do you have a link to the decal?

 

[TexasEV]

They could still show up at the auto show with a giant banner stating that it is illegal for them to display their cars at the show. No cars, no information about cars, just a statement that they are banned. Maybe followed by fine print about who got how much money in the state from auto dealers. Maybe the statement of support from GM followed by how they are afraid to compete with a better car. Maybe something about how it is easier for someone in China to experience/buy the best car in America than someone from Michigan.

+1
I had suggested above that Tesla's booth consist solely of a Tesla logo and a large sign that says:
Made in California
Banned in Michigan

 

[dalalsid]

+1
I had suggested above that Tesla's booth consist solely of a Tesla logo and a large sign that says:
Made in California
Banned in Michigan

I'd put Made in U.S.A. instead of CA. After all the batteries will soon come from NV.

 

[Joel]

+1
I had suggested above that Tesla's booth consist solely of a Tesla logo and a large sign that says:
Made in California
Banned in Michigan

They will not be banned from the NAIAS. Tesla should and will show up and display their cars.

Keep in mind every manufacturer at the NAIAS (now) has to sell their cars through a franchised dealer. The dealers do not display the cars, the manufacturers display the cars.

Tesla will front run the auto show - if nothing else - because they are the only "controversial" product at NAIAS. The timing works out great in terms of free publicity because Tesla will have the International Automotive Press here in Detroit to answer questions regarding Michigan's law and voice their position. A voice the auto dealers tried to suppress when they passed the Bill in the midnight hour.

 

[snellenr]

They will not be banned from the NAIAS. Tesla should and will show up and display their cars.

Keep in mind every manufacturer at the NAIAS (now) has to sell their cars through a franchised dealer. The dealers do not display the cars, the manufacturers display the cars.

Tesla will front run the auto show - if nothing else - because they are the only "controversial" product at NAIAS. The timing works out great in terms of free publicity because Tesla will have the International Automotive Press here in Detroit to answer questions regarding Michigan's law and voice their position. A voice the auto dealers tried to suppress when they passed the Bill in the midnight hour.

Just to keep things "legal", a prominent sign stating "These cars not available for sale in Michigan and Iowa" might be appropriate.