FTC Says Michigan Dealership Laws Hurt Consumers

Even though the Big 3 were born in Detroit, Michigan residents can't buy cars directly from car companies. Instead they have to go through dealerships. But the FTC says that Michigan's dealership protection laws are anti-competitive and could hurt consumers.

The FTC's 11 page letter comes in response to Senate Bill 268 - a proposed law that would create an exception to Michigan's dealership protection laws and allow three-wheeled "autocycles" to be sold directly to the public. New manufacturer, Elio Motors hopes to begin production of these vehicles in 2016 and to sell them from company-owned retail centers with central distribution hubs supplying customers' orders.

But under current Michigan law, that sales model is illegal. All motor vehicles must be sold through an independent dealership. The FTC says that law could be hurting consumers by increasing prices and preventing innovative sales strategies. According to its letter:

"The competitive process gives the manufacturer the incentive to pick the distribution option that it believes will be the most responsive to consumers. . . . 

When manufacturers respond to competitive pressure by choosing to vertically integrate, consumers usually benefit through lower prices and/or higher quality."

The FTC believes the ability to choose between dealerships and direct-sales models will foster competition and lower consumer prices.

If law-makers take the FTC's recommendation and repeal Michigan's dealership protection laws, it could open up the market for another innovative manufacturer to move into Michigan: Tesla. Recently, the maker of zero-emission vehicles announced it had purchased Rivera Tool, LLC, in Cascade Township, Michigan. It plans to rename the facility Tesla Tool and Die Factory and manufacture its Model X electric crossover vehicle.

But even though Teslas will be manufactured within the state, Michigan residents may have to drive out of state to buy one. That is because the vehicles are only sold directly by the company to consumers - often through mall store-fronts. Unless Michigan changes its laws, this soon-to-be Michigan automaker won't be able to sell its cars where it makes them.

And that is exactly what the FTC is trying to avoid:

"The system limits competition among existing, well-established manufacturers, all of whom must sell through the established network of independent auto dealers. A direct sales ban deters experimentation with new and different methods of sales by current auto manufacturers, and also by future entrants to the market. Michigan’s consumers are paying the price of such a dictate."

That's why the FTC is urging Michigan law-makers to do more than approve SB 268. It is calling for an overhaul of the Michigan dealership protection laws, so that the market will be open to new strategies and new sellers bringing high quality vehicles to Michigan consumers.
Dani K. Liblang is a lemon law attorney at The Liblang Law Firm, P.C., in Birmingham, Michigan. She represents consumers who are harmed defective vehicles. If you or someone you know has been injured in an auto accident involving a defect, contact The Liblang Law Firm, P.C., for a free consultation.