Tesla vs auto dealers: Round one goes to Tesla for right to sell direct to consumers
Tired of jousting with the governor of Michigan and its legislature over its desire to sell automobiles directly to customers in the Wolverine State, Tesla filed a federal lawsuit last year claiming Michigan’s refusal to permit direct sales violated its rights under the United States Constitution. Now, a court has handed them an important first victory.
By Steve Hanley
As Tesla notes in their filing, “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. Particularly egregious protectionist legislation was passed by the Michigan Legislature in 2014. 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.”
Round one goes to Tesla
At issue is the so-called “midnight amendment,” a rider attached to a bill approved by the Michigan legislature at the tail end of a legislative session. Although Michigan claims the amendment merely restates existing state law, it was clearly intended to add yet another protectionist barrier to Tesla’s plans to market its cars directly.
Tesla believes that communications sent to two prominent members of the legislature prove the anti-Tesla animus behind that amendment. It has issued subpoenas to senator Joe Hune of Hamburg and Representative Jason Sheppard of Temperance, both Republicans, demanding they turn over all emails and all other communications received from lobbyists leading up to the filing of that amendment.
Both legislators have vigorously opposed the subpoenas, but U.S. Magistrate Judge Ellen Carmody this week ruled against them and ordered them to comply. Her order is subject to appeal, although it is unusual for an appeals court to interfere in lower court proceedings that are still in a very preliminary stage.
Auto dealers vs open competition
According to The Detroit News, Hune was a proponent of the 2014 “midnight amendment.” His wife is a registered lobbyist for a company that represents Michigan auto dealers. No conflict of interest there, right? Tesla claims that Sheppard bragged in June of 2016 to a company located in California that Tesla would “not be allowed to operate in Michigan because Michigan dealers and manufacturers do not want Tesla in the state.”
Kurt Berryman is a lobbyist and director of legislative affairs for the Auto Dealers of Michigan. He is also fighting a subpoena from Tesla’s attorneys, claiming it has caused him “cognizable harm” and “chilled” his right to free speech and association. He told the court he could face further “harassment” if his legislative communications were exposed. Some Michigan residents took umbrage at him being a toady for the car dealers once they found out about the role he played in getting the “midnight amendment” passed. Apparently, they communicated their displeasure to him in no uncertain terms.
Attorney General Bill Schuette, whose office is defending the state in the case, has denied the 2014 amendment was anti-Tesla in nature, asserting that Michigan has long barred automakers from owning or operating dealerships. “All other car manufacturers desiring to sell in Michigan operate under this same requirement. But Tesla wants special treatment and refuses to bend to Michigan’s law. Indeed, Tesla insists that Michigan should bend to Tesla’s innovative business plan and practices rather than Tesla altering its practices to comply with Michigan law.”
Picking winners & losers
Well, Attorney General Schuette, that is pretty much what Tesla is saying, that your state has erected a thicket of laws and regulations designed for one purpose and one purpose only — to keep the citizens of Michigan from buying a Tesla automobile the same way they purchase an iPhone. The rules are nothing more than a legislatively approved device to give certain businesses in the state a government-supported monopoly.
Republicans across America are always beating their breasts and proclaiming that government should not pick winners and losers in business. But all those pious protestations disappear as soon as enough cash is paid into their re-election campaigns. And make no mistake, this fight is between more than just Tesla and the dealers. Michigan is the center of gravity for the US automobile industry. General Motors in particular has gone out of its way to poke Tesla in the eye whenever possible.
Because this case is in federal court, it could eventually wind up being decided by the Supreme Court. A decision from SCOTUS could sweep away all similar franchise dealer laws in other states, or it could solidify the position of the dealers and deal a severe blow to Tesla’s game plan. Considering that the majority of the justices on the nation’s highest court are staunch supporters of the “business first” teachings of the Federalist Society, a victory at the highest level is far from being a foregone conclusion.