Tesla and the Car Dealers’ Lobby
Daniel A. Crane
University of Michigan Law School
April 9, 2014
U of Michigan Public Law Research Paper No. 401
U of Michigan Law & Econ Research Paper No. 14-009
Tesla Motors, the offspring of the South African-American entrepreneur Elon Musk who also brought us Pay-Pal and SpaceX, is the most exciting automotive development in many decades and a marquee story of American technological dynamism and innovation. The company’s luxury electric cars have caused a sensation in the auto industry, including a review by Consumer Reports calling Tesla’s Model S the best car it ever tested.
Tesla faces enormous challenges in penetrating an automotive market that has been dominated for a century by internal combustion engines. Not only must it build cars that customers want to drive (and, ultimately, produce them cost effectively), but it must build the battery swapping and charging infrastructure that make charging as easy and reliable as pumping gas. These are tall orders.
But Tesla’s R&D, technological, and infrastructure challenges seem to be dwarfed these days by political challenges mounted by the powerful car dealers’ lobby. Tesla has chosen a direct-to-consumer distribution model, one that bypasses traditional franchised dealer networks and has Tesla operating its own showrooms and interacting with consumers directly over the Internet. Not surprisingly, this model has struck a deeply negative chord with the car dealers. They prefer not to be cut out. The dealers have responded by invoking decades old laws aimed at curbing direct distribution by car manufacturers and seeking new legislative or regulatory decisions aimed at closing any loopholes that might allow Tesla to distribute directly. Thus far, the dealers have succeeded in blocking Tesla in states like Texas, South Carolina, and New Jersey and are continuing to mount their campaign on a state-by-state level as Tesla’s footprint grows.
The dealers have been successful largely on the backs of their political clout in local elections, where they make significant campaign contributions. They have attempted to justify the direct distribution bans as a form of consumer protection and public safety regulation. Slowly, consumers are waking up to the fact that the dealers’ arguments are completely unfounded. Consumer protection and public safety have nothing to do with these restrictions. They are protectionism for car dealers, pure and simple.
Number of Pages in PDF File: 8
Keywords: automotive industry, protectionism, business law
JEL Classification: K23, K20
Date posted: April 10, 2014