Anti-Tesla Laws Shouldn’t Protect Dealers, FTC Officials Say

Apr 24, 2014 5:46 pm ET

(Updates with dealers’ comments in 11th paragraph.)

April 24 (Bloomberg) -- States looking at challenges to Tesla Motors Inc.’s direct-sales model should put the needs of consumers ahead of auto dealers’ interests, three top staff members of the U.S. Federal Trade Commission said.

As Tesla fights state by state for the right to sell its electric cars to consumers over the Internet without dealers, officials should consider the potential harm of banning challenges to existing industries and sales models, the directors said in a post on the agency’s blog today. The FTC has responsibilities on a national scale to promote business competition and protect consumers.

“Consumers can benefit from change,” the officials said. “Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated.”

Tesla, led by Chief Executive Officer Elon Musk, is appealing New Jersey’s ban on direct sales in state court. Texas, Arizona, Virginia and Maryland have also passed laws barring the Palo Alto, California-based company’s dealer-free system. Ohio and New York have passed measures negotiated with dealers that limit the number of company-owned stores.

“We didn’t get into this debate by choice, and we didn’t pursue the direct-sales model to disrupt traditional dealer practices,” Diarmuid O’Connell, Tesla’s vice president of business development, said in a phone interview.

“Statutes that may have been created to protect consumers many years ago have been implemented mainly to protect the dealer body in many states,” he said.

‘Simple Right’

The electric-car maker is studying its options to overturn bans on direct sales, O’Connell said. The company “agrees wholeheartedly” with the sentiments expressed in the FTC blog, he said.

The blog item was written by three FTC directors: Andy Gavil of the policy planning office, Debbie Feinstein of the bureau of competition, and Marty Gaynor of the economics bureau. The officials said they were expressing their own opinions, not that of the commission or any of its voting members.

Tesla accounted for a little over 22,000 of more than 15 million cars sold in the U.S. in 2013, the FTC officials said. The volume “hardly presents a serious competitive threat” to established dealers, they said.

The model may be attractive to other manufacturers, and this has led to jurisdiction-by-jurisdiction battles “for the simple right to sell its automobiles directly to consumers,” they said.

State Regulation

Company-owned stores will take consumers’ bargaining power away, said Charles Cyrill, a spokesman for the National Automobile Dealers Association in McLean, Virginia. Cars require licensing, insurance, financing, and they contain hazardous materials -- all legitimate areas of state regulation, he said.

“Fierce competition between local dealers in a given market drives down prices both in and across brands,” Cyrill said. “Buying a car isn’t like buying a pair of shoes online.”

Tesla has said rules restricting direct car sales were created to protect dealers from unfair competition and mistreatment by manufacturers of the brands they sold. Since Tesla has no franchised dealers, it argues such rules shouldn’t apply to its retail operations.

Tesla fell 0.1 percent to $207.86 at the close in New York. The stock has risen 38 percent this year.