back to article FTC: State laws blocking Tesla's direct sales are 'protectionist'

Tesla Motors has gained an influential ally in its battle to sell its electric cars direct to consumers: the US Federal Trade Commission. Tesla's business model of selling its cars via its website and company-owned showrooms has come under fire in multiple US states – including Arizona, Texas, and New Jersey – where current …

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  1. ecofeco Silver badge

    Not just protectionist

    It is also in direct contradiction to the Interstate Commerce clause of the Constitution.

    1. Yet Another Anonymous coward Silver badge

      Re: Not just protectionist

      Ironically not - you can buy a Tesla in another state over the web, register it in that state and bring it to NJ, you just can buy it from a showroom in the state

      1. Yet Another Anonymous coward Silver badge

        Re: Not just protectionist

        Sorry typo - should have been can't

    2. Don Jefe

      Re: Not just protectionist

      Well, it certainly should be in direct contradiction to the Interstate Commerce provisions of the Constitution, there's no doubt about that. I'm also glad the FTC saw the light regarding Tesla, but I'm afraid the FTC won't be the end if the road for the issue.

      Like with alcohol, tobacco, firearms, explosives (fun stuff) and dairy, certain fruits and nuts, some types of minerals, various kinds of livestock, assorted timber/lumber and all manner of other things there are numerous additional Federal and State agencies that specialize in finding ways to flaunt the Constitution and trade in general.

      It's all bullshit, masquerading as issues of safety, consumer protection (product 'quality'), historic preservation of industrial and commercial traditions and sometimes just flat out protectionism. Political affiliations are irrelevant, greed is 100% bipartisan and the politicians don't want to miss out on those sweet consulting gigs after they are voted out of office.

      I really hope Tesla can maneuver through it all. But they certainly won't be the first company to be run into the ground because some seldom seen government agency shows up and scuttles the whole thing.

      1. Oldfogey
        Headmaster

        Re: Not just protectionist

        I think you mean they are flouting the constitution.

      2. tom dial Silver badge

        Re: Not just protectionist

        The US Congress, under the legislative powers granted in Article I of the Constitution, enact laws that constrain state behavior like New Jersey's. They seem not to have done so, and New Jersey seems within its rights, so far.

        This has nothing to do, of course, with issues of safety or protecting the people from bad actors. It is a classic example of the fact that in a basically democratic regime it is possible for a small number of actors (down to and including 1) to guide public law and policy in a direction they care much about when nearly everyone else either does not care or is ignorant. The franchise owners probably see this as a matter of economic survival. It is of no importance to the majority (at any given time) who are not car shopping, of little or no importance to car shoppers not interested in a Tesla, and probably not of great importance to Tesla seekers, who have the option of taking delivery in another state and titling it in New Jersey. It would not be a surprise to find that someone already offers a service to prepare all the paperwork and transport the car from another state, of course at some cost to the purchaser.

        Is this "right"? Certainly not. Would things have gone differently if Governor Christie had put it to the legislature? Almost certainly not. If put to the people in a referendum? My inner cynic says it would not.

    3. Tom 13
      FAIL

      Re: Not just protectionist

      Will the completely clueless ever stop claiming the US constitution says things it doesn't?

      The relevant clause says:

      To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

      There's nothing there that makes it illegal for the states to do what they are doing. In fact, in an early age, it was you Progressives who insisted on exactly those laws to protect consumers from the evil robber barons. And you've favored them for imposing regulations on the insurance industry which has done more to cause imbalances than any other action except treating employer paid benefits advantageously for tax purposes.

      What that clause says is that Congress may pass legislation about the manner in which trade is conducted. There is no explicit requirement that they do so, nor that the law be written to prohibit the current independent dealer model. Furthermore, that power is specified for Congress not the Executive Branch. So the FTC ought not have power to write rules absent Congress's action.

      Would we be better off if they did? Probably. But you've already introduced so many other distortions into the market that we can't be sure.

  2. Destroy All Monsters Silver badge
    Trollface

    Helping existing businesses hurts consumers, say trade regulators

    Is this subheading coming from the progressive wing of El Reg?

    "Helping" = forcing people to go through bizarre middleman shenanigans.

    The not-so-hidden handout to new car dealers (I won't talk about the nuking of the "exisitng businesses" selling used cars) via the "cash for clunkers" program has already been forgotten, I see.

    1. John Smith 19 Gold badge
      Unhappy

      "The not-so-hidden handout to new car dealers (I won't talk about the nuking of the "exisitng businesses" selling used cars) via the "cash for clunkers" program has already been forgotten, I see."

      I presume that would be cash to buy a new car for you (very) old car rather than cash for a newer (and much better) 2nd user vehicle.

      That little game has been very popular with car makers and politicians everywhere.

      1. Don Jefe
        Unhappy

        Of course the dealers love those programs. New car dealerships create at least 2/3 of their revenue on trade ins as well as about 3/4 of their profit.

        New car sales don't pay shit. Hell, some models even come standard with negative margins for selling them. The reality if the situation is that car sales are nothing more than creating used inventory for future sale.

        So the clunkers programs meant the dealer get still get to screw the trader and gets a nice check from the government to boot (it wasn't just buyers who got credits). The percentage of the clunker trade ins that actually got taken off the road was just abysmally low. Pretty much inline what you see with trade ins on most inexpensive new car lots. Even worse (if reducing pollution is the official goal), is that because the customer felt they had gotten such a great deal they bought bigger, less fuel efficient vehicles. It's all crap.

      2. Trevor_Pott Gold badge

        At least one of the "cash for clunkers" tax rebates here applies to the purchase of any vehicle which meets a certain litres per kilometer efficiency rating, even if it's used. The program isn't to sell more cars, it's to get the existing stuff that's really inefficient off the roads.

        1. Tom 13

          Re: it's to get the existing stuff that's really inefficient off the roads.

          No it wasn't. It was to pump auto sales. The program removed almost no clunkers.

          I'm still driving a car I bought in 2001. It came loaded with all the gadets you enviro-weenies insist have to be on the car. That's 13 years ago. Most people don't drive cars that old. Which means all the cars you are calling clunkers are most likely better kept than mine is because they are in the hands of hobbyists who own them to show them off. Likewise they probably contribute almost nothing to pollution because other than being take out of the garage on a sunny day to be shown at a car show, they aren't on the road.

  3. skeptical i
    Thumb Up

    FWIW, Arizona's legislature was debating a bill to get around the dealership fiefdom,

    allowing direct-to-consumer sales of certain vehicles (that happen to be made by Tesla), but it got nuked by whoever's campaigns were owned by dealership cabals presumably because this narrow excepted slice of the veehickle market would be the camel's nose under the tent and before you know it we'll be ordering humvees from Amazon, society will collapse, and so on. Arizona just doesn't spend enough time providing material for late night talk show monologues.

  4. Don Jefe
    Unhappy

    Innovation in Commerce

    This whole thing is so profoundly 'Un-American' it makes me sick. The very same dipshits lobbying for loosened restrictions on commerce in general are pushing to legally smother new commercial interests in their crib, and it's shit. Pure shit.

    It give zero fucks about the success or failure of Tesla. But I give a lot of fucks that they get a chance to succeed. Maybe they will, maybe they won't, that's how business works. But you can't judge a company, or it's products, if they are prohibited from even selling their product if their competitors don't have the same restrictions.

    The auto industry is one of the most ethically challenged industries on Earth. They don't make all those sleazy car salesman jokes just for the hell of it you know.

  5. Don Jefe

    Free Tesla Roadster for Sale

    I gotta say, sometimes I think Elon Musk can be just atrociously thick. It's like he's got a fuzzy sector in his opportunity identification buffer and the only way to restore full capabilities is to disengage it and restart the system.

    I mean, how can he possibly not see that as the only Human history who has both a rocket ship company and an automobile manufacturing company there is ONLY one way to handle marketing and regulatory road blocks. You strap one of your roadsters to one of your rocket ships and launch that motherfucker into space!

    'First electric sporty car. First industry product to receive a 'perfect' assessment from a trusted industry analyst. First completely online new car purchasing process. All that is shit compared to FIRST CAR IN SPAAAAACE! trumps everything else...

    1. 4ecks
      Coat

      Err..first car in space?

      4 wheels - check

      steering - check

      seats - check

      chassis - check

      motor - check

      sounds like a general description for a car?

      I think the honour of 1st (+ 2nd & 3rd) car in space goes to GM & NASA with the LRV aka the Moon Buggy.

      1. Don Jefe

        Re: Err..first car in space?

        The Moon Buggy was an ATV.

  6. jnffarrell1

    A Tax Scam by States

    is more like it. How many high margin (ripoffs) can a state fence off for the benefit of government and the harm to its consumers. Sure the dealers share some of their monopoly profits with the states, they can pass the cost on to their customers. I'm sure that most dealers don't see themselves as tax collectors for the state, but that's what they are. Like ConEd in NY, the monopoly is run for the benefit of the state; not consumers.

  7. Anonymous Coward
    Anonymous Coward

    If the government decided that the car *simulators* I make were subject to the same rules, I'd have been out of business years ago. I wonder what their argument is to support this - you can buy a house without a dealer, a tractor (I presume), a boat... what is it about road going cars that suddenly requires the presence of businesses which pretty much everyone agrees exist only to rip people off, in order to 'protect' those same consumers?

    What's particularly galling is that it's the "free market" loving, rabidly anti regulation Republicans who are pushing the hardest to pass new regulations that prevent business from operating freely! What a bunch of smouldering knob-goblins.

    I'm an internal combustion kinda guy from day one, some of whose favorite memories are of his father driving a 675hp GT1 (Saloon) at Watkins Glen and Mid Ohio, and I listen to recordings of various kinds of engines just because I love the sound so much. And I built my business on simulations of those same engines. But based on what I've heard about Tesla's cars, and given Musk's vigorous poke in the squinty eyes of the hypocritical GOP establishment, I'd seriously consider banging down the 65 grand for a Tesla if I was in the market in that price range.

    1. Alister Silver badge
      Pint

      What a bunch of smouldering knob-goblins.

      My new favourite phrase, thank you!

  8. Anonymous Coward
    Anonymous Coward

    There is always two sides

    With a manufacturer selling direct to the public they have a price advantage and even an image advantage which makes it unfair to those franchisees who pay big bucks to buy their franchise rights and maintain their facility to meet the terms required. There is no real need for an auto maker to be selling direct to the public and competing with their own franchisees. It's just unscrupulous IMO.

    1. G.Y.

      Re: There is always two sides

      How many frachisees does Tesla have??

      1. Tom 13

        Re: How many frachisees does Tesla have??

        How many franchises it has is irrelevant. You operate your business under current law. Current law requires franchises. Therefore Tesla has to invest in franchises. Or lobby Congress to change the law in a measured and rational fashion.

        1. Roland6 Silver badge

          Re: How many frachisees does Tesla have??

          "Therefore Tesla has to invest in franchises."

          I suspect that given the right lawyers, Tesla would be able to set it's dealerships up as 'franchises', whilst retaining full control as they have at the present.

    2. Anonymous Coward
      Anonymous Coward

      Re: There is always two sides

      Are you for real? Tesla hasn't GOT any franchisees. And even if they did, it's their own damn business whether they sell directly; I build things that could be sold by franchises, too. But I don't have any. Am I some dastardly villain for ripping off non-existent people in your book?

      Hell, by your logic, making -reliable- cars should be illegal too; imagine how much money Toyota dealers have lost compared to Chevy dealers on service? Why, it's an outrage!

    3. Dr. Mouse Silver badge

      Re: There is always two sides

      This is pretty much the same argument which was used to stop breweries in the UK from owning pubs. It was a great idea in principal. In practice...

      1. 2Fat2Bald

        Re: There is always two sides

        Yep. They had to close a bunch of pubs as they couldn't own "too many" in an area. Of course they didn't want to sell them off to rivals, so they just closed them down and converted them into houses, or offices or brown-field sites. So a bunch of perfectly-viable pubs closed for no reason than other to fullfill an arbitrary government target.

        But it gets worse. It had a profound effect on the public's perceptions of pubs and the pub sector and general popularity of pubs plumetted. Now the good old boozer has more-or-less vanished and those that remain are almost all in chains, and fall into 2 catagories. 1) Pubs for idiots to drink far too much alchopop and lager in, before starting a fight. 20 Family-friend food pubs (eg harvester).

        Brilliant. In an attempt to protect pubs from being run by the same company as supplied their product, the government put about half of them out-of-business and ruined 2/3rd of what was left.

    4. Tom 13

      Re: There is always two sides

      AC has a point, although not quite as absolute as he claims. The current system was designed by Congress and the various states and for better or worse everything was opened under those rules. Changing those rules now will be a sort of taking from the dealerships currently in operation. Also, as an earlier poster noted, the laws are currently written to apply mostly to dealerships not manufacturers. A rule change for Tesla only shifts all this improperly.

      Which isn't to say it shouldn't be changed at all. But it needs to be a comprehensive legislative change enacted by Congress to correct all of it at once.

      1. Anonymous Coward
        Anonymous Coward

        Re: There is always two sides

        "Changing those rules now will be a sort of taking from the dealerships currently in operation."

        What?! By that logic, making an electric car is "a sort of taking from" gas stations currently in operation. Electronic music downloads circumvent the physical distribution system, which is "a sort of taking from" brick-and-mortar record stores - remember them?

        Also, we're not talking about "a rule change for Tesla" to *allow* them to sell cars; the whole point is that Christie had to change the rules to prevent them from selling cars. Tesla went against tradition, not the law, but Christie had the law changed to protect the entrenched players. It's unconscionable, start to finish.

  9. rav

    Dealers are necessary!!

    Without dealers how do you get warranty service? Recall service? Consistent mechanic training? If the mechanic screws up your car you have no recourse legally as automotive law is written based on dealerships.

    What if you buy a "lemon". The Lemon Law does not protect you if there are no dealers.

    All Consumer Protection laws fore Automobiles are written with the dealer being the responsible party; NOT the manufacturer.

    How do you trade in your Tesla if you learn to hate it and no dealers will take it in trade?

    1. Roland6 Silver badge

      Re: Dealers are necessary!!

      The issue, as reported, isn't about dealers, it is about who owns the shops where new cars can be purchased.

      Personally, I would suggest that Tesla opens up showrooms, equipped with telephones and internet, so potential customers can view cars and then complete the sale over the telephone or online, as they are at liberty to do now. Obviously, once a purchase has been made then the customer can avail themselves of the Telsa service centre which just happens to be next door and probably holds some models ready for immediate shipment to customers who are temporarily car-less...

    2. Anonymous Coward
      Anonymous Coward

      Re: Dealers are necessary!!

      You think you get service, "consistent mechanic training", or recourse with a dealer? It is to laugh!

  10. Anonymous Coward
    Anonymous Coward

    I want that car.

    I hope to $deity Tesla manages to sell their cars as they see fit, as in, directly to consumers, for the lowest possible price.

    Protectionist and over-taxing laws are so 3rd-world, I thought they were trying to sell cars in Brazil, for a moment.

  11. 2Fat2Bald

    What i'd do...

    Forget about having "outlets", just have "demo centers". People can go in, look at a tesla, maybe drive a tesla, chat to the advisor, have a coffee, register their interest, design their car even. They just can't place an order.

    If they want to do that, then they need to go home or to a nearby internet Cafe and place the over directly with Tesla over the internet. Giving a special code that identifies their particular conversation with the advisor for commission purposes and spec purposes.

    Simple

    1. Steve 129

      Re: What i'd do...

      Unfortunately the law does not allow that. Only dealers can say ANYTHING about the car.

      Tesla 'showrooms' that do exist in these insane states are called galleries and the people there are not even allowed to point 'patrons' to the Tesla web page. Nothing at all that might influence a buyer can be said, shown or otherwise revealed.

      Complete bollocks if you ask me.

      I used to have some degree of respect for Christie but after his turn-around in this issue I have absolutely no respect whatsoever. Obviously so much in the corrupt back pockets it make me sick.

      1. Roland6 Silver badge

        Re: What i'd do...

        >Tesla 'showrooms' that do exist in these insane states are called galleries and the people there are not even allowed to point 'patrons' to the Tesla web page.

        So I assume they have an 'internet cafe', a driving experience centre and a service centre immediately next door? Given that "chinese walls" are acceptable in many business, I don't see a real problem, for Tesla. I expect that provided the customer doesn't actually physically signs a purchase agreement in the cafe, the sale would fall under the distance/mail order trading rules.

        Sorry, but I find it difficult to understand how a US company can find it impossible to find ways around US state laws, but can be remarkably creative in their international financial dealings, to the point where they stick two fingers up to governments.

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