Published in Economic Development
Thanks to a settlement with the state of Michigan, Tesla will be able to open sales galleries and service centers in the state. Thanks to a settlement with the state of Michigan, Tesla will be able to open sales galleries and service centers in the state. COURTESY PHOTO

Dealership group: ‘More questions than answers’ following Tesla settlement

BY Sunday, February 02, 2020 05:00pm

The statewide advocacy group for automobile dealers says “more questions than answers” follow a recent settlement agreement between California electric vehicle manufacturer Tesla Inc. and the state.

Under a Jan. 22 agreement between the attorney general, secretary of state and Tesla to dismiss the automaker’s lawsuit against Michigan, the state will allow Tesla subsidiaries to operate sales galleries and service centers.

The agreement settles a lawsuit filed by Tesla in 2016 challenging a Michigan law that prevented the company from directly selling cars to customers outside of the state’s dealership model. It’s also a setback for the state’s auto dealerships, as experts say the case could allow other manufacturers to bypass the dealership model.

“We have no speculation” about the effects of the settlement, said Terry Burns, executive vice president and secretary for the Michigan Automobile Dealers Association. “We’re trying to make sure we understand it. I think it did create more questions than answers.”

Burns said the association was unaware of the negotiations between Tesla and the state.

“There’s operational questions we’re making sure we understand,” Burns added. “As we progress, we’ll be able to make sure we incorporate them into the way we do business.”

Tesla critics have said the company should play by the same rules for selling cars as large automakers like General Motors and Ford. The state had previously refused to grant Tesla a Class A license to open a dealership in Michigan, which the company challenged in court. The case was scheduled to go to trial this year. A 2014 law signed by former Gov. Rick Snyder banned automakers from opening retail stores.

However, the company and its supporters have argued that Michigan’s dealership laws — some of the most stringent in the country — stifle competition rather than promote it. Tesla argued that the regulations were unconstitutional.

It’s unclear when Tesla will open galleries and service centers in the state. John Bursch, a Tesla attorney and former solicitor general in Michigan, directed questions to the company. Tesla did not respond to a request for comment about the settlement.

In a Jan. 28 email to customers from the “Tesla Policy Team” obtained by MiBiz, the company directed vehicle owners to a website that submitted thank you letters to Attorney General Dana Nessel and Secretary of State Jocelyn Benson.

“Our goal is to make the customer experience for our Michigan vehicle owners as seamless as possible,” according to the website. “Thanks to the support of Tesla customers in Michigan … we have successfully advocated for the acceleration of sustainable transportation in the state of Michigan.”

Nessel issued a statement on Jan. 22 noting the settlement “recognizes that any Michigan resident may lawfully buy a Tesla and have it serviced in Michigan. The stipulation acknowledges that Tesla may: operate under existing Michigan law; sell cars to Michigan customers as long as the sales contract indicates the sale took place in a state other than Michigan; and, indirectly own service and repair facilities in Michigan through a subsidiary, Tesla Michigan.”

‘Long overdue’

Electric vehicle advocates say the settlement should make it easier for Michigan residents to become Tesla customers. The Michigan Conservative Energy Forum (MICEF), a politically conservative group that advocates for clean energy policy, applauded the settlement.

“As free market conservatives, MICEF has always believed that competition and innovation are the key to advancing a clean energy economy that benefits people and protects our natural resources,” Executive Director Ed Rivet said in a statement. “We know electric vehicles are the future and that to remain at the forefront of the transportation sector, Michigan must foster a dynamic, competitive market.”

MICEF leadership council member and Crystal Mountain Resort CEO Jim MacInnes welcomed the settlement as a Tesla owner for the last five years. Over that time, he has had his vehicle serviced multiple times in Cleveland, Ohio.

“This was something that was long overdue,” MacInnes said of the settlement, adding that the in-state service centers will likely have more of an effect than the galleries.

Under the settlement, Tesla representatives at galleries can discuss pricing, financing, trade-ins, delivery and configuration of vehicles, according to the company.

But legal experts say the settlement could have effects beyond Tesla and Michigan.

University of Michigan law professor Daniel Crane wrote that the settlement could be a “tipping point in Tesla’s ongoing battle for the right to engage in direct distribution in other states.”

Meanwhile, Crane notes other electric vehicle manufacturers like Rivian Motors — which has financial backing from Amazon and Ford — “will benefit from the trail Tesla has blazed. … It would seem legally very difficult for the state to deny a similar arrangement to any other company situated like Tesla.”

“Michigan, the state with the most pro-dealer law on direct distribution, has now opened the doors for new EV companies to bypass the traditional dealer model entirely,” Crane wrote.

Crane also told Automotive News: “The handwriting’s on the wall for the franchised dealer as the exclusive way consumers interact with car companies.”

Burns of the Michigan Automobile Dealers Association said the industry is ready to adapt if needed.

“We continually evolve with the type of dealerships we have and the number of cars we have,” he said. “We’re constantly changing and adapting — customers are always telling us new things we like to see and do.”

For Tesla customers like MacInnes, though, the settlement shows Michigan is embracing a more electrified vehicle sector.

“This was really important to demonstrate our leadership,” MacInnes said of Michigan and its role in the automotive industry. “(The previous arrangement) didn’t send the right message about the state being open for business.” 

EDITOR’S NOTE: This story has been updated to correct that Jim McInnes previously serviced his Tesla in Cleveland, Ohio, not Toledo. 

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