LANSING – A once thought to be innocuous bill involving a fee dealerships charge auto manufacturers underwent a potentially significant change before clearing the Legislature, and that change appears designed to ensure the electric automaker Tesla would have to sell its vehicles in Michigan through franchise dealers instead of directly to customers as it is doing in other states.
The main backers of the bill insisted the change was either one of simple clarity or virtually meaningless, but Tesla officials are furious about the change, which went completely under the radar, saying it clearly was designed to torpedo discussions the company was having with the Department of State about opening marketing and service centers in Michigan.
The change, first reported Thursday by the Automotive News, happened in a substitute to HB 5606 on the Senate floor October 1. The bill then unanimously passed the Senate. The House concurred 106-1 in the new version the following day and presented the bill to Governor Rick Snyder October 7. He has until October 21 to sign or veto it, and his office said it is reviewing the bill.
Existing Michigan law already was strict about manufacturers having to sell their vehicles through franchised dealers, and Tesla official said it would have made unlikely the chance for direct sales in Michigan. But the bill appears to tighten up the language in the event Tesla tried to challenge Michigan’s franchise law in the state courts. It recently won the right to sell directly in Massachusetts after a September ruling by that state’s supreme court.
The bill changes the current prohibition on manufacturers selling “any new motor vehicle directly to a retail customer other than through its franchised dealers” by deleting the word “its” so that the prohibition would bar direct sales “other than through franchised dealers.”
Additionally, existing language allowing manufacturers to sell or market through “the manufacturer’s new motor vehicle dealers” to instead say manufacturers could sell through “franchised new motor vehicle dealers that sell and service new motor vehicles produced by the manufacturer.”
It is that language that Tesla officials say would close the door to their hopes of opening a marketing center in Michigan.
Terry Burns, executive vice president of the Michigan Auto Dealers Association, said the goal of the change was to clarify for manufacturers that the section addressing direct sales applies to them.
“We made sure that we said this applies to everyone,” he said. “We felt like clarity would be better than any potential ambiguity.”
Burns stressed there is no regulatory or policy change, just a change to make clear the law applies to everyone.
“Anything that would apply to Tesla was already in this bill and would already apply to them and this section simply says it applies to all manufacturers,” he said.
Burns said the dealer franchise system works and every other manufacturer in the state abides by Michigan law.
“It’s served the manufacturers well,” he said. “It has served the consumers well, and it has served the dealers well. It has allowed for an open competitive marketplace.”
The bill was introduced in May. The House passed it, without the language that could affect Tesla, September 18, one day after the bill won committee approval. The Senate Regulatory Reform Committee reported it September 30, again without the language potentially involving Tesla.
Two days before a House committee acted on the legislation, the Massachusetts Supreme Court ruled in favor of Tesla and against that state’s auto dealers, allowing Tesla to sell directly to consumers. It had planned to open a store in a Massachusetts mall. Tesla has encountered similar issues in other states trying to sell its vehicles.
Sen. Joe Hune (R-Hamburg), who offered the substitute on the Senate floor, could not be reached.
Rep. Aric Nesbitt (R-Lawton), the bill sponsor, said he did not understand the fuss about the altered language.
“Current state law, which has been there for decades, already deals with the direct sales issue,” he said. “I’m really kind of confused on who’s starting this and what misinformation they’re spreading on this.”
Nesbitt said no one from Tesla contacted him about the bill.
Tesla officials said that is because the change amounted to a legislative ambush.
“This was beyond the 11th hour with the Legislature,” said Diarmuid O’Connell, vice president of corporate and business development for Tesla. “This was done in such a fashion that I don’t think anyone outside the chamber could have seen what had happened until it was over.”
Tesla is urging Snyder to veto the bill in hopes of a more transparent legislative debate in 2015, officials said.
In states like Michigan with statutes that require selling new vehicles through franchised dealers, Tesla sets up marketing galleries, where customers can learn about the technology, but price is not discussed and employees refer customers to the company website for additional information. The bill is squarely aimed at preventing those centers, Tesla officials said, and to argue otherwise is illogical because what would then be the point of the bill.
“This removes any sort of avenue that we would have to do anything that the First Amendment and free speech would suggest are available to any citizen and corporation under the law,” Mr. O’Connell said.
Tesla officials said their research and independent research shows that selling their vehicles through franchised dealers would not work.
“This has never been about eviscerating the dealer system as it has been characterized,” O’Connell said. “What we’re really trying to do is sell the cars and promote the technology.”
It is not yet clear what Snyder will do.
Snyder deputy press secretary Dave Murray said the Executive Office is “doing our due diligence on that one and reviewing it closely.”
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