FTC to Michigan Legislature: End Car Protectionism

Last year, Michigan passed a bill that effectively prohibited the direct sale of automobiles. Caving to pressure from existing car dealerships, the state now makes it difficult to impossible for new car manufacturers, such as Tesla Motors, to gain a foothold in the state’s automobile market. As advocates of free markets and fair competition, the Mackinac Center signed on to a public letter earlier this year calling for the Michigan Legislature to reconsider this anti-competitive measure.

Michiganders should be free to choose how they want to purchase a vehicle and from whom, just like they do for most every other product. At least one legislator is trying to help: Sen. Darwin Booher (R-Evart). Last month, he introduced Senate Bill 268 that would allow manufacturers of three-wheeled motor vehicles (such as those made by Elio Motors) to bypass the protected car dealerships and sell directly to Michigan consumers. He also requested comment from the Federal Trade Commission on the issue.

The FTC replied that Sen. Booher’s bill was good first step, but encouraged him to go further and help eliminate Michigan’s unjustifiable prohibition on direct sale of automobiles. It stated, “Michigan consumers would more fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers,” reasoning that “consumers are the ones best situated to choose for themselves both the vehicles they want to buy and how they want to buy them.”

The FTC also addressed the arguments used by car dealers for their protectionism. For example, it is said that the state needs to prohibit direct sales so as to protect dealers from abuse by their suppliers. But the FTC makes the point that the current law provides a “blanket prohibition ... not a narrowly crafted provision to protect franchised dealers from abuse in their franchise relationships.” Even if this really is a problem, Michigan’s current law uses a meat clever when only a scalpel is required.

Car dealerships also argue that forcing automobile sales through dealerships creates more competition, which results in lower prices for consumers. The FTC responds, “This view is inconsistent with modern economic learning and with the Supreme Court’s widely accepted observation that ... competition between rival manufacturers ... can suffice as a source of downward pressure on price.”

The FTC urges the Michigan Legislature to reconsider its direct sales prohibition. If Michigan is going to be “reinvented,” it should not hold on to protectionist policies of the past. Banning the direct sale of automobiles limits competition, harms consumers and thwarts innovation.

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