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FTC states that dealerships are scared of competition

It looks as though Elon Musk and the auto company he helms, Tesla Motors, just gained a few new friends. In a new blog post, the Federal Trade Commission (FTC) came out with guns blasting against states that have rallied around automobile dealers in an effort to prevent Tesla from directly selling vehicles to consumers.
The blog was written by Andy Gavil, the FTC director for Office of Policy Planning, Debbie Feinstein, director of the Bureau of Competition, and Marty Gaynor, director of the Bureau of Economics.
The blog post pointed out that times are changing and it’s no longer the 1900s. The officials point to the fact that just as consumers used to buy directly from local stores only to then move to mail-in order catalogs and now internet shopping, that businesses must adapt to survive.

Tesla CEO Elon Musk and President Barack Obama
“For decades, local laws in many states have required consumers to purchase their cars solely from local, independent auto dealers,” noted the FTC officials. “Removing these regulatory impediments may be essential to allow consumers access to new ways of shopping that have become available in many other industries.”
“In this case and others, many state and local regulators have eliminated the direct purchasing option for consumers, by taking steps to protect existing middlemen from new competition. We believe this is bad policy for a number of reasons.”
The officials also pointed out that Tesla poses no serious threat to auto dealers seeing as how it only managed to sell 22,000 cars compared to the 15 million total sold in the U.S. in 2013.

Tesla Model S
More poignantly, the FTC officials asserted, “These protections expanded until in many states they included outright bans on the sale of new cars by anyone other than a dealer—specifically, an auto manufacturer. Instead of ‘protecting,’ these state laws became ‘protectionist,’ perpetuating one way of selling cars—the independent car dealer.”
In the end, the FTC officials warned that dealers (and their lobbyists) should welcome competition in the auto sales space, and should not keep barriers to competition as the status quo, stating, “Our point has not been that new methods of sale are necessarily superior to the traditional methods—just that the determination should be made through the competitive process.”
“We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are—expressions of a lack of confidence in the competitive process that can only make consumers worse off.”

Updated 4/25/2014 @ 3:34pm
The National Dealers Association (NADA) has responded to the FTC officials with the following statement:

“For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands – while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power,” said Jonathan Collegio, NADA vice president of public affairs. “And buying a car isn’t like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold.”

Source: FTC

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By RobertFahey on 4/25/2014 10:32:53 AM , Rating: 5
I hope the FTC acts as a body and issues a ruling or statute on the subject. So far this is just a blog post co-signed by three members, not any official edict. I suppose it's a little better than the co-signed letter last month from a posse of 70 law professors and economists, but an official stance from the FTC would be nice.

On the other hand, does "banning" brick and mortar transactions in four states really hurt Tesla numbers? Probably not. The resulting debate probably HELPS via free advertising, frankly. I wouldn't mind seeing the headlines continue.

By Reclaimer77 on 4/25/14, Rating: -1
By Rukkian on 4/25/2014 11:45:11 AM , Rating: 5
I actually agree with what you are saying, and understand it should be the state's perogative to limit dealerships (even if I think it is anti-competitve and has bribes written all over it).

There is one place where I do think it is the FTC that should be involved, and that is if you order online, and it is coming from another state, it is not really the state that should regulate it, it is the federal government. Interstate commerce should be regulated at the federal level imo.

By LRonaldHubbs on 4/27/2014 11:35:03 AM , Rating: 3
Godwin alert! Your argument is ended before it even really started.

By Nutzo on 4/25/2014 11:08:51 AM , Rating: 2
I can see a reason to not allow a manufacture making direct sales to become dominate in a specific state. If GM was selling direct, and had 80% of the sales in a state, the lack of competion would give them a virtial monopoly.

However, I don't see this happening with Tesla (at least not for a very long time). As much as I would normally defer to states rights, this is an interstate commerce issue. I thing they would require states to allow direct sales as long as the manufacture's market share is below some number like 10%.

By amanojaku on 4/25/2014 11:28:51 AM , Rating: 2
If GM was selling direct, and had 80% of the sales in a state, the lack of competion would give them a virtial monopoly.
This makes no sense. If GM sold direct, how would that prevent other companies from selling direct?

If everyone sold direct and GM ended up with 80% of a market, that would imply GM did something right in its design, manufacturing, pricing, and advertising. On the other hand, if 80% of the cars sold through dealers were GM, it could be because GM illegally gave dealers incentives to favor its cars. It's much easier to manipulate a few hundred car dealerships in a state than it is to manipulate a few million people.

By Piiman on 4/26/2014 12:25:16 PM , Rating: 2
Anyone thinks a middle man that jacks up prices so they can pretend to give you a deal later is a good for consumers are nuts.

Do you really think dealerships are fighting this for our good?

By Belegost on 4/25/2014 12:08:48 PM , Rating: 2
How would it make a difference if GM got 80% of the car market through direct sales or through dealership sales? There's nothing preventing GM from grabbing 80% of the market right now - well, except for Ford, Toyota, Chrysler, Honda, Nissan, Subaru, etc. etc. etc...

And provided that GM got such a dominant position through legitimate means, then more power to them, they must have provided cars with pricing, features, reliability and marketing that served the consumers better than their competition.

By sadsteve on 4/25/2014 12:56:23 PM , Rating: 2
Hm, would GM having a direct sale virtual monopoly in any way prohibit some other auto manufacture from entering the direct sales market? If so, please enlighten me.

By Nutzo on 4/25/14, Rating: -1
By Jeffk464 on 4/25/2014 1:11:20 PM , Rating: 3
Which of the two guys pictured is actually from Africa?

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