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FTC Comes Out In Favor Of Tesla Direct Sales, Against Dealer-Backed Bans

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2014 Tesla Model S

2014 Tesla Model S

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The ongoing fight between Tesla Motors and car dealers across the country has spilled from the headlines into the legal system, but so far, the outcome is far from certain. Will Tesla be allowed to sell its cars directly to consumers? Or is there some state interest in forcing Tesla into the dealer franchise model America's major carmakers use?

The Federal Trade Commission (FTC) today weighed in through its "Competition Matters" blog, making it plain that the agency supports the Tesla direct sales approach, likening it to past technological advances in consumer-business relations.

"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," wrote Andy Gavil, Debbie Feinstein, and Marty Gaynor in the FTC's "Who decides how consumers should shop?" posting to the Competition Matters blog.

The strong statement of policy is not a change to any law or regulation, but it does clearly indicate the FTC's stance on the matter. Gavil is the director of the FTC's Office of Policy Planning, Feinstein is director of the Bureau of Competition, and Gaynor is director of the Bureau of Economics.

The post continues, "Dealers contend that it is important for regulators to prevent abuses of local dealers. This rationale appears unsupported, however, with respect to blanket prohibitions of direct sales by manufacturers. And, in any event, it has no relevance to companies like Tesla. It has never had any independent dealers and reportedly does not want them."

Tesla CEO Elon Musk has explained why Tesla doesn't want conventional car dealers in the past. Though noting that it would be an easier path for Tesla, Musk thinks that conventional car dealers would have a conflict of interest in conveying the benefits of electric cars, since they would still rely on conventional (gasoline-burning) cars for the majority of their sales and profits.

Tesla's battle for direct sales is framed by existing franchise laws that prohibit anyone not licensed as a car dealer from selling vehicles to the public. Laws vary from state to state, but in all, 48 states have some version of the restriction.

The FTC appears to take issue not with those laws, but with how they're being used, and with the direct-sales bans being passed in several states.

"Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated," the post continued.

Tesla now has more than 50 stores and galleries in the U.S., with six more due to open soon. Over 40 service centers are also currently in operation, with another 23 planned.
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