Tesla Wins Support From FTC Heads To Sell Directly To Consumers

April 25, 2014

You have to hand it to Elon Musk: he doesn't shy away from a challenge. In launching Tesla, he faced three.

First, like any startup, Tesla had to let consumers know about its products. Because of Musk's outgoing personality and Tesla's attractively designed cars, that wasn't hard to do -- though it's impressive that Musk, who has some very deep pockets, achieved such massive brand awareness without spending a dime on traditional advertising

Second, Tesla had to explain its products to the public -- no small feat, given that fully electric vehicles are still viewed with suspicion by many drivers used to combustion engines. However, Tesla has attracted a fair share of superfans and cool kids who are slowly and surely persuading their peers to give electric cars a second look.

Third, and perhaps most importantly, Tesla has had to fight a very uphill, state-by-state battle against franchise laws. Most of those laws forbid automakers from selling directly to customers, insisting that they go through middlemen (i.e. dealerships). Musk, however, doesn't want to create a network of dealers. Furthermore, he claims that distributing his vehicles through existing dealerships would put Tesla at a disadvantage, because sales personnel would be inclined to steer consumers away from Teslas and toward products they better understand.

To overcome hurdle #3, Tesla created a system of "galleries" designed by George Blankenship, the man behind Apple's hugely successful chain of retail outlets. These galleries don't technically sell Tesla vehicles, they just share information with consumers, referring interested parties elsewhere for test drives and purchases. State dealer networks, however, insist that Tesla's galleries function as de facto dealerships and have pushed to shut them down.


While many consumers have voiced support for Tesla, judges and politicians have been more reserved. This week, however, Tesla and Musk won over some very important fans at the Federal Trade Commission. In a statement issued yesterday, Debbie Feinstein (Director of the Bureau of Competition), Andy Gavil (Director of the Office of Policy Planning), and Marty Gaynor (Director of the Bureau of Economics), said:

For decades, local laws in many states have required consumers to purchase their cars solely from local, independent auto dealers. Removing these regulatory impediments may be essential to allow consumers access to new ways of shopping that have become available in many other industries.

This very question has been raised across the country, as a still-young car manufacturer, Tesla, pursues a direct-to-consumer sales strategy that does not rely on local, independent dealers.

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.

Topping that list of reasons, Feinstein, Gavil, and Gaynor state that consumers benefit from a diverse and dynamic marketplace. In their opinion, however, the auto sales model has become stagnant, giving shoppers far fewer purchasing options than they would have in other sectors. (Consider the multitude of ways that you can buy an iPhone, for example -- from Apple, from a carrier like AT&T, from a shop like Best Buy -- and you see what they mean.)

The trio explain that in the early days of the auto industry, franchise laws protected independent dealerships, putting them on equal footing with big automakers. Over time, however, those laws have shifted from being protective to protectionist, stifling competition.

As an example of a once-static sector that's being forced to change, the three point to the taxi industry, which has been up-ended by companies like Uber and Lyft. Those services aren't perfect, but they give consumers more options, and they allow the marketplace to choose winners and losers.


Franchise laws are state laws, so no matter what federal employees might say, it's unlikely to have a direct effect on Tesla's ability to sell to consumers.

However, the statement from Feinstein, Gavil, and Gaynor does give Musk and his colleagues more ammunition when fighting in the courtroom. As they conclude:

Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated. 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.


Follow The Car Connection on FacebookTwitter and Google+.

The Car Connection
See the winners »
The Car Connection
Ratings and Reviews
Rate and review your car for The Car Connection
Review your car
The Car Connection Daily Headlines
I agree to receive emails from The Car Connection. I understand that I can unsubscribe at any time. Privacy Policy.
Thank you! Please check your email for confirmation.