Content area
Full Text
The automobile industry's impact on the nation's economy is of undeniable significance. In 2013, dealers reported total revenues of $730 billion, and the 15.5 million new vehicles sold through the country's franchised dealerships were the main engine driving that figure.1 A recent entrant into this sector, Tesla Motors, sold only 22,477 cars in 2013.2 Yet, Tesla has garnered attention, and opposition, to its comparably miniscule volume because of the exclusive method it employs in distributing its vehicles: direct-to-consumer sales. In a dramatic break from tradition and how virtually all vehicles are sold, Tesla has never utilized dealers to facilitate sales, relying exclusively on company-owned stores and its significant presence on the Internet.
Fueled by the nation's automobile dealers, many preexisting state dealer franchise regimes outlaw Tesla's sales model, and recent legislation in other states likewise aims to ban that practice. As an automobile manufacturer, Tesla faces a patchwork of state laws and regulations that are so restrictive, in some places, as to ban test drives and require a contrived runaround for warranty service. Despite this opposition, Tesla has entrenched itself with its direct sales approach in a battle against the status quo that has sparked aggressive lobbying, legal challenges, and even commentary by executives at the Federal Trade Commission. Tesla's market capitalization, which surged to over $30 billion in February 2014, rivals that of other established manufacturers and is a reflection of its drive to see that it sells its own cars on its own terms.3
But Tesla's resolve also raises a number of questions about the fundamental merits of arguably protectionist and competitively insulating state dealer franchise statutes. Should laws enacted to curb abusive practices by automobile manufacturers against preexisting dealers now be used to dictate the franchise model as the exclusive means of retailing new vehicles? What harms are states actually guarding against when preventing Tesla from shunning dealers altogether? How important are those safeguards, especially where states are unofficially, if not ostensibly, willing to jettison direct sales bans in exchange for Tesla's multibillion dollar capital investment?
This article includes a brief recount of the history of the dealer franchise system and its protectionist legislation, which is needed to appreciate the conflicting interests of stakeholders in ongoing battles and the norm embedded...