The Dealership Model Will Change … Eventually

By John B. Swift II posted 03-27-2017 12:29


Car purchasing is unlike any other process. Many states, including Michigan, specifically prohibit automobile manufacturers from engaging in direct sales to retail consumers. MCL 445.1574. We are therefore left with the dealership network business model. This distribution model is usually justified by the argument that since cars are such a large purchase for most folks, there needs to be a local place they can go for repairs, warranty claims, and pretty much any other recourse. However, given modern commerce, this seems to be a pretty outdated model. You can buy cars online, although usually you still have to take delivery through a dealer. Personally, I like going to dealerships, test-driving cars, jabbering with sales people, and finding the best deal. I realize that as a lawyer and a car enthusiast I am in the very small minority on that.

Tesla, Inc., has been challenging the dealership model for years now. However, because of these state laws prohibiting direct manufacturer sales, Tesla has had a tough time breaking into the national market. In 2014, Michigan doubled down by enacting a law specifically aimed at keeping Tesla out of the state, even though direct sales were more or less already banned. Indiana is in the process of moving similar legislation forward, but curiously gave Tesla its own exemption. This move both protects the traditional dealerships and also grandfathers in any manufacturers that registered for direct sales with the state before July 1, 2015. (Tesla is the only one.) According to Indiana State Representative Ed Soliday, “[Tesla] has demonstrated consumer service and accountability” so well at this point that it gets something of a state-sanctioned monopoly. I doubt the other manufacturers will let that last long. Even Ford and GM seem to be laying their own groundwork. Change is coming.