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Discussion about anticompetitive state dealership laws

Discussion in 'Off Topic' started by dsm363, Jul 20, 2012.

  1. dsm363

    dsm363 Roadster + Sig Model S

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  2. CapitalistOppressor

    CapitalistOppressor Active Member

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    Only U.S. Supreme Court case I've found so far is this -

    New Motor Vehicle Bd. v. Orrin W. Fox Co. - 439 U.S. 96 (1978)

    New Motor Vehicle Bd. v. Orrin W. Fox Co. - 439 U.S. 96 (1978) :: Justia US Supreme Court Center

    I haven't finished reading it, but it seems to pertain to the right of a state to regulate the relationship between a manufacturer and its franchisee's. Tesla doesn't have any franchises so it doesn't seem to apply. The 1956 federal law on auto dealers is designed to keep manufacturers from abusing their franchisee's.

    Nothing so far about prohibitions on manufacturer direct sales. Even at the state level those laws are intended to prevent manufacturers from abusing their franchisee's so using them to prevent competition from a manufacturer who doesn't have, and never has had, franchises just seems like a stretch. In actuality the laws are being used to keep Tesla from competing with other manufacturers which seems very sketchy.

    But like I said before, it IS the law right now. A legal challenge wont get these stores open in the next few months, so Tesla has to try to thread the needle. They need to be careful not to be forced into franchise agreements with existing dealers (which is probably the long game the dealers are playing with this). If Tesla sells cars over the internet and helps its customers establish proper title and register the vehicle then I don't see how dealerships could have standing to sue, and I don't see how a state can prevent a store from opening which merely displays the car and offers test drives.

    Maybe, Tesla can establish title in a friendly state like California then transfer it to the new owners if the states insist on not licensing Tesla to perform these services in their jurisdiction. That process seems like the place where states can play hardball.
     
  3. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    Geez, no matter how much I try to avoid my day job on this site, it keeps coming up! :wink:

    At least this time, it's not Tesla directly involved in suing someone or getting sued in a business dispute. :biggrin:

    OK, the bottom line is that I don't see any constitutional grounds upon which to challenge these laws. These laws don't prevent consumers from buying cars (although it theoretically makes it more difficult), and I have no idea what constitutional provision would protect a manufacturer in this context. Remember, these are state laws, so for them to be overturned nationally, it would have to violate the US constitution or conflict with a federal law/statute. I just don't see anything that would help with the former (no good constitutional argument), and there's nothing currently on the books (except antitrust as discussed below) that would serve this purpose.

    The paper rightly (IMHO) focuses on antitrust law as the possible basis for a challenge to these state laws. However, the few times these laws have been challenged, courts have upheld them. Even if you could guarantee the Supreme Court would hear this case (and they accept something like 1% of the cases filed with them each year), there's no guarantee they would rule in the manufacturer's favor on this issue. For Tesla's purposes, it would take 3-5 years to get to the Supreme Court, which makes it probably worthless given the (relative )speed with which they're trying to go to mass market.

    The better solution, then, is a federal law that simply invalidates these state laws. It's something that can be thrown into any law passed by Congress, and just needs to say that anyone manufacturing a mode of transportation has the right to sell directly to consumers. This federal law, which would be constitutional under the Commerce Clause (now a popular subject because of the recent ruling on Obamacare), would supercede any state law that otherwise prohibited such sales, and would essentially make those laws moot. At that point, any manufacturer threatened by a state or locality with being shut down under a state law could run to a federal court and get an immediate injunction preventing such action.

    As the author of the paper implies, the federal government now has a very vested interest in the success of auto manufacturers (he mentions GM and Chrysler because of TARP, but you could throw Tesla, Fisker and Nissan in as well under the loan program), and obviously getting rid of these laws will help manufacturers, so there could possibly be some incentive on Congress' part to change these laws.

    The biggest obstacle, of course, is that auto franchisees are among the most powerful constituencies we've seen in awhile. When GM and Chrysler tried to shut a bunch of them down during their bankruptcies, they mobilized like crazy with Congress and were able to change a lot of otherwise rational business decisions regarding closure of certain dealerships. So it's extremely unlikely something like this will get through Congress any time in the near future.
     
  4. CapitalistOppressor

    CapitalistOppressor Active Member

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    I agree with everything you wrote, and it's pretty much the way the law looks to me as a non-lawyer.

    But as a practical matter, if Tesla doesn't have a store in the state what can the state do to prevent Tesla from selling over the internet?

    (Again, I'm a non-lawyer, so have mercy on the following logic).

    I don't see that the dealers have standing to sue, as Tesla sales do not impinge on their franchise agreements with other manufacturers.

    The states can prevent Tesla from performing the normal services that dealers are licensed by the state to do, like establishing title and registering the vehicle. But it seems to me that Tesla could establish a virtual dealership in a friendly jurisdiction to execute actual sales contracts and establish title, then help the consumer to properly register the vehicle at the customers local DMV.

    Obviously a state or municipality can throw a monkey wrench into opening a Tesla store, because they are already doing that. I just question what the actual regulatory hook is that the various state laws can use to stop a Tesla store from opening if it promises not to execute sales. My vast knowledge of the process (coming from 30 minutes of research) seems to indicate that state enforcement of the bans is accomplished through the licensing channel (i.e. being able to legally establish title, and thus complete a "sale").

    But if Tesla can do that elsewhere it seems to me that states can't do anything about that. The normal regulatory scheme breaks down because if a regular manufacturer attempted to complete internet sales there is a secondary enforcement channel whereby a franchisee could sue to enforce its rights. And again, I just don't see how any existing auto dealers have standing to sue since none of them have a franchise agreement with Tesla.

    Or not :)
     
  5. richkae

    richkae VIN587

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    So would they have to do have a "Tesla Showroom" where you can see and test drive cars but not buy them?
    Then right outside the store is a free internet kiosk with a phone next to it so you can call Tesla in California toll free?
     
  6. dsm363

    dsm363 Roadster + Sig Model S

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    They do this in Houston. There is a sign saying 'we are not allowed to sell you a car but are happy to talk about it' or something similar to that.
     
  7. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    Nothing! That's what Tesla has decided to do in Texas, and unless there's something missing there's absolutely nothing that the dealerships/franchisees can do about it. The Tesla "Stores" in Texas are really just informational, and no transactions can or will occur there "live". Tesla would probably prefer everyone buy online anyway, so this shouldn't hurt sales too much, especially when the goal of these stores anyway is to promote EVs and Teslas in general, and not to make a sale that day.

    You really think you're going to find a merciful lawyer?! :wink::biggrin:

    Each state's law will be different, but with a law like this on the books it's likely that they wouldn't need to show a direct harm to themselves in order to enforce the law. They aren't suing for monetary damages necessarily, and in the case of NY it's a governmental entity itself that is trying to enforce the law. Of course Tesla isn't hurting anyone directly in the existing manufacturer/dealership relationship, but what Tesla is doing (as actually pointed out in the article for the DOJ) is showing a better way to do things that would likely eventually destroy the entire business model!

    It depends on each state's law, but for example in Texas the law addresses selling, not registration and titling. Because of the proliferation of used car dealers and others involved in these activities in all states, it should be easy enough for Tesla to partner with someone (or set up an entity) to do these things for people in restricted states. This, though, is not the dealerships chief concerns -- it's the sales, and that's where we should expect the focus to remain.

    I think you've hit the nail on the head. Once the "sale" is made online via the internet (which obviously wasn't a possibility in the 1950s and 60s when these laws were put into effect), everything else falls into place. To the extent some dumb municipality or state thinks it can stop Tesla from "selling" cars in the state, and then Tesla gets around that by not doing any actual "sales" in-store, but just points people to the internet, their whole enforcement mechanism completely breaks down, and Tesla can go about its business with customers in these states just as they would with anyone else in a less restricted environment.
     
  8. Robert.Boston

    Robert.Boston Model S VIN P01536

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    As these laws are constructed, there is a plausible argument that they are a bar to interstate commerce and, therefore, unconstitutional. A California car company cannot sell to a Texas consumer without inserting a Texas middleman?

    The Natick MA case is more subtle, because the requirement there is that car sales must be co-located with car service. There is a clear public interest benefit in such a requirement.
     
  9. brianman

    brianman Burrito Founder

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    From the Natick thread...
    I bet Arnold can tell us (sorry, Arnold).

    Scenario A
    You're in the store, power up your laptop and make an order on Tesla's web-site does that count as a transaction at the website location or at the location of the laptop (or both).

    Scenario B
    You do it right under the "'we are not allowed to sell you a car" sign and a Tesla representative is assisting you with using the web site.

    Scenario C
    Tesla provides a kiosk in the story, and "visitors" just happen to navigate to the TeslaMotors web site and complete a reservation.

    For each of the 3 scenarios, how does the current middleman law (or whatever you call it) come into play? Is Tesla "at fault" in such cases?
     
  10. stopcrazypp

    stopcrazypp Well-Known Member

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    Same question I have. Does it count as a sale at that location if the customer buys it online on a laptop or a public computer (conveniently at that location)?

    Robert makes a good point about interstate commerce too (suppose that's why Texas can't ban Tesla sales completely).
     
  11. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Active Member

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    IANAL. My guesses:

    Scenario A: not selling, unless you're using a Tesla-biased facility.
    Scenario B: selling, by virtue of helping you through the buying process.
    Scenario C: selling, if the Internet kiosk is limited or biased to Tesla.

    Maine:

    Maine Bureau of Motor Vehicles

    The only pertinant clause would be:
    "Advertises, in any form, 3 or more vehicles for sale or displays 3 or more vehicle for sale within a 30 day period on premises controlled by that person."

    From that, I think the key is that the store must act only as advertising.
     
  12. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    Well, I might be biased here (OK, definitely biased!), but I'd argue that none of these scenarios violates the law. I mean, how many stores offer access to the Internet, or at least wifi, and can any law stop people from going into any store and using the Internet to "buy" (or in this case, order) something over the Internet? And can they stop a store from offering the Internet?

    What seems legally possible to regulate/prohibit is actual sales at a particular location, i.e., the exchange of money for a good or service. As long as the local Tesla rep isn't taking the customer's credit card info, cash or check, I think a strong argument can be made that these laws shouldn't apply. The double-whammy for those trying to enforce such laws is that if they argue Internet sales that happen to occur in-store violate the law, the law is then probably overly broad, and could be struck down on Constitutional grounds.
     
  13. brianman

    brianman Burrito Founder

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    @Arnold
    While at the store, suppose you order online and within 5 minutes you provide your cashier's check for the $5K deposit. Would that count as an "actual sale at a particular location"?
     
  14. Ardie

    Ardie Member

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    I think that once a Senator or Congressman finds out that his constituents are *prohibited* from buying an American car, things could change rather rapidly - probably during an election year.

    -- Ardie
    "A vote for XXX is a vote for America!"
     
  15. vfx

    vfx Well-Known Member

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    Not to mention the news of this getting out into the press. Local news outlets will have a field day with this. (At least the ones that don't have the local dealerships buying late night airtime -which is all f them ;)
     
  16. dsm363

    dsm363 Roadster + Sig Model S

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    Does anyone here know someone in Congress? Time for TMC to lobby:smile:
     
  17. strider

    strider Active Member

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    Couldn't they just base a Ranger out of the store? Presto, service presence. Assuming they have a dedicated area in the mall parking lot (like Santana Row) with chargers and such the Ranger could "perform" services there.
     
  18. Jaff

    Jaff Active Member

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    The elements of a typical contract are Offer / Acceptance / Legality of object / Capacity to contract / Consideration

    If there is no Consideration (downpayment), then I believe there is no contract.

    If the Consideration was electronically transferred or snail-mailed to TMC after the documment was signed (sent / transferred directly to TMC in California, never being "touched" by a TMC rep domiciled in the Texas store), I wonder if if this would put TMC offside with Texas law?

    Might be worth a shot.

    Regardless, I think a mass mail / phone campaign to your lawmakers could have the desired effect...especially as previously posted about the absurdity of Americans not being able to buy American in this case.

    I wonder how this law got on the books in the first place...anyone know?


     
  19. Arnold Panz

    Arnold Panz Model Sig 304, VIN 542

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    I (and presumably Tesla) would argue no, the city or state or whoever would argue yes, and a judge (or appeals court) would have to determine who's right. Bottom line is that the stupidity of a law like this is rarely challenged, but even city/county attorneys know that they can't really defend laws like this if they are challenged, so they don't bother when something like Tesla comes along. Tesla does the "fig leaf" of not actually taking the orders in the store, but having them done over the internet, and then the municipality can say they're enforcing the law, and at the same time Tesla gets to go about it's business with minimal disruption. This is, presumably, how they're going about this in Texas, and elsewhere as necessary.
     
  20. setherme

    setherme Member

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    I'm frustrated to find on here a lot of reference to state laws preventing Tesla Motors from smoothly implementing its business model so I've done my hour of research and found deep in this Texas law below the only thing that prevents Tesla from being a dealer of its vehicles in Texas.

    It is explicit. There is a lot of mention, on multiple threads and forums, concerning legislation protecting franchises, implying that this is the issue (it's not). One can understand that the existence of a manufacturer owned dealership lowballing a franchise (of the same vehicle) in the same territory undercuts the franchise-manufacturer/distributor relationship and should be protected by law.

    THE ISSUE IS the existence of such blunt legislation as seen below that hint at undue influence by an auto dealership franchise union; does one exist?? How else would one explain the need for this law? What other states have this law on the books (please post links)? If not to encourage the use of franchised dealerships I don't know of another reason for this law. Maybe someone can find some unconstitutionality in that.

    Is the internet purchase Tesla's retort? If so, how does it bypass this type of legislation? Not to say that purchasing a Tesla online shouldn't be available. I believe in store shopping and internet shopping are separate experiences, and therefore I feel being directed to an internet kiosk at the culmination of your exciting Tesla store visit would short change this new Car Buying Experience. When done right I know the experience can be seamless, but is it legal?

    § 2301.476. MANUFACTURER OR DISTRIBUTOR OWNERSHIP, OPERATION, OR CONTROL OF DEALERSHIP.
    (c) Except as provided by this section, a manufacturer or distributor may not directly or indirectly:
    (1) own an interest in a dealer or dealership;
    (2) operate or control a dealer or dealership; or
    (3) act in the capacity of a dealer.

    CHAPTER 2301. SALE OR LEASE OF MOTOR VEHICLES :: Texas Occupations Code :: 2005 Texas Code :: Texas Code :: US Codes and Statutes :: US Law :: Justia
     

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