Tesla Motors Inc. (NASDAQ:TSLA) direct auto-sales will be affected in Michigan after legislators passed an amendment that blocks car companies from selling directly to retail consumers, according to TheStreet’s Brittany Umar. All the details regarding the new legislation have been finalized and now it awaits the consent of State’s Republican governor Rick Snyder.
Tesla’s CEO, Elon Musk, has always argued that the unique nature of the company’s cars means they ought to be sold directly to consumers, instead of having to go through franchise dealers.
“A house bill was introduced in May that sought to prevent franchise dealers from imposing random fees on customers. The act has since been amended to also prevent companies from selling directly to consumers in the state, which Tesla does, through its retail locations “said Mrs. Umar
Contrary to other automakers, Tesla Motors Inc. (NASDAQ:TSLA) runs its own showrooms and galleries where it showcases its cars as well as taking orders online. Dealers have always opposed this business model arguing that it undermines how franchises operate.
The passing of the legislation comes as a surprise as talks are believed to have been ongoing between the affected parties with a view of coming to a compromise. The National Dealers Association has over the years reiterated its support for the franchise-dealer network mode of selling cars as opposed to automakers being allowed to sell directly to consumers.
Signing of the signature will bar Tesla Motors Inc. (NASDAQ:TSLA) from any direct sales to retail consumers with the exception of selling to non-profit organizations and government agencies directly. A number of states prefer the franchise model for selling vehicles as competition in the space among dealers always result in cheap cars as opposed to automakers who are known to be firm on their prices.
Tesla Motors Inc. (NASDAQ:TSLA)’s vice president for business Development, Diarmuid O’Connell remains confident of the company’s prospects in Michigan, despite the passing of the bill in its current state. The Vice president has already reiterated that Tesla will continue to make direct investments in stores while pursuing the larger electric car market.
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