Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: AAI joins unlikely allies in supporting direct distribution of automobiles, (Feb 18, 2015)

By Greg Hammond, J.D.

The American Antitrust Institute, along with a group of nine other public interest organizations that frequently find themselves at odds on public policy debates, have sent a letter to state government leaders addressing the anti-consumer effects of laws that prohibit direct distribution of automobiles.

According to the letter, the public interest groups—including the Koch-funded Americans for Prosperity and the Sierra Club—oppose state laws and regulations that restrict the sale of automobiles by manufacturers directly to consumers. "Such laws are unnecessary for consumer protection, interfere with competition and efficient distribution, increase costs to consumers, and mount barriers to the introduction of innovative and beneficial new technologies," the letter stated.

The organizations note that many states have "decades-old laws" in place to prohibit automobile manufacturers from opening their own showrooms and service centers and dealing directly with consumers. These statutes were originally designed to protect dealers from unfair practices by their franchising manufacturers. However, the auto industry is much more competitive today, giving dealers more choices and greater bargaining power to protect themselves from unfair trade practices by manufacturers, the letter states. Accordingly, there is no longer any valid reason to use these laws, which thwart new market entry and competition.

Specifically, the organizations point to Tesla Motors, Inc., an all-electric vehicle manufacturer that is trying to distribute and service cars directly to consumers. According to the letter, the direct distribution model is necessary for Tesla, because many dealerships are unwilling or unable to promote electric vehicle sales with "sufficient expertise or vigor." Further, the organizations pose that Tesla’s direct distribution market entry would provide consumers with "beneficial new choices on what vehicles they buy and how to buy them."

"The diversity of perspectives represented in the coalition signing this letter reflects the importance of this issue on multiple fronts," the letter stated. "We call on legislators, governors, and other public servants across the political spectrum to take a stand against laws that block direct automotive distribution to the detriment of innovation, the economy, consumers, and the environment."

The public interest organizations that signed the letter include the American Antitrust Institute, Americans for Prosperity, Consumer Federation of America, Consumer Action, Consumers for Auto Reliability and Safety, Environment America, Institute for Justice, The Information Technology & Innovation Foundation, Mackinac Center, and the Sierra Club—National.

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