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How did Michigan's auto dealership franchise system start?

Oct 21, 2014

Credit GM

 

Gov. Rick Snyder has signed a law that mandates all sales of Michigan vehicles to go through franchised dealers. It's seen as a direct shot at Tesla Motors, which wants to sell its electric cars directly to consumers. 

The governor's move is welcomed by mainline automakers and dealerships. Snyder says Michigan law already prohibited automakers from selling directly to consumers.

Michigan Radio's auto reporter, Tracy Samilton, explains that dealerships could argue that the current franchising system benefits the consumers because it creates tougher competition.

 

But how did the auto franchise system start in the first place? Samilton says that before dealerships existed, consumers could buy a car from manufacturers, wholesalers, or retailers. As the industry became more complex and volatile, the relationship between the dealers and automakers became solidified and even interdependent, and the dealer franchise system won out. 

As a result, the laws followed suit, and today there are laws that protect the dealership system. 

Samilton says Tesla is pursuing lawsuits in several states. While they are losing in some states, such as Texas, Tesla has won in other states, including Massachusetts. Tesla may file suit in Michigan as well.

* Listen to our conversation with Tracy Samilton above.