Tesla sues Michigan, challenges law requiring dealer sales

LANSING, Mich. — Tesla sued Gov. Rick Snyder and other top state officials Thursday, challenging a Michigan law that ensures automakers can only sell through independent, franchised dealerships and not directly to customers.

The federal lawsuit seeks a declaratory judgment that the 2014 "anti-Tesla" law is unconstitutional and an injunction to prevent its enforcement.

The Michigan Department of State last week denied Tesla Motors Inc.'s application for a dealer license to sell to consumers, citing the law that is backed by big auto companies and their dealerships. It has not yet decided on Tesla's bid to register a vehicle repair facility in the state that is home to the Detroit Three carmakers.

"The sole purpose for applying (the law) to a non-franchising manufacturer like Tesla is to insulate Michigan's entrenched automobile dealers and manufacturers from competition," the Palo Alto, California, company said in the suit. "This is not a legitimate government interest under the U.S. Constitution."

Tesla said it prefers that legislation be enacted to lift the ban on direct sales but was told by legislators in June that no hearing will be held.

"As a result of this law, Michigan consumers are forced to accept reduced access to the products they want, less competition and higher prices. ... Tesla will continue to fight for the rights of Michigan consumers to be able to choose how they buy cars in Michigan," Tesla said in a statement.

In 2014, the Republican governor and GOP-controlled Legislature amended state law to clarify that car companies can only sell through franchised dealers. Tesla officials said it was a last-minute, monopolistic strike at their upstart company, which makes all-electric vehicles and has no traditional dealerships.

Snyder spokesman Ari Adler said he does not comment on pending lawsuits.

"The governor is always willing to review legislation presented to him if the state Legislature feels a change in the law is necessary," he said.

When Snyder signed the law, he urged lawmakers to engage in a "healthy, open" discussion about whether the business model in Michigan is working.

Also named in the suit are Secretary of State Ruth Johnson and Attorney General Bill Schuette. Johnson spokesman Fred Woodhams said the agency followed the law in denying Tesla's dealership application. A Schuette spokeswoman said his office was reviewing the suit.

In the United States, Tesla operates stores in 23 states and the District of Columbia. Tesla also operates in 20 other countries. There are no countries where Tesla has not been able to sell directly, and the only states where it has been unable to get a license are Michigan, Texas, Connecticut and Utah.

In the complaint, Tesla said its direct sales model is the "only viable means" for selling its electric cars because the traditional dealer model — which incentivizes "high-pressure, high-volume sales at the highest negotiable price," with add-ons and surcharges — would be a "disastrous way to bring Tesla's novel cars to market." It said a franchised Tesla dealership could not profit from selling new cars because Tesla's uniform sales price means there is no dealer mark-up.

The case was assigned to U.S. District Judge Janet Neff in Grand Rapids.

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AP auto writer Dee-Ann Durbin in Detroit contributed to this report.

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Follow David Eggert on Twitter at http://twitter.com/DavidEggert00 . His work can be found at http://bigstory.ap.org/author/david-eggert

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