Automotive > Powertrain, Body, Chassis & Safety Blog

Michigan: A Finger in the EV Dike

by Roger Lanctot | Oct 07, 2020

General Motors’ director of state government relations performed a high wire act a couple weeks ago before a committee of the Michigan legislature. The executive was the sole “legacy” auto maker representative to speak out in opposition to a bill (HB 6233) banning direct sales of electric vehicles or, in fact, any direct vehicle sales in the state. Representatives from EV maker Rivian also testified.

The GM executive was proud to announce his company’s commitment to making EVs including $300M invested in its Orion, Mich., plant and $2.2B invested in the Hamtramck facility to manufacture electric Hummers. Interestingly, and uncomfortably, for the GM executive, his opposition to the ban – a ban for which Tesla Motors has an existing partial legal exemption – aligned with Rivian, a Tesla-like EV startup with existing facilities (with 800 employees) in Plymouth, Mich.

GM’s opposition was also in conflict with the only supportive voice in the hearing – which came from a Michigan dealer association advocating on behalf of existing, decades-old franchise laws intended to protect dealers...from direct vehicle sales by car makers. In fact, the GM representative referred to those very franchise laws in expressing his opposition to the ban, noting that GM must conform with a two-inch thick regulatory regime, while the EV-maker-that-would-not-be-named – i.e. Tesla – has been granted a simple two-page exemption from same.

GM’s complaints regarding the dealer franchise regime revealed the reality of the high wire act playing out in the committee meeting.  GM opposes the EV direct sales ban or any direct sales ban, but at the same time opposes the Tesla exemption – which was won by Tesla in court.

What Tesla won was the right to open a combination service center and showroom in Clarkston, Mich., where cars can be picked up or dropped off for service. Before the opening of the Clarkston location, most Michiganders wanting Teslas were forced to take delivery outside the state – for example in Toledo. If you ordered online in Michigan, Tesla could not bring your car to you. (It’s worth noting that Tesla handles most service directly at the customer site or comes and picks the vehicle up for service.)

The direct EV sales situation in Michigan is an extraordinary curiosity, especially given the stated goal of Michigan’s governor that the state be carbon neutral by 2050 – a target that was announced the same week that the legislature was considering a direct EV sales ban. The Michigan legislature is essentially finding common cause with new car dealers, who have a history of smothering EV sales.

Multiple speakers described the hurdles placed in the path of EV enthusiasts trying to buy electric vehicles including everything from limited or zero dealer EV inventory to limited dealer product expertise or available incentives. Several speakers noted the less attractive business model and low cost of ownership associated with EVs, which require little service, and the corresponding hostility of dealers to selling these vehicles.

The legislators supporting and proposing the legislation countered these claims by noting their own personal experiences of buying EVs with no difficulty. But one speaker, from the Sierra Club, shared market research with the committee gathered from dealer visits validating the described dealer EV sales shortcomings.

More potently, a Rivian executive, responding to questions from the committee members, described existing dealer franchise laws as a barrier to market entry for new car manufacturers. “In the past 100 years, there has been only one auto maker that has been able to successfully start a new car company (Tesla), and that was done through direct sales,” said James Chen, vice president for public policy at Rivian. “The franchise dealer model creates such a large barrier to entry due to the need for immediate mass scale and investment that it keeps new entrants out of the market.”

Rivian is planning to introduce its R1T EV pickup truck and R1S EV SUV to the market in the first half of 2021 with a direct-to-consumer model including custom manufacturing. The company also intends to commence deliveries of 100,000 Rivian Prime vans for Amazon in the second half of 2021.

The barrier to market entry standing in Rivian’s path is the onerous dealer franchise framework regarding which GM appeared to be simultaneously complaining and endorsing. The franchise laws may represent two inches worth of regulatory requirements – but in the event of banning direct EV sales in Michigan it is revealed as a powerful tool for limiting consumer choice by barring the entry of new vehicle makers.

The issue is more fundamental, though, as revealed in the Q&A between committee members and Rivian’s public policy vice president. When pressed as to why Rivian couldn’t, wouldn’t, or preferred not to sell its vehicles through dealers, Chen described the importance of the direct consumer connection enabled by direct sales.

Inherent to its direct sales model, Chen said, was the ability to maintain connectivity to its cars in order to monitor performance and detect potential failures, some of which might be corrected with over-the-air software updates. Under the existing dealer franchise regime in Michigan and across most of the U.S., the dealer is required to be the first point of contact for the customer – the auto maker is not allowed to connect with the consumer without including the dealer.

Whether Chen’s claim is strictly true or universally applied across all 50 states in the U.S., it does highlight a critical point of conflict at the core of the U.S. auto industry. Dealers are the vanguard for delivering new technologies to the market. Dealers can be an essential asset to a marketing and distribution strategy or they can get in the way.

Companies like Tesla and Rivian have clearly come to the conclusion that dealers are getting in the way of wider EV adoption and sales. The viability and efficacy of the dealer-centric approach to the sales and servicing of electric vehicles, in particular, is clearly in doubt. Recent disappointing EV launches at Audi and Jaguar Land Rover in the U.S. are painful examples of this reality – as has been the demise of Chevy’s innovative Volt.

The situation is actually more deep seated. Auto makers bear some blame. Most auto makers are proclaiming their intentions to flood the market with EVs even as the available infrastructure deployment lags, dealer preparation is wanting, and consumer awareness and vehicle supply is limited. If franchise dealers aren’t careful, consumers will pass them by in favor of direct purchases from EV startups – many of which are waiting in the wings.

Michigan’s legislature, its auto industry, and franchise dealers are all in danger of being relegated to the dustbin of history if they fail to get with the EV program. No amount of legislation - like a direct sales ban - will preserve an antiquated distribution model resistant to change.

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