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State settles with Tesla, allows sales and service in Michigan

interior of a Tesla automobile
David von Diemar

Michigan residents can now order a Tesla vehicle and have it serviced in state. On Wednesday, Michigan’s Attorney General and Secretary of State announced a settlement with the California-based car manufacturer.

Tesla sued Michigan in 2016 over the state’s ban on direct sales from a manufacturer which Tesla called “highly protectionist and dealership driven.”

Kelly Rossman-McKinney, spokesperson for the Michigan Attorney General, said the settlement will allow Tesla to sell vehicles to Michigan residents — with one stipulation.

“They may sell cars to Michigan customers as long as the contract itself shows that the sale took place in a state other than Michigan,” she said.

Tesla vehicles are made to-order. Previously, Michigan residents could not order a vehicle at Tesla’s gallery location in Troy — instead they had to go out of state to make the purchase. The gallery was prohibited from discussing pricing, financing, or trade ins.

Rossman-McKinney said the state did not need to change existing law because the settlement resolved the conflict.

“Current law — or at least Tesla was under the impression that they couldn’t place an order at the gallery for a customer," she said. "This will allow them to do that.”

The company also said the ban prevented them from setting up centers to service its vehicles in the state. Rossman-McKinney said the settlement changes this, too.

“Ultimately Tesla may also own service and repair facilities in Michigan through a subsidiary Tesla Michigan,” she said.

Rossman-McKinney said previously the closest state residents could go to have their car serviced was Ohio.

Daniel Crane is a law professor at the University of Michigan and has studied the issue of how car companies can sell their vehicles directly to consumers. He said before the settlement, Tesla’s operations in Michigan were legally ambiguous.

“What this means is that really Tesla can operate as much as they want to in the state in terms of sales and service with the only caveat that the actual legal transaction of the sale has to happen online,” he said.

Crane said previously Tesla would not even deliver purchased cars to Michigan residents — requiring them to pick the cars up at a location outside of the state. Although it’s not clear whether the company was legally required to do that, he said.

Ultimately, Crane said, the state may need to think about repealing the law that restricts direct manufacturer sales entirely.

“There’s really no good reason why the legislature shouldn’t say we need to comprehensively rethink the whole way we think about cars being bought by consumers in the state of Michigan.”

According to Crane, the big question now becomes what legacy car manufacturers will do following the decision.

“There’s an open question whether this will have any effect on how legacy car companies are allowed to distribute their cars.”

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