The Fiction of Locally Owned Mom and Pop Car Dealers: Some Data on Franchised Automobile Distribution in the State of Michigan

Abstract

The State of Michigan is currently defending a constitutional challenge to its automobile direct distribution prohibition. The lawsuit was brought by the automotive manufacturer Tesla, which has been denied a license to open show rooms or service centers in the state. A 2014 amendment to Michigan’s vehicle franchise statute tightened the statute’s direct distribution prohibition to make clear that even a manufacturer like Tesla that did not franchise dealers at all is prohibited from opening its own showrooms or service centers and dealing directly with consumers in the state. That law has been widely criticized by economists, consumer protection organizations like the Federal Trade Commission and Consumer Federation of America, environmental groups like the Sierra Club, and free market organizations like the Institute for Justice. In the Michigan litigation, the State is expected to rely on the assertion, frequently made by the dealers’ lobbyists, that maintaining a locally owned dealership system is beneficial to the State. Such assertions are grounded in the trope of the atomistic “mom and pop” dealer of American economic folklore — the family-owned, locally rooted dealership. This justification is increasingly a fiction. While some such dealerships may still exist, Michigan law does not require dealerships to be locally owned and operated or independent from other economic enterprises. Many are not.