FTC Staff: Missouri and New Jersey Should Repeal Their Prohibitions on Direct-to-Consumer Auto Sales by Manufacturers

Federal Trade Commission staff submitted written comments to Missouri State Representative Michael J. Colona and New Jersey State Assemblyman Paul D. Moriarty in response to requests for comment on legislative proposals that would alter the ability of automobile manufacturers to sell their cars directly to consumers. The proposed Missouri bill would expand current prohibitions of such sales by franchisors to also include sales by any manufacturer, regardless of whether they use independent dealers. In New Jersey, several bills would create limited exceptions to state law that, as currently interpreted, requires motor vehicles to be sold only through independent auto dealers.

According to the comments by staff from the FTC’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics, current laws in both jurisdictions “operate as a special protection for [independent motor vehicle dealers] – a protection that is likely harming both competition and consumers.” The comments note the staff’s strong opposition to state laws that mandate a single method of distributing automobiles to consumers.

In Missouri, proposed amendments to current law would expand the scope of the existing restrictions on direct sales. Under the bill, all new motor vehicles in Missouri would have to be sold through independent dealers. As the staff comment states, current law limits franchising auto manufacturers’ ability “to innovate in their methods of sale in ways that might be more cost-effective and responsive to consumer demand” and “is very likely harming both competition and consumers. By expanding the scope of the existing prohibition to include manufacturers that do not currently use, or even desire to sell through independent dealers, HB 1124 [the proposed amendments] would amplify the adverse effects of the current prohibition” and “discourage innovation.”

In contrast, each of the legislative proposals in New Jersey would permit some manufacturers, under limited circumstances, to sell cars directly to consumers, and so would likely increase competition relative to the current blanket ban on all other methods of selling cars. But in the staff’s view, the bills “do not go far enough. . . .” “New Jersey’s consumers would more fully benefit from a complete repeal of the prohibition on direct sales by all manufacturers, rather than any limited, selective set of exceptions,” the staff comment states, noting that “current New Jersey law . . . is very likely anticompetitive and harmful to consumers.”

The prohibitions on direct sales in Missouri and New Jersey particularly affect Tesla Motors, a relatively new entrant in the auto market that has been prevented from selling directly to consumers, the staff comment states. But their effects are likely more far-reaching.

The staff comments encourage the Missouri and New Jersey legislatures to consider abandoning existing law and to “permit manufacturers and consumers to reengage the normal competitive process that prevails in most other industries.” Such changes “would facilitate the development of new methods of distribution and possibly . . . the arrival of new motor vehicle manufacturers,” benefitting motor vehicle buyers of Missouri and New Jersey.

“FTC staff offer no opinion on whether automobile distribution through independent dealerships is superior or inferior to direct distribution by manufacturers. . . .[C]onsumers are the ones best situated to choose for themselves both the cars they want to buy and how they want to buy them,” the staff states.

The Commission vote to issue each of the staff comments was 5-0 . (FTC File Nos. V140010 and V140008; the staff contact is Patrick J. Roach, Office of Policy Planning, 202-326-2793).

The FTC’s Office of Policy Planning works with the Commission and its staff to develop long-range competition and consumer policy initiatives, consistent with the FTC’s unique mission to conduct research and engage in advocacy on issues that affect competition, consumers, and the U.S. economy. The Office of Policy Planning submits advocacy filings; conducts research and studies; organizes public workshops; issues reports; and advises staff on cases raising new or complex policy and legal issues. To reach the Office of Policy Planning, send an e-mail to opp@ftc.gov. Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.