If you wanted to buy a car - say a Ford Focus, which is made in Michigan - you could go to an auto dealer. But even if you went to the Ford assembly plant - you couldn’t buy a Focus directly from Ford. It’s illegal for vehicle manufacturers to sell to consumers in the state. That’s causing trouble for popular electric car maker Tesla - and a small startup in Kalamazoo.
Fido Motor Company in Kalamazoo makes simple, easy to use electric scooters. President Jeb Gast says when he worked for a company that sold Vespa scooters, he got frustrated having to rely on dealers for something like changing a flat tire.
“The dealers want to talk you into buying a new tire $120 tire on top of the tow truck and on top of the labor fee," says Gast.
"So with Fido, one wrench, the user himself can put in a $7 inner tube and be done with it."
Gast wanted charging the battery to be easy too.
“Battery comes out like a suitcase so you can actually take this inside and charge it in your apartment,” he says.
http://youtu.be/X431SaQZt0Y
Fido Motors sells one scooter that goes 30 miles per hour and another that can go 45. State law says Fido can sell the slower one directly to customers, no problem.
But a 45 mile an hour bike is considered a motorcycle - and motorcycles have to be sold through dealers.
“My favorite is the faster," says Gast. "I don’t find it that fun going 30 on a 45 mile an hour street.”
Fido can only legally sell five of those faster scooters every twelve months, but they’re planning to produce much more than that. Fido’s Chris Broadbent says the law could keep the company from growing. He says part of their business is interacting personally with the customer.
“That barrier would be great to have removed so we could start to build those relationships,” says Broadbent.
Tesla's Lawsuit Against Michigan
Auto manufacturer Tesla would also like to see the ban on direct sales lifted. The company is currently in a lawsuit with the state over its inability to sell in Michigan.
Jarrett Skorup is with the free market think tank the Mackinac Center for Public Policy. He says this ban doesn’t make any sense. Skorup says there’s no evidence that buying a car or motorcycle through a dealer is cheaper and Michigan doesn’t ban direct sales on any other products.
“If I want to go and get an iPhone I can directly order it off a website. I could go in and get it from a store or I could go directly to an Apple store and get it. So I have lots of options and we just think the market does the best job of sorting out how people want to pay for things,” says Skorup.
What Dealers Have To Say
Terry Burns - executive vice president of the Michigan Automobile Dealers Association- says you can’t really compare something like a car to an iPhone. He says it’s a much more important purchase.
“The vehicles we’re talking about are some of the most expensive purchases customers make, they need to be in safe working order,” says Burns.
Burns says dealers have the consumers’ best interests in mind because they’re independent from manufacturers.
“It’s not an 800 number somewhere in a foreign country or in another city that you’re calling trying to get your car repaired. It’s right there with the people that live, work, and play in your own neighborhood,” he says.
One of those local vehicle dealers is David Reynolds. He owns Life Cycle Motorcycles in Kalamazoo - likely Fido Motors’ only competition in town. It sells an electric motorcycle made by a company called Zero out of California.
Reynolds says one advantage to dealerships is that customers can try out a bike before they buy it. But he says he doesn’t mind if companies like Fido sell direct.
“Seems to be the wave of the future," says Reynolds. "In my opinion, the model of the big auto dealerships is probably winding down and probably in 20 years you won’t see what we have now.”
Is Michigan Missing Out On Tax Revenue?
People who support direct sales say allowing these companies to sell in Michigan could generate tax dollars. Jeff Timmer is the spokesperson for the Michigan Freedom to Buy Coalition - a group that wants to allow car and motorcycle companies to make direct sales in Michigan. He says Michiganders have already pre-ordered thousands of Tesla’s new Model 3.
“They have to buy them elsewhere and Michigan is losing out on huge amounts of sales tax revenue, millions of dollars every year in sales tax revenue that the state is not getting. That would seem a desirable incentive to try to fix,” says Timmer.
Meanwhile, companies like Tesla are trying to find ways around the law. According to the Michigan Secretary of State’s office, manufacturers can’t sell vehicles, but they can put them on display in what’s often called a “gallery.”
Last year Fido opened up a coffee shop in part of its building. Fido’s Crystal Gast says it just happens to have one of Fido’s scooters hanging on the wall.
“We’ve got plans to expand it a little more in order to include all the required elements of a dealership including like showroom space and office furniture,” says Crystal Gast.
But unless the law changes, neither Fido Motors nor Tesla will be able to sell more than a handful of vehicles to customers in Michigan.