What’s good for General Motors dealers is good for America.
Or so allegedly free-market, anti-protectionist Republican legislators and governors pretend to think, given that they have been doing their damnedest to protect auto dealers (for both GM and others, to be fair) from the threat of competition.
This week Michigan Gov. Rick Snyder (R) signed a law effectively banning Tesla Motors, the high-end electric car manufacturer, from selling its cars in the state. It is the fifth state to do so, following Texas, Arizona, New Jersey and Maryland, and a slew of other states are erecting other creative restrictions that make it harder for the Silicon Valley upstart to sell cars locally.
To clarify, none of these states has explicitly singled out Tesla in legislative language; instead, they just require anyone wishing to sell a car to consumers to do so through an independent dealership. The middleman, you see, wants his cut.
Why is this so obviously targeting Tesla? Tesla prefers to sell through its own corporate-owned stores and, for various reasons, has refused to participate in the traditional franchise dealership model. Because of this, in some of the states that bar Tesla from opening its own stores, the manufacturer has instead opened informational “galleries” where customers can ogle cars but cannot discuss prices, go on test drives or actually purchase the vehicles. Tesla representatives say the new Michigan law forbids even these galleries (though consumers still can, sight-unseen, purchase the cars online).
It’s not clear what problem all these laws are trying to solve, or why allowing manufacturers to sell cars directly to walk-in customers — just as Apple can sell computers directly to consumers, or Gap can sell clothes directly to individual shoppers — would be so abominable. The argument that requiring sales through a dealer helps consumers by encouraging more (possibly unnecessary) maintenance and warranty work seems flimsy at best. (Other regulations that some Silicon Valley firms have lobbied to dismantle, like car insurance requirements or zoning, have a much more convincing social welfare purpose, in my view.)
The best defense Snyder could offer for the new law was that it was merely a “reaffirmation of strengthening existing Michigan law,” which he says already banned direct-to-consumer car sales. Arguing that the law was already anti-competitive is not much of a justification for reinforcing anti-competitiveness.
Usually we think of politicians on the left as being the major proponents of protectionist policies. But Snyder is a Republican, as are the governors of almost all the states that have barred Tesla’s entry (Maryland’s Martin O’Malley is the only Democrat in the bunch). In other contexts, Snyder contends that he is against burdensome regulations that thwart competition and hinder growth. What’s different about the auto industry? Well, auto dealerships donate overwhelmingly to Republicans; perhaps these Republican governors are not so much pro-business as they are pro-businesses-that-fund-their-campaigns.
Indeed, prominent Republican politicians have a long history of enshrining protectionist laws that help auto dealers. In 1973, Republican hero Ronald Reagan, then the governor of California, signed a law that barred new-car dealerships from opening within a 10-mile radius of an existing dealership peddling the same kind of car, according to Mother Jones, to reward a businessman who was one of Reagan’s top fundraisers. Decades later George W. Bush, as governor of Texas, signed what was then the nation’s strictest law prohibiting car manufacturers from selling directly to consumers, at a time when the Internet finally made such transactions more feasible. Texas’s law was subsequently copied by other states around the country and used to shut down Ford’s own attempt to sell used cars to consumers through its Web site. Ford fought the law and ultimately lost.
Yes, that’s right: The big auto incumbents have tried to engage in their own direct-to-consumer sales before, even though many are now throwing their weight behind the recent spate of legislation that bars such activity.
Maybe they think these laws present an easy way to keep an innovative, franchise-allergic competitor small and off their turf. Or maybe legacy manufacturers are bitter that they’re now effectively stuck with the dealership model themselves, since unwinding existing franchise contracts has become complicated and expensive. So they might as well force upstart competitors to operate under the same constraints, too. Of course, it’s not actually obvious that Tesla’s decision to operate without dealers will end up being a more profitable business model in the long run, given the valuable marketing, sales, and maintenance services that many local dealers provide. But we’ll never know as long as states keep outlawing any possible alternatives.
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