Why The Government Shouldn't Protect Big Business

Over the past few months, several states have created or enforced existing laws that deny Tesla Motors from selling its all-electric cars directly to the public.

The latest case was in New Jersey, where the Motor Vehicle Commission (NJMVC) approved a change in its rules "protecting" car dealerships from direct sales by others. Tesla immediately stated in a blog post the move was “an affront to the very concept of a free market.”

Since 2013, Tesla Motors said it had been working “constructively” with the NJMVC and members of N.J. Gov. Chris Christie’s administration against the New Jersey Coalition of Automotive Retailers’ (NJ CAR) attacks on Tesla’s business model.

Tesla stated it was “under the impression that all parties were working in good faith.”

However, Christie ended up backing the NJ CAR against Tesla. The move was purely political. Cash buys elections, after all. Until real campaign finance reform becomes a key talking point in politics, this will not change.

According to published reports, the NJ CAR political action committee (CAR PAC) has made hundreds of donations to politicians. On the other hand, Tesla has made none.

So why should you care?

Imagine if you wanted to buy the latest 4K, ultra-high definition TV, but instead of pre-ordering directly from Samsung (as you can), a law required you to wait to purchase it from Best Buy or Sears or some other brick-and-mortar outlet that wanted to pay its sales people a commission.

The assault on Tesla is the other side of a government coin that props up big auto manufacturers and banks with public money when their business goes south, but doesn't offer the same help to small businesses that may be struggling right in your own downtown. When that happens, our “free enterprise” system become adulterated. It’s been by-passed, overridden, ignored for the sake of political gain.

Ironically, the car dealership industry’s opposition to Tesla is misplaced. Dealership protection laws were put in place to guard the middleman from the major auto manufacturers. Manufacturers at one time could pressure dealerships to accept car models by threatening to open their own direct sales outlets -- essentially, sell our lemons, or else! So while the laws were originally enacted to create a level playing field, today they are doing just the opposite.

The dealership laws were never about quashing a tech start-up hoping to gain market traction with a new business model.

And, New Jersey is no one off. Texas and Arizona have also enforced laws blocking Tesla. And, there are more efforts underway around country to enact laws do the same.

In Ohio, for example, the Automobile Dealers Association President Tim Doran argued before lawmakers in favor of Senate Bill 260. The bill would prohibit the Registrar of Motor Vehicles from issuing a motor vehicle dealer's license to car manufacturers.

Other states, such as Maryland and Virginia, also have laws that ban direct sale of cars by manufacturers.

“As a general matter… I think these laws are very bad policy. They’re protectionism for auto dealers at the expense of consumer choice,” says Daniel Craine, a senior professor of law at the University of Michigan.

Tesla stores are unlike typical car dealerships. They are typically no bigger than a shoe store in a mall, and they only display a Tesla model. The point of the store is to allow consumers to see the cars, speak to a Tesla representative, schedule a test drive and learn how to buy the car online. Tesla itself claims the stores are only there to promote their product, not sell it directly to a consumer from the outlet.

What is at work here is simple – political finance. You don’t want an enormous lobby, such as the Coalition of Automotive Retailers, pulling their campaign support.

In case there was any doubt that this was political, what’s happening now in Arizona should erase that.

Arizona has enforced its dealership laws against allowing  Tesla to open showrooms and sell directly to the public. Then a funny thing happened. Tesla announced Arizona was one of four places it was considering for multibillion-dollar manufacturing plant. Ironically, Texas – yet another state that blocked Tesla from direct sales – is also on Tesla’s short list for a factory.  Nevada and New Mexico are the other two states where the “Gigafactory” may be located.

In light of Tesla’s factory plans, Arizona House Bill 2123 emerged suddenly from the ashes of an earlier bill that would have authorized Tesla to sell in the state; that earlier bill, House Bill 2059 (introduced in January), went no where. It would seem the prospect of new jobs has won out over campaign contributions by industry groups.

But elsewhere, where there are no factories planned, Tesla – and someday other tech startups – will continue to face laws that could kill their business before it even gets off the ground.

Copyright © 2014 IDG Communications, Inc.

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