As many of you have heard, Tesla was recently told that they have until the end of the month to sell their electric cars direct to consumers in New Jersey:
Gov. Chris Christie said today that the state Legislature — and not him — should bear the blame for a new rule that effectively bans Tesla, the high-end manufacturer of electric automobiles, from selling their cars directly to customers in New Jersey.
. . . .
“I’m not pushing Tesla out; the state Legislature did,” Christie said. “They passed a law — which is still on the books — which says if you want to sell cars in this state, you must go through an authorized dealer. My job is not to make the laws, it’s to enforce the laws. And Tesla was operating outside the law.”
Christie is right — and this is nothing new or uncommon. The NPR show Planet Money recently re-ran an episode of theirs from last year on state laws that create and maintain monopolies for car dealerships. Every state in the union has passed laws that 1) mandate that cars be sold through auto dealers; 2) ban auto manufacurers from setting up competing dealerships in the same territory; and 3) ban manufacturers from closing dealerships unless the dealership has engaged in fraud or some similar activity amounting to “cause.”
I have decided to provide a little detail in this post, even though it is legalese, so you can see it with your own eyes. Here is the Massachusetts law protecting the territories of existing car dealerships:
Section 6. (a) Except as provided in subsection (b) of this section, it shall be a violation of subsection (a) of section 3 for a manufacturer, distributor or franchisor representative without good cause, in bad faith or in an arbitrary or unconscionable manner to:
(1) grant or enter into a franchise agreement with a person who would be permitted under or required by the franchise agreement to conduct its dealership operations from a site any boundary of which is situated within the relevant market area of an existing motor vehicle dealer representing the same line make, regardless of whether said franchise agreement delineates a specific area of responsibility or provides that the area of responsibility of said existing motor vehicle dealer is to be shared or operated in common with others; or
In English, this means, stay out of the existing car dealerships’ territory. More:
(2) permit the relocation of an existing motor vehicle dealer representing the same line make as another existing motor vehicle dealer to a site any boundary of which is within the relevant market area of an existing motor vehicle dealer which is not relocating, regardless of whether the franchise agreement of either motor vehicle dealer delineates a specific area of responsibility or provides that the area of responsibility of either motor vehicle dealer is to be shared or operated in common with others; but a dealer of the same line make shall not be permitted to file a protest if the site of the proposed relocation is farther away from said protesting dealer than the existing location.
In English: no relocating existing dealers. Remember what we said about their territory. It’s theirs.
And here is the Massachusetts law requiring renewals of dealerships on the same general terms, and prohibiting termination without “good cause”:
Section 5. (a) It shall be a violation of subsection (a) of section 3 for a manufacturer, distributor or franchisor representative without good cause, in bad faith or in an arbitrary or unconscionable manner: (1) to terminate the franchise agreement of a motor vehicle dealer; (2) to fail or refuse to extend or renew the franchise agreement of a motor vehicle dealer upon its expiration; (3) to offer a renewal, replacement or succeeding franchise agreement containing terms and conditions the effect of which is to substantially change the sales and service obligations, capital requirements or facilities requirements of a motor vehicle dealer; or (4) to amend, add or delete any other material term or condition set forth in a motor vehicle dealer’s franchise agreement.
In English, this means: the dealership gets to stay. No matter what. (“Good cause” does not mean “we think we could make more money with someone else.”)
Every state has similar laws. It’s government-created and government-maintained monopoly..
The Tesla ban is just a specific application of the general state of law across the country.
This ridiculous state of affairs survives for the reason most ridiculous laws survive: money. Dealerships have lots of it; gobs and gobs of it. This is why dealerships are passed down through the generations like royalty. They employ huge numbers of people, contribute giant amounts of sales tax, and give heavily to politicians (unless you cross them). They have money, and they have power.
This is called “rent-seeking”: achieving wealth through lobbying rather than creating value for consumers. And car dealerships are just one example of silly laws that are passed due to rent-seeking.
What’s more, this is just one specific application of rent-seeking. There are many, many, many other ridiculous examples in our society. To keep these blog posts relatively bite-sized, I plan to tackle them one at a time.
Planet Money has several other shows about rent-seeking, and I plan to highlight at least a couple more in future posts. One thing I like about Planet Money is that, although it’s an NPR show, it is quietly subversive, because they consistently show how government intervention in the economy distorts the market. They don’t go as far as I would, but they still help the lefties who are their core audience see how good intentions (and often not-so-good intentions motivated by money) create government interventions that hurt real people.