1hundredsixty8

Yesterday, Michigan Governor Rick Snyder signed “bipartisan legislation that clarifies and strengthens an existing law about direct auto sales...” The intent of the law is to prevent Tesla Motors from selling its electrically-powered automobiles directly to consumers, by-passing auto dealerships in the process. Tesla has encountered such opposition before in other states, among them Arizona, Texas, Maryland, Virginia, and New Jersey. It is a testimonial to the power of the auto dealers lobby that it can dictate government policies.

The loser is, of course, the consumer, who faces the extra costs that the dealerships add to the purchase price of a car. “Economic Effects of State Bans on Direct Manufacturer Sales to Car Buyers”, a study by Gerald R. Bodisch, an economist with the Antitrust Division of the Department of Justice, cites a 2000 analysis from Goldman Sachs which concluded that the dealership model of auto retailing was responsible for an additional $2,225 of the average vehicle price of $26,000.

For their part, the dealers argue that they provide the customer with multiple benefits: Price competition, after-sales support, continuing service if a manufacturer vacates a market. As local businesses, they claim to contribute to the local economy with jobs and taxes (conveniently ignoring the fact that factory-direct retailing operations would also have employees, showrooms, repair facilities, and so on.)

Some observers such as Charles Lane in the Washington Post have pointed out that “Tesla’s success would have been impossible without a big assist from government: a $465 million, low-interest Energy Department loan (since repaid); substantial tax credits for purchasers; tens of millions of dollars’ worth of air-pollution credits awarded by California regulators to Tesla and sold to competitors who, under state law, had to buy them.” This point of view ignores the government’s bailout of General Motors and Chrysler after the financial meltdown of 2008.

Here’s an idea that should especially appeal to those wont to complain about government interference in the market: Let the various states quit protecting the auto dealers and give the free market the opportunity to decide which model of auto selling it prefers. If the dealers are adding value as they claim they are, they should be able to prove it without the government holding off their competitors.

They wouldn’t be afraid of a little competition, would they?