Protectionism for Auto Dealers in Texas

Protectionism for Auto Dealers in Texas

The Texas government just allowed alcohol to be delivered directly to consumers, but won’t allow a car to be? Correct. Rather, they have been on an all-out assault on the free market when it comes to the car market. The victim, at the moment, is Tesla. The law currently requires all cars to be sold through a dealer, prohibiting any company from directly selling to consumers. Tesla, however, does not sell through a dealer, they sell directly to customers. The company has tried four times now to lobby the government to overturn the law. Which, again, has failed. To add insult to injury, the legislature was instead looking to pass legislation barring the company from servicing its own vehicles. While legislators denied it would prevent Tesla from servicing their own vehicles, they later succumbed to pressure from Tesla owners and added amended the language to “prevent misreadings”.

To begin, we can examine how anti-free market the dealership policy is and how Texas should be abolishing it. Or, at the very least, re-define what a ‘dealer’ is to allow Tesla to do business. At present, car manufacturers are prohibited from selling their own cars, so Ford, Toyota, Nissan, GM, and all other car manufacturers must have third party dealers sell their cars, they cannot operate their own dealerships. Proponents say that it prevents monopolies and increases competition. It is, however, fairly hard to promote competition when one system has a monopoly. This policy only protects existing companies and prevents entry of new products and business models. The Texas Automobile Dealers Association continues to ensure that they retain the utmost power by preventing Texas’ car dealer laws from looking more like California’s where Tesla is considered a dealership. This would allow Tesla and all car manufacturers to open their dealerships across the state and compete directly with each other and allow the market to decide their fate, rather than a government-mandated third-party mediating sale to ‘prevent monopolies’. In states with less regulation, competition is still alive and umbrella dealerships still exist.

The free market is supposed to foster innovation and create competition, but it cannot do that when there are insurmountable obstacles to new actors in the market. How are existing car companies supposed to compete or show they are better if they cannot even enter the market? As it stands Tesla is still a competitor despite being virtually barred from the Texas market. The free market is supposed to naturally move forward, government intervention, or central planning, prevents change. We would not have progressed far from the Model T if the government had imposed barriers barring new actors from entering the market. If the Republican Party is to take the side of the free market, then perhaps their strongest state should start practicing its principles.

We’ve seen this type of example before with computers. It used to be that manufacturers could not sell directly to consumers but had to go through an electronics store. Dell was the Tesla of its time; it sold computers directly to consumers making them customizable and cheaper. Now, Apple and other manufacturers follow that model, but, if one so chooses, Best Buy is still available for the shopping experience. The same would be true for cars today if the government-imposed barriers obstructing the free market were removed.

Written by: Brannon March, LSPI Intern