Another Red State Protects Car Dealerships From Competition

In North Carolina, a senate committee has unanimously passed a law which would prevent Tesla, a manufacturer of high-end electric autos, from selling to any North Carolina resident. The bill still has to pass the full Senate and the House, but given that not one Senator on the committee voted against this protectionist nonsense, I’m not optimistic that this bill will be stopped.

The proposal cuts at the heart of Tesla’s business model: selling luxury cars over the phone or Internet and then delivering them to the front door of high-net-worth customers.[…]

It’s not Tesla per se, that worries the dealers. It’s the precedent. The prospect threatens the livelihood of North Carolina’s 7,000 licensed dealers, who invest millions in building big lots and showrooms to efficiently move product, say supporters of the bill.

But if they were really that efficient, then they wouldn’t have to be afraid of a new business model coming along.

Will Aremus at Slate points out that the sponsor of this law, GOP Senator Tom Apodaca, has taken $8000 (the legal maximum) from the car dealers association, and I suspect has taken thousands more from individual dealers and their friends and relatives.

Robert Glaser, president of the dealers association, told the News & Observer that the law prohibiting Tesla sales isn’t just about his industry’s self-interest. Pointing to the Tesla representatives at a recent hearing, he said, “You tell me they’re gonna support the little leagues and the YMCA?”

If that’s the real issue, then I may have some good news for all concerned: I asked O’Connell, and he assured me Tesla would be happy to support the little leagues and the YMCA, if that’s what North Carolina requires in order to do business there. Problem solved! Right, Mr. Glaser?

If this law passes, North Carolina will be the first state to actually forbid its citizens from buying a Tesla, but not the first to pass an anti-Tesla law. In GOP-controlled Texas, employees of Tesla showrooms are legally forbidden from selling a car, offering a test drive, or even telling interested consumers how much one costs.

Is all this just because the GOP hates electric cars, not to mention fancy new colors that crayons didn’t come in when I was a kid, dagnammit? No, not entirely. Although it’s more hypocritical when the GOP does it (because they pretend to care so much about the free market), both parties engage in this anti-competitive nonsense, especially at a local level.

Some points about this:

1) It’s not just about high-end cars for rich people. New business models sometimes start by targeting wealthy consumers, for obvious reasons, but if they’re successful they can eventually become something benefiting small businesses and ordinary consumers. But not if existing businesses can bribe the legislature to outlaw competition and innovation.

2) Localism is nonsense. Local governments are, if anything, more liable to being bribed and captured by business interests than the national government is. (Ever wonder why it costs $40-$60 to hire a taxi or shuttle to get you home from the airport? Thank your local government.)

3) GOP legislators, although they talk a good game, aren’t actually that interested in protecting the free market or competition. (Neither are Democratic party legislators, to be fair.)

4) When I think of all the car dealerships in Portland – hundreds of them – and how many people they employ, I do understand the fear of a business model that cuts dealerships out. It is always easier to imagine what we now have, which could be lost, then to imagine what new thing will replace them. But this really does seem like an area where its best to let the marketplace sort itself out. I’m sure that it was painful for typewriter manufacturers and repair technicians when computers came along, but passing laws against innovation is not the solution.

5) I expect that a conservative may be tempted to respond “Democrats won’t let us buy whatever car we want either, just look at all the green regulations Democrats favor, naaah nah.” But it’s not the same. There is a legitimate theory of governance under which the market is limited by a democratically elected government in order to address concerns like protecting the environment, which happens to be the theory that most Democrats openly advocate, and tell voters they favor.

In contrast, there is no legitimate theory of government in which the government should outlaw innovative business models because local car dealerships have paid off legislators – nor is that a system that legislators ever openly advocate. It is only by lying to voters about how they intend to govern, that legislators can act this way.

(And again, this isn’t a GOP-only problem. Legislators of both parties supported this anti-market bill in North Carolina, and similar bills elsewhere.)

6) As the Slate article notes, this is far from the most ridiculous stance the North Carolina legislature has taken. Last year, they banned the use of science to predict how fast coastlines will rise. Unsurprisingly, the sponsor of this legislation – which I think it’s reasonable to describe as not only anti-science and anti-good-government, but at a very basic level anti-thought itself – is a climate change denier.

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34 Responses to Another Red State Protects Car Dealerships From Competition

  1. 1
    Jake Squid says:

    You’ve repeatedly spelled “Tesla” as “Telsa”.

    This comment will self destruct after you’ve made your corrections. And by self destruct I mean that you will delete it.

  2. 2
    Kai Jones says:

    I object to Elon Tesla because he dumped his first wife for a trophy wife.

  3. 3
    Ampersand says:

    Thanks for the correction, Jake!

  4. 4
    Myca says:

    I object to Elon Tesla because he’s actually named Elon Musk.

  5. 5
    nobody.really says:

    Robert Glaser, president of the dealers association, told the News & Observer that the law prohibiting Tesla sales isn’t just about his industry’s self-interest. Pointing to the Tesla representatives at a recent hearing, he said, “You tell me they’re gonna support the little leagues and the YMCA?”

    I recall similar arguments against the new Wal Mart coming to town.

  6. 6
    Charles S says:

    There is certainly a legitimate theory of governance in which democratically elected governments set business practice in accordance with local cultural preference. Governments set allowable hours of business for many businesses (bars being the obvious example in the US, but my understanding is that basically every retail establishment has regulated business hours in Germany). They set what products can and can’t be sold. They require businesses that have lottery machines or lottery cards to make a certain portion of their income from non-lottery sources (so that we don’t get simple gambling establishments, but instead get bars and restaurants and convenience stores with lottery stuff). Etc. I don’t think “innovative business models” necessarily get a free pass from being regulated.

    If North Carolina thinks car dealerships are the backbone of social and cultural life, and uses extortionate and discriminatory pricing of cars as the alternative to adeq

  7. 7
    Charles S says:

    adequate taxation for community services, that’s horrible, but it is also something it should have the right to protect.

  8. 8
    Elusis says:

    Planet Money had an episode recently that addressed part of this “dealer protectionism” issue. It’s really kind of gross.

  9. 9
    Ampersand says:

    Charles, if there really is a popular consensus for protectionist policies to preserve car dealerships from competition… well, I’d find that weird, but I certainly agree that people have a right to govern themselves as they want (within the limits of human rights and so on).

    But I wonder if there really is a popular consensus, or if it’s just a matter of backroom dealings that most people wouldn’t approve of, but aren’t paying attention to. Of course, you know NC a million times better than I do.

  10. 10
    sc says:

    is there actually any serious worry by auto dealers that they will be replaced by direct employees of the automakers if this doesn’t happen?

  11. 11
    Robert says:

    I imagine the consensus ends at the dealer lot property line. I’d be furious.

  12. 12
    RonF says:

    Sounds bogus to me. I guess North Carolina is starting to adopt the same policies towards businesses that Illinois (a deep blue state) employs. Here it wasn’t cars, it was booze. One of the 3 or 4 major alcohol distributors in the State got a bill pushed through that basically forced Illinois liquor stores to buy all their liquor from in-state distributors. I forget the bullshit reason why, but it took about a decade to get that one killed off (just last year, I think). And, yeah, Bill Wirtz (who also owned the Chicago Blackhawks) was wealthy and was not shy about spreading it around the General Assembly.

  13. 13
    RonF says:

    And no – the fact that Democrats have done it doesn’t excuse the GOP anymore than Nixon abusing the powers of the IRS excuses the Obama Administration from doing so (if they did, we’ll see). It’s not party, it’s power and pay for play. Heck, it may be a Red state but you yourself point out that it passed the Senate committee unanimously, and I presume that there’s a proportionate number of Democrats on it.

  14. 14
    sc says:

    i’m inclined to believe bogosity as well. stated reasons aside, i see two possible real reasons:

    1: simple, priggish resistance of the Tesla, and trying to kill it off entirely.

    2: dealers want a piece of the Tesla action and this is how they get it.

    i’m much more inclined to 2 than 1.

  15. 15
    Sebastian says:

    Sc, why not go for the obvious? We all hate dealing with car dealerships, and many people are already purchasing everything they can from the Internet. The car dealerships are afraid that they will be taken out of the loop, that they will lose their sale commissions, their usury business, and their overpriced service contracts. It’s not Tesla they fear, it’s manufacturers selling directly to the consumer. To the people who know which make and model they want, a car dealership offers only one service: a test drive. And speaking for myself, of the three cars I’ve bought, the test drive did not change my decision one way or another. I do not think that any decent car is going to disappoint you enough during a test drive to make you not want to buy it. Not if you have done your research on-line, and read the reviews and the owner forums.

  16. 16
    Jake Squid says:

    Two of the last three cars I purchased were done the equivalent of online. I used the (free) buying service provided by my insurance company and they found the best deal within a reasonable distance. All I needed to do was go to the dealership to pay for and pick up the car. I’m sure that if I’d asked – and how could I not have thought of that? – they would have brought them to my door.

  17. 17
    RonF says:

    I’ve got a long torso and I find a test drive absolutely necessary in order to determine whether a) I can get in and out of the car easily and b) if my head is going to whack the roof interior when I go over a bump. The last 2 times I went car shopping I eliminated 4 of the 6 cars I had decided to look at just by climbing into them. And that’s not something you can get from online information. Nor can I get “How easy is it to reach the oil filter and air filter?”

    Having said that, legislation should not be crafted to preserve a business model.
    Or, in another way of looking at it, an inefficient and outdated market.

  18. 18
    Sebastian says:

    I’m tall as well (although it’s my legs that account for most) and I find that the car magazines make a good job at letting me know in which cars I won’t fit. As for the oil and air filters, I think that an enthusiast forum or your mechanic is a better place than a dealership.

    That said, I realized that I had no idea where the air filter is on my wife car (I know where it is on mines, thank you very much) “air filter on audi a4 2009” let me know in 30 seconds or less. On an enthusiast forum.

  19. 19
    Ruchama says:

    I’m 4’10”, and there are a lot of cars where, in order to get the seat far enough forward for me to reach the pedals, I end up with the steering wheel just a few inches from my torso, which is both dangerous and uncomfortable. So I definitely need to test drive cars.

    The only car I’ve ever bought, though, was a Scion, and I’d been driving one from Zipcar for a while, so I knew that it was comfortable for me to drive. The dealer didn’t really do too much, though — we went in, and I said, “I want a Scion xD, in either red or blue,” and my mother said, “I like the red better,” and I rolled my eyes and said, “OK, I want a Scion xD in red.” Then the guy got on the computer and found one at another dealership about 20 miles away, and clicked whatever he needed to click to get it delivered to that dealership. Then he told me how much it would cost (Scions have fixed prices — no haggling), and gave me a few options for how many years I’d take to pay it off, and then had me pick from a bunch of options for things like hubcaps and other add-ons. (Including what seemed like the dumbest idea ever — I could pay an extra $400 or so to get colored lights installed by the drivers’ and passengers’ feet, and there would be a button on the dashboard to make the lights change color.) All of this stuff, with picking the different options, I had already done on their website — this was just doing the same thing over again on the dealership computer. I definitely preferred that to all the arguing over price and features that I’ve seen my parents do when they bought cars.

  20. 20
    Sebastian says:

    Ruchama, this is how car buying should be. This is exactly what the dealerships are afraid of, in my opinion. But the fixed price is something that very few places offer (I thought the only ones to do so were the defunct Saturn dealerships)

    By the way, I know people who had their pedals modified for faster shifting. Are you sure that it is not worth it for you to have your pedals modified, as opposed to moving the seat forward, and possibly reducing the efficiency of the air bag?

  21. 21
    Rob F says:

    This is how anyone who complains about regulation (either too much or too little) with promises to engage in deregulation (or reregulation) is essentially spewing hot air. The focus should be on whether a regulation is good (for example, by promoting competition or enhancing public safety), not on whether there are too many or too few. We should regulate intelligently.

    An example of a good regulation is adequate emergency exits in buildings).

    What many bad regulations are are blatant examples of rent seeking, where a business or other economic actor manipulates the environment to favour itself at the expense of others. The requirement that people get their car at a showroom or dealership rather than having it delivered is rent seeking, as it merely protects existing businesses from competition. Likewise, the requirement in Wisconsin (not sure if it became law) that all beer deliveries happen via a distributor (rather than having someone carry a case next door) is rent seeking because it increases the expenses of microbreweries but not bg beer businesses. Basically, these regulations are easy for big, established businesses to meet, but not for newer ones. It therefore increases the expenses or operating competitors, and therefore discourages competition. This is why big established businesses love regulations like these; it increases their profits by reducing competition.

  22. 22
    Phlinn says:

    I am a libertarian, not a republican. I obviously disagree with the law. However, I don’t think it was pure back room dealing. There seems to a consensus among politicians and the general public that protectionism in general is good for the local economy. There is a consensus among economists that no, it really isn’t, but they can never convince the public of that fact, and this law seems to be merely a specific example of protectionism. I really don’t think they would have to do anything except point to out of state companies pocketing the profit instead of their local dealer to get most people to vote for it. The dismissal of possible republican complaints as being pro-back room negotiation is unfair IMO.

    Edit: “is always easier to imagine what we now have, which could be lost, then to imagine what new thing will replace them” sounds a lot like something from “That which is seen, and that which is unseen.” If you haven’t read it, I recommend it.

  23. 23
    William Berry says:

    Aren’t laws like this clear instances of illegal restraint of trade/ state regulation of interstate commerce? How could such a law survive a constitutional challenge?

  24. 24
    Sondra says:

    Isn’t it ironic that their beloved biblical version of Noah coincides with the actual science? Yet they still do not believe. You would think they would at least build an ark..

  25. 26
    Jake Squid says:

    NC has outlawed using science displaying evidence of climate change for coastline protection planning.

    It’s an extreme tangent but I’m not sure it lives up to non-sequitur status.

  26. 27
    Robert says:

    No, they haven’t. (At least if I’m right about what you’re referencing.)

  27. 28
    Charles S says:

    NC house bill 819

    These rates shall be determined using statistically significant, peer‑reviewed historical data generated using generally accepted scientific and statistical techniques. Historic rates of sea‑level rise may be extrapolated to estimate future rates of rise but shall not include scenarios of accelerated rates of sea‑level rise unless such rates are from statistically significant, peer‑reviewed data and are consistent with historic trends.

    Does the state of North Carolina consider model output to be data, and what does the state mean by consistent? If the state considers model output to be data, and doesn’t mean consistent in a very narrow sense, then this law really doesn’t do anything. There are plenty of peer-reviewed studies of sea-level rise that correctly predict historical sea-level rise and predict accelerated rates of sea-level rise in the next century. Those are consistent with historical trends. However, predictions of global warming and the response to global warming require global climate models, so the question hings on what the state thinks is data.

  28. 29
    Robert says:

    In the context, I don’t think model output is data; data is measured actual historical rate of change.

    What it basically says is, no using projections that show acceleration in future years, until an accelerating trend is actually demonstrated.

    In some circumstances, this would probably be a wrong call. In other circumstances, it seems prudent. The subject in question is the development rules for coastal lands, with a time horizon of about a century. The state doesn’t want to permit development on land that’s due to be flooded. It also doesn’t want to bar development land that isn’t.

    What has to be looked at (well, among other things) is what the consequences are of getting it wrong. In the case where the state allows hypothetical future-only models (i.e., those not correlated to current observed trends), the possible error is that the rise doesn’t accelerate, but of course we won’t know that for decades. So 50 years from now, people who could have safely developed their land, won’t have, and will have been forced to forego huge opportunities.

    In the case where the state does not allow the hypotheticals, the possible error is that a more linear extrapolation of rises permits development on land that is going to flood in the future. So 50 years from now, people who thought their LARP-Furry-Thai restaurant beachside resort would be safe, find out that it’s not going to be. That is also bad, though (in my view) not as bad as the first scenario.

    The biggest difference in the scenarios, though, is the remediability and the timeframe of the remediability of each. In the case where they allow unsupported hypothetical curves, it will be decades before those curves don’t pan out. We spend 50 years not developing the land, then another 10 years saying “hey wasn’t it supposed to flood all to shit by now?”, then another 10 years fighting it out in the legislature to change the permitting.

    In the case of disallowing them, however, it won’t be decades before the evidence is in; it will be quite fast. The accelerating trend, will accelerate, and this empirical validation of the hypothesis will itself be the qualification that the hypothesis needed.

    In any event, the decision is not between science on one hand and astrology on the other; the decision was between one type of model-prioritizing science on one hand, and another type of historical data-prioritizing science on the other. The reporting on this has been appallingly biased in its presentation; Scientific American did an absolutely dreadful piece attempting to make the case that saying “use the historical data” was the equivalent of dowsing for unicorn farts. There’s a legitimate policy argument to be made for either approach, which will vary depending on the exact policy and the exact context, but both are scientific.

  29. 30
    Charles S says:

    No, sorry, you are wrong on basically every point there.

    Linear extrapolation of the last century of sea level rise is not a scientifically defensible prediction of sea level rise for the next century. If we had no understanding of the processes at work, linear extrapolation would be an excusable technique (it is better than assuming a steady state), but we do understand the processes at work. Refusing to use that understanding is not a valid scientific approach to the problem.

    You are also wrong in your comparison of losses. If regulation follows the scientific consensus, and that consensus is wrong, then some people lost out on making a profit, and further development of some of the coast is delayed for a generation, and a lot of development is done that will be more robust than necessary. If the scientific consensus if right, and the regulation ignores the scientific consensus, then huge amounts of private and public investment will be imperiled, and huge amounts of further investment (much of it by the state) will be required to protect that investment and to ameliorate its loss. Additionally, infrastructure will not be sufficiently robust, and sea level rise will do enormous amounts of damage to coastal North Carolina.

    One of these harms is relatively reparable, one is not. You can do further development later if unicorn farts dispel sea level rise, you can’t quickly move sewage treatment plants and billions in development to higher ground when the water level rises.

    Loss to sea level rise doesn’t come in the form of slowly creeping water levels. It comes in the form of hurricanes that do more damage than they would have at a lower water level. Sewage treatment systems that were built to survive 10 feet of flood waters, but fail under 11 feet of flood waters, houses that were built to survive 8 feet of flooding, but are washed away by 9 feet of flooding.

    The group that lobbied the legislature to add this amendment were developers who will greatly benefit from not preparing for sea level rise, and who will have already reaped their profits and have little risk when sea level rise actually arrives (plus, most of us and of them will be dead when several feet of sea level rise actually arrives, but the houses they built and the sewage systems built to support those houses will still be around). It was not a dispute among scientists, it was a dispute between scientists and developers who didn’t like the science. It was a dispute between private profit and preventing public loss, and private profit won, and public loss will come later.

  30. 31
    Charles S says:

    I should say I am much more confident you are wrong on the science, less confident on the damage comparison (further from my area of knowledge).I do think that even if the nominal monetary damages from not building places that might be safe were greater than the nominal monetary damages from building places that might not be safe that the human damage from building would be much worse than the human damage from not building. Conservative planning rules spread the cost over a long time and a lot of people (i.e. everybody makes a bit less money). Insufficiently conservative planning rules spread the cost over a shorter time and fewer people, so some people get hit much harder (i.e. some people drown in sewage laced storm water) with insufficiently conservative planning.

  31. 32
    Robert says:

    Your analysis of the politics may be correct, but the language of the statute has changed somewhat in the six months or so since I last looked at it; the proposed wording back then was basically, no models ever. The new language is, no models without good fit to historical data. If we understand the processes as well as you seem to believe we do, there should be no difficulty in qualifying a model for use.

    Your analysis of the harms is off-base because you seem to be working on the assumption that we get one shot at this, today, in May 2013, and will be locked in for decades. But in fact the process in NC is one of constant revisions and recalculations of the forward-looking estimates. If there is a real and accelerating trend on sea level, it will be evident, and the projections will change. The only scenario where the process will be impervious to new data is the scenario you prefer, where model output is, or at least can be, favored over measurement.

    One of these harms is relatively reparable, one is not. You can do further development later if unicorn farts dispel sea level rise, you can’t quickly move sewage treatment plants and billions in development to higher ground when the water level rises.

    Relocation of communities is expensive, but we know how to do it. Time travel is probably likely to be expensive, and we don’t know how to do it. The harm you dismiss as relatively reparable, is in fact not reparable at all; there is no way to revise the actions of the past, or even to meaningfully calculate what the harms were. The harms you dismiss would be past, and largely invisible, and hard to calculate decades later; that does not make them nonexistent, it makes them imperceptible. There is a difference.

    My 95-year old grandmother, who is very bright, did not get to go to college. Partially cultural, but mostly economic; her parents had 6 kids and they sent the oldest boy to college because they could afford to send one kid and, well, he was the boy. (Thus cultural.) But if they’d had the money, she would have gone – they wanted to send her. Say the reason that they couldn’t send her was that they’d intended to build and sell a hotel on the Gulf Coast – but ended up not being able to do it, because a flood prediction said the land they’d already bought years ago was undevelopable.

    50 years later, my grandma is 63, and they announce that land was developable after all. She still owns it – so she sells it and can go to college. Harm repaired, right?

    In addition, the potential harms of allowing development which later floods out – which I do acknowledge as being a real harm – are harms likely to accrue to people who voluntarily assumed risk. People who move into land 8 feet above sea level may be fooled by the wicked developer lobby, but they are unlikely to be unaware of the concept of global warming, or ignorant of the existence of predictions of much higher sea level in future decades than the state is copping to – especially after years of debate and coverage on this specific subject in their state. This doesn’t eliminate the harm, or wipe out the state’s self-assumed burden of wiping every tear if it tries to remediate all the harm, but it’s at least a mitigating factor.

  32. 33
    Robert says:


    I am not expressing an opinion on the science.

    You seem to have the identities and quantities of the harms reversed in your minimization algorithm. If development is forbidden but would have been OK, the outcome is not that everyone makes a little bit less money; the outcome is that a few people (those who own land which cannot be developed) take a huge deadweight loss, and nobody else takes a hit at all. If development is allowed but shouldn’t have been, then there are two extremes on a spectrum: one, in libertarian world, the people who actually inhabit or buy the doomed properties get financially screwed, or two, in liberal statist world, the people of North Carolina each lose a little bit as the state taxes them and makes good the specific harm to the buyers.

    (The scenario where millions drown in poop water I dismiss as being unrealistic, on the grounds that such apocalyptic outcomes are rarely without foreshadowing, and people change their behavior. We talk about the 1000 people dead at Pompeii, and ignore the 100,000 from the general area who all evacuated.)

    So the cost outcome you prefer does not jibe with the policy input you prefer; if you want conservative planning where the worst-case scenario spreads the costs around, you should favor aggressive development plus taxpayer/sucker insurance.

  33. 34
    tlfk says:

    Working on legislative advocacy in NC this past session has been quite time consuming, taking me away from my favorite blogs;). And I when I do visit them these days, it seems like I am always hit w/another “what the hell is up with NC?” post. I had not even heard about this one, although with almost 1800 bills introduced since January, it’s been hard to keep up. So thanks, Amp, for bringing this one to my attention. I’ll be sure to pass it around.

    Some commentors above talked about how this might fly w/constituents due to the idea of “buying local”. And I will say that is a strong push here. I appreciate that, and try to buy that way when I can, but…I certainly don’t think there is anything inherently wrong with chains/big box stores. The idea behind business is finding the needs of consumers and meeting them, and there certainly is a need for low priced goods, and a need for big companies that employee more people than the small family business. When you have those big companies, however, using unethical practices – including throwing their weight around to make the playing field tilt their way and treating their workers poorly – then you get into the issues we have with those companies. But that doesn’t make small, local businesses inherently more ethical. If it is a small family business who treats the few employees it has like slave labor, I’m not interested in supporting that either. An established local fast food chain here likely does not still need to have its employees standing on the corner under the hot sun holding a sign, or dressed like a food stuff when it’s a billion degrees out. Everyone knows where its shops are, they’ve been there forever. But I wonder about what it’s like for the employees there every time I see that; and I don’t go there, despite their being local (to be fair, I don’t typically go to fast food joints anyway, but it is a Raleigh institution, I might stop by for some fries if I were so inclined).