A House committee later today will take up the fight for sales between Tesla and the auto dealers of Texas, a legislative battle over “free markets” that has the potential to ultimately create widespread social change in the state.
First, understand that this is not a fight over whether a car or truck can be sold over the Internet. That already happens through dealerships across the state. Go online, look at the dealer’s inventory and make a purchase.
Second, know this bill is not really about bringing free markets to Texas retail sales of new autos by busting the monopoly of licensed franchise dealers. House Bill 1653 would exempt manufacturers such as Tesla from having to sell through a state licensed franchise dealership, but the manufacturer would be limited to having a dozen or fewer sales locations in the state. Limiting the number of manufacturer dealerships just gives Tesla a competitive advantage over the giant motor companies of Detroit while trying to be unthreatening to the majority of Texas dealerships. Such a carve-out for Tesla is not exactly about bringing consumer choice to Texas, even if Tesla In Texas tries to claim otherwise.
SB 639 by Kelly Hancock and HB 1653 by Eddie Rodriguez, Charles “Doc” Anderson, Jodie Laubenberg, Tan Parker, and Ron Simmons will promote consumer choice, competition and innovation by limiting big-government mandates that deny Texans the ability to purchase certain new vehicles directly from the manufacturer.
This bill rightly makes the distinction between protecting consumers and defending the wishes of an incumbent protected class. It does not negatively impact dealers and takes great care to protect the relationships between existing manufacturers and their franchisees.
If the Tesla carve-out is so limited, why is the Texas Automobile Dealers Association, TADA, fighting the legislation? It’s not like the soccer moms are going to suddenly abandon their minivan and local dealer to buy a luxury electric car that has a starting price almost $49,000 more than the median family income in Texas. However, if you are well to do, the appeal of the Tesla S is hard to deny.
A few high-end auto dealers may dislike the new competition. That competition would be there, though, if Tesla founder Elon Musk just paid for and set up a dozen franchise dealerships in Texas. The TADA is fighting because the auto dealers see the Tesla bill as one that could disrupt the entire market in the future. If Tesla breaks the monopoly franchise system now, other manufactures may want to in the future.
And that could have the biggest impact on the Texas economy, the funding of charities and politicians, and the survival of local newspapers since a certain big box store with its system of economy of scale moved into the state’s small towns forty years ago, wiping out the mom and pop pharmacies, groceries and general stores.
Auto dealer franchise laws across the nation grew during the 1930s and 1940s to protect local dealerships from the economic power of the auto manufacturers. An inevitable consequence was the creation of franchise monopolies across Texas, especially in rural areas. At the same, manufacturers came to accept the dealers as part of an efficient distribution system. In the course of this, if you owned a dealer franchise, it was almost a license to print money.
(Manufactures can add franchises, creating a more competitive market, especially in urban areas. For instance, in Dallas County, there are 154 licensed auto franchise holders; 275 in Harris County. There also are 109 counties with two or fewer franchised auto dealers. The franchises only apply to new vehicles.)
The franchises also created a system of civic involvement. According to the TADA, about 80 percent of the franchises in Texas are owned by families. Anectdotal searches of the Internet turn up numerous chambers of commerce where local auto dealers are on the board of directors, and such searches also will turn up many examples of auto dealers serving among local communities’ largest civic donors. Ally Bank, which finances new car sales, reported last year that charitable donations by auto dealers nationwide grew from the previous year.
Charitable giving is not the only kind of money auto dealers spend. Individual auto dealers – from Houston to Mount Pleasant, Dallas to Laredo, Amarillo to San Antonio — put more than $600,000 into Texas campaigns last year, including almost $300,000 to Governor Greg Abbott. Auto dealers also become politicians. U.S. Representative Roger Williams made a fortune in a Weatherford auto dealership that his father founded in 1939. Representative Patricia Harless is the CEO of an auto dealer in Houston, and state Senator Don Huffines is the grandson of a famous Dallas auto dealer. El Paso Mayor Oscar Leeser is an auto dealer.
The local economic impact can be seen in the sudden decline of Texas auto dealer franchises after the 2008 national economic bust. Some of it may have been due to the fact General Motors cancelled 1,1000 U.S. dealer franchises as a part of its 2009 bankruptcy. Others closed simply because, in the trough to the recession, people ceased buying cars. The number of franchises in Texas declined from 3,100 in 2007 to a low of 2,762 in 2011, according to the Texas Motor Vehicle Division.
One major example of the 2009 economic impact was the closing of the Lawrence Marshall dealership in Hempstead, a major volume dealership. As a direct result, 200 employees lost their jobs. Hempstead’s mayor said city income fell by about 10 percent and the city would have to reconsider sewer upgrades and parks beautification. A nearby major metropolitan newspaper several weeks later reduced its newsroom workforce by 100 people. For a lot of small town newspapers, radio and television stations, ads from the local auto dealership keeps them in business.
The power of the widespread network of auto dealers was easily seen in 1985, as the state tried to eliminate the Sunday closing laws. Because the auto dealerships were family owned and wanted a guaranteed day off, the TADA blocked passage of repeal of the so-called blue law until a carve-out was created for auto dealers. That’s why you can spend Sunday’s prowling a lot without buying a new car.
While this all may seem like I’m anti-Tesla, I’m not. Times are changing and economic models are being disrupted. Just look at the ridesharing debate over Uber and Lyft and the recent decision on telemedicine. At present, the Mojo Motors website reports that the nation is evenly divided on Tesla sales, with 25 states that ban direct sales and 25 that allow it. Ohio recent passed a law to allow Tesla direct sales, but it has not yet been signed into law. Michigan last year passed a law to make Tesla sales in Motor City more difficult. Just keep in mind that this legislation has potential for major social change in Texas.
Whether the Legislature carves out an exception for Tesal or not, this debate is no more about free markets than was the Candy Bin Bill that I once covered.
Once upon a time, bulk sales of beans and grains and candy were found just in health food stores for hippies, not the upscale groceries of today. Only two companies delivered food to the consumer in bulk. One used gravity shoots that dropped product directly into the consumer’s paper bag. The other used bins and scoops for the consumer to measure out how much product they wanted.
The gravity dealer pushed legislation that banned bins and scoops as health code violations. Imagine, their lobbyists said, a plumber coming from auguring out a toilet drain and sticking his unwashed hands into the bin to scoop up food. Ugh! Gross!
The bin dealer countered by claiming the gravity shoots should be outlawed because they were anti-consumer – get too much product and you have to buy it anyway because there is no way to return the excess to the bin. Let the consumer have freedom of choice!
In the end, a compromise piece of legislation passed giving the health department the power to regulate bulk food sales, no matter how it is delivered. Think of the auto dealers as the gravity shoot dealers and Tesla as the bin and scoop. They both want to be regulated, just to their own advantage.