Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.
Today the International Center for Law & Economics sent an open letter to New Jersey Governor Chris Christie, urging reconsideration of the regulation and explaining why the rule is unjustified — except as rent-seeking protectionism by independent auto dealers.
The letter, which was principally written by University of Michigan law professor, Dan Crane, and based in large part on his blog posts here at Truth on the Market (see here and here), was signed by more than 70 economists and law professors.
As the letter notes:
The Motor Vehicle Commission’s regulation was aimed specifically at stopping one company, Tesla Motors, from directly distributing its electric cars. But the regulation would apply equally to any other innovative manufacturer trying to bring a new automobile to market, as well. There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce competition in New Jersey’s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.
The letter explains at length the economics of retail distribution and the misguided, anti-consumer logic of the regulation.
The letter concludes:
In sum, we have not heard a single argument for a direct distribution ban that makes any sense. To the contrary, these arguments simply bolster our belief that the regulations in question are motivated by economic protectionism that favors dealers at the expense of consumers and innovative technologies. It is discouraging to see this ban being used to block a company that is bringing dynamic and environmentally friendly products to market. We strongly encourage you to repeal it, by new legislation if necessary.
Among the letter’s signatories are some of the country’s most prominent legal scholars and economists from across the political spectrum.
Read the letter here:
Open Letter to New Jersey Governor Chris Christie on the Direct Automobile Distribution Ban
Reblogged this on Wettbewerbspolitik.
Are these economists and law professors going to come out against the government loans that Tesla received or the special tax breaks for buying Tesla’s cars. I can’t see taking a stand for free markets for a company that is the worst kind of crony socialist.
As Lynne Kiesling noted (http://knowledgeproblem.com/2014/03/18/rent-seeking-diary-state-dealer-franchise-laws-and-tesla/):
One other theme I’ve noted in the discussion of Tesla’s reaction to New Jersey cronyism is to criticize Tesla for the benefits it derives from government protection. Tesla’s business intersects with government programs in three areas: (1) taking a DOE-guaranteed loan of $465 million during the financial crisis, which has been paid back in full (and was smaller than the multi-billion-dollar loans to the Big Three); (2) the federal $7,500 income tax credit to individuals purchasing electric vehicles, from which all manufacturers of electric vehicles benefit and which is probably not decisive at the margin for Tesla’s high-income target customers; (3) revenue arising from the existence of a regulation-generated market for vehicle emission credits (ZEV) credits in California, in which Toyota and Nissan also sell ZEV credits to GM and Chrysler. I expect that being practical and not leaving money on the table is a sufficient motive to induce Tesla’s management to engage in those programs. But these benefits from government social engineering and regulation differ in kind from the kind of industry-protecting regulatory cronyism evident in New Jersey (and Texas, and other states forbidding direct-to-consumer car sales).
Of course it’s not good, but it is very different.
Good points. Mr. Munk has been a master manipulator of public opinion and the public purse. There many bad economic policies out there. It seems to me the point that these are bad policies should be done without aiding cronies or glorifying them.
Also, I don’t think any of us are taking a stand FOR Tesla. I, at least, am taking a stand AGAINST New Jersey’s idiotic regulation. If that happens to benefit Tesla – or, more accurately, if I happen to be able to take advantage of Tesla’s cultural prominence to find a bigger soapbox for my points – that’s great (for Tesla and for me). But this isn’t about Tesla per se.
It’s funny that GM was the first big automaker to make a stand against Tesla’s business model, while simultaneously showing the world how its dealership sentinels DID NOT protect the consumer: