Mike Sykuta and I, both proud Missourians, recently took to the opinion section of the Kansas City Star to discuss pending state legislation that would bar automobile manufacturers from operating their own retail outlets in the Show Me state. The immediate target of the bill is Tesla, but the bigger concern of the auto dealers, who drafted the statutory language we criticize, is that the big carmakers will bypass independent dealers and start running their own retail outlets.
The arguments in our op-ed will be familiar to TOTM readers. We begin with three fundamental points: (1) Distribution is an “input” for carmakers. (2) Producers, if left to their own devices, will choose the more efficient option when deciding whether to “buy” the distribution input (i.e., to sell through independent dealers, who pay a discounted wholesale price) or “make” it (i.e., to operate their own retail outlets and charge the higher retail price). (3) Consumers — who ultimately pay all input costs, including the cost of distribution — will benefit if the most efficient option is selected. In short, the interests of carmakers and consumers are aligned here: both benefit from implementation of the most efficient distribution scheme.
We then rebut the arguments that a direct distribution ban is needed to break up monopoly power, to assure adequate aftermarket servicing of vehicles, or to encourage appropriate safety recalls. (On these points, we draw heavily from International Center for Law & Economics’ letter to Gov. Chris Christie regarding New Jersey’s proposed anti-Tesla legislation.)
Go read the whole thing.