The electric car manufacturer Tesla has been in the news for paying off a government loan 9 years early. That is fantastic news for folks (like myself) who appreciate the success of a company that makes very high end electric vehicles, thus proving that it can be done. But digging behind the scenes of the Tesla business model serves to uncover some very interesting details which may run counter to the traditional right/left take on free market economics.
The North Carolina legislature is trying to pass a law that would make it illegal for Tesla to sell their vehicles in that state. This law is not some sort of conservative backlash at the environmentally friendly Tesla for being a bunch of hippie tree huggers, or resentment at a government loan under the hated Obama administration turning out well. The law is in response to the business model of Tesla selling their cars directly to customers.
Tesla is a recent startup so they do not have a network of dealerships around the nation. They do have showrooms, but in most states the employees in those show rooms are not allowed to offer test drives or even discuss the price of their cars. If a prospective buyer wants to test drive after visiting a showroom in Texas the customer must fly out of state.
Essentially new car sales in most states are a protected racket legally set aside only for members in that states Automobile Dealer Association. The North Carolina Automobile Dealer Association is the driving force behind that states proposed law that would outlaw the sale of Tesla in the state of North Carolina directly from the manufacturer to the consumer. The law would even ban internet sales of Tesla’s to North Carolina residents.
How is that for conservative free market principles? The backers of the law are simply comical in justifying their side of the issue.
[The bills] sponsor is state Sen. Tom Apodaca, a Republican from Henderson, who has said the goal is to prevent unfair competition between manufacturers and dealers. What makes it “unfair competition” as opposed to plain-old “competition”—something Republicans are typically inclined to favor—is not entirely clear.
I suppose one way to prevent unfair competition is to prevent any competition whatsoever, but that is blatantly unfair to Tesla and any other manufacturers who want to access the market without joining the local dealer association IMHO. This reminds me of arguments from conservatives against unions. It is objectionable that one must join or are not allowed into the market. That is not just unfair, it is a direct attack on the very same free market forces that conservatives purport to defend.
Proponents of the law also, laughably, say they are only trying to protect consumer rights by forcing them to buy from dealerships. We all know that car dealers are renowned for their excellent customer service skills! Customers can hardly wait for the day they have to go car shopping at their local dealers.
Another thing car dealers are generally renowned for is being very generous to politicians, particularly Republicans. They generously support conservatives while fighting to keep customers from having access to competitors. Here are the top recipients of political contributions from car dealers and their interests in the 2011/2012 cycle:
Top Recipients, 2011-2012
|Romney, Mitt (R)
|Perry, Rick (R)
|Williams, Roger (R-TX)
|Dewhurst, David H (R-TX)
|Obama, Barack (D)
In a failed bid for the Republican nomination, Rick Perry received twice the amount of political contributions from auto dealers than did the eventual winner of the general election, President Barack Obama, during the entire cycle. Mitt Romney outpaced Obama by a factor of 10. The National Auto Dealers Association (the same folks fighting so hard to keep the free market not so free) contributed 2.8 million to federal candidates. 70% to Republicans, 30% to Democrats.
President Obama saved Detroit, while his opponent specifically opined that Detroit should go bankrupt and this is the thanks Obama gets from the dealers. One of the most successful programs in the history of this administration which directly benefited local dealers while the worst of the recent recession raged was the cash for clunkers program in 2009. Cash for clunkers was a success, bringing customers to dealerships when the entire economy was depressed and folks were not buying without rich incentives that the free market could not support at the time.
Republicans attacked cash for clunkers even as local dealers benefited from the program.
Senator Jim DeMint, Republican of South Carolina, said the “cash for clunkers” program was an example of the “stupidity coming out of Washington right now.”
On Friday a spokeswoman for Senator John McCain, Republican of Arizona, said Mr. McCain would lead a filibuster against the bill to give the program more money.
“Within a few weeks we will see that this process was abused by speculators and people who took advantage of what is basically a huge government subsidy of corporations that they already own,” Mr. McCain told Fox News last week.
After the Obama administration took big political risks to save Detroit and fed billions to local dealers during the depths of the recession, they thanked him by giving him a pittance in comparison to his opponent. While they support Republicans these dealers expressly support laws that take choices away from customers and make a mockery of the free market. They support politicians who would not lift a finger if they failed while with holding funding from those who directly helped them survive the worst economic downturn in 80 years.
I for one am pulling for Tesla in this fight.