Tesla is prohibited by law from selling its cars directly to customers in Texas. Those who want one of the US manufacturer’s high-tech electric cars can buy one online, but cannot go to a Tesla store in the Lone Star State and buy one. (Note: This paragraph has been updated to correct an error.)
Tesla has been trying to get the Texas legislature to change the law for years without success. Now, lawmakers in Texas have once again told Tesla to go pound sand.
Democracy In The Lone Star State
In one of the most contentious legislative sessions in history, in which one Republican called immigration officials to arrest protesters he considered to be illegal aliens and offered to shoot a Democrat who disagreed with him, the lawmakers in Austin decided once again to count the cash shoveled their way by the Texas auto dealers association and vote accordingly.
California rules the roost when it comes to automobile sales in America. The Golden State is the largest new car market in the US, which is why manufacturers kowtow to the dictates of its powerful Air Resources Board when it comes to emissions and fuel economy standards. But Texas is #2. It is a hugely important market for any car company with pretensions of being a national brand.
No Model 3 For You!
Production of the Tesla Model 3 is set to begin in just a few weeks, but customers in Texas won’t be able to buy one and have it delivered to them within the state. This week, the solons in the state capitol voted down two bills that would have opened the door to direct sales for Tesla or any other company.
Direct sales are a bone of contention in several other states. The Tesla Model S and Model X are premium-priced products that are simply out of reach for most mainstream buyers. But the Model 3 is supposed to be the first Tesla priced to be affordable for most people. It will list for $35,000 (once fully optioned versions are available, some analysts think prices could climb to $60,000 or beyond, but Tesla has hold steady that the base price will be $35,000). Right now, Tesla is prohibited from selling its cars in Texas, Michigan, Connecticut, Alabama, Utah, Virginia, North Carolina, and Arizona. It faces restrictions in Missouri, West Virginia, Louisiana, and Indiana as well.
Tesla has filed suit in federal court alleging the law banning direct sales in Michigan is unconstitutional. If it can get a federal court to rule in its favor, that precedent could override state laws prohibiting the practice. That action is currently moving forward at the glacial pace common to all legal disputes.
Conservative Hypocrisy On Display
The hypocrisy of conservatives in all this is simply astonishing. They are the ones who stamp their feet and thump their chests about how the free market is supreme and government should not be in the business of picking winners and losers. The various dealer organizations opposing direct sales claim only a local franchise dealer can protect consumers from price gouging and deliver the service structure they will need after the sale.
But if Tesla customers feel the company’s prices are too high, they are free to shop elsewhere. If Tesla service disappoints, that is a private matter between Tesla and it customers. The truth is that a franchise dealer agreement is a license to print money. It creates a protected monopoly that enriches the franchisees.
It used to be that corruption in government consisted of envelopes stuffed with cash that magically appeared at opportune moments. Now, thanks to the insanity of the Citizens United decision, it is conducted right out in the open where everyone can see. Politicians count the cash right in public view and vote according to which side contributes the most. Thanks to their protected monopolies, franchise dealers have huge profits, which means they have plenty of cash to spread around. Even General Motors has added its considerable political muscle to the fight.
Tesla must have a pretty good idea if so many people are so bitterly opposed to it. Direct sales is pure free-market capitalism, but so is the legislative process in America. As things stand now, people living in about a third of US states are prohibited from doing business directly with Tesla or are subject to significant restrictions if they try to do so.
Where Is Trump?
The putative president is always shouting about removing government-imposed restrictions on manufacturers and creating more US jobs, but he has not said one word about how Tesla, which builds its cars and now its batteries in the US, is hobbled by precisely such restrictions.
Economically, the sales bans make no sense. Some other state gets to register those new Teslas and collect sales tax on them if a consumer wants to buy a car in person instead of online, costing the states with bans hundreds of millions of dollars in tax revenue. That goes to show what kind of dollars the dealers are ponying up to keep their protected monopolies intact.
If a state passed a law banning direct sales by Amazon or any other online marketer, the howls of protest would be long and loud. But because it is cars we are talking about and franchise dealers have been the norm for 100 years, somehow that’s different?
Tesla has two aces up its sleeve. Customer demand for the Model 3 could bring pressure to bear on local legislatures and lost sales tax revenue could help tip the balance in Tesla’s favor — eventually. The franchise dealers are like dinosaurs in the Mesozoic Age. They are dead. They just don’t know it yet.
Source: The Houston Chronicle