It’s illegal to buy a car direct from the factory or over the internet. You have to go through a local dealer. The electric car company Tesla is trying to change that. But state and local governments are resisting. That, arguably, goes against the free market and against the trends of the new technology. But do we really want online commerce to kill off small businesses that are the backbone of many small town economies?
Neil Irwin, an economics columnist for the Washington Post believes the small local businesses of selling cars should go the way of mom ‘n’ pop bookstores and hardware stores, which have been rendered obsolete by the internet, WalMart, and other big centralized businesses:
You can buy almost anything on the Internet: uranium ore, wolf urine, a levitating hover scooter. But you can’t buy a car straight from the factory. Go to the Web site of Ford or Honda or any other major automaker, and they will send you to your local dealer to conduct anything resembling an actual transaction.
It isn’t an accident. Rather, it is the result of hard-fought efforts by auto dealers to maintain, through state laws, their exclusive role as the place where one can buy a new automobile. Direct sale of autos by manufacturers is against the law in nearly every state, and there’s a range of related state laws governing auto dealers’ ability to enter or exit a market. In other words, the model that Dell developed for selling personal computers — enter your exact specifications online, and the computer will be built to order and delivered to your door — is illegal in most states for automobiles. . . .
Enter Tesla. The maker of innovative electric cars is hoping to be equally innovative in how it sells them. It wants something that closely resembles the Dell model to apply to its popular “Model S” sedan. The company is pushing the Texas legislature to change its own law to make it legal to sell Teslas there directly.
But North Carolina isn’t having it: Last week, a state Senate committee unanimously approved a bill to make the direct sale of autos in the state illegal. . . .
[Auto dealers] present themselves as wholesome, heart-of-the-community types. Here’s the message from John Zwiacher, chairman of the Texas Auto Dealers Association, on the group’s Web site: “In addition to providing essential transportation, Texas dealers employ over 75,000 employees with an annual payroll of $4.0 billion and are a $3.0 billion dollar annual revenue source for our state budget.Texas dealers serve as community volunteers and leaders in every capacity and are essential to the daily lives of every Texan.”The North Carolina dealers’ association has said much the same: “You tell me they’re gonna support the little leagues and the YMCA?” Robert Glaser, president of the North Carolina Automotive Dealers Association, said in reference to Tesla’s strategy, according to the News and Observer.
Those are the kinds of arguments that give the lie to what’s really going on here. Regulations to keep auto dealers from being squeezed out by the automakers are a way of ensuring that a chunk of the automobile supply chain stays in the places where cars are purchased — in the form of salaries for the dealers’ employees, profits for the dealers and financial support for local politicians and various local charities.
It’s understandable that those rationales would appeal to politicians, but they are deeply contrary to the idea of free markets. After all, a generation ago, each city had numerous locally owned department stores that occupied prime downtown real estate, paid their employees decent wages, gave generously to local charities, politicians and chambers of commerce, and were generally good corporate citizens. One by one, they went bankrupt or got bought out. Now there are only a few national department store chains, and much of the share of retail sales that once went to local department stores now goes to big-box chains like Target or online retailers like Amazon.
Essentially, the auto dealers are using their political connections and their legacy of benefiting from regulation to fight the tide of the past several decades, which has been toward leaner, nationally run retail.
When buying something as expensive as a car, consumers will probably still prefer to be able to take a test drive and kick an actual tire. Perhaps local independent dealers would give way to factory stores run by the big auto companies. You could sample the models, then place your order, with the options you want, via computer, picking up the car when it’s ready.
But do small businesses deserve any kind of protection? Will the free market undo itself, as Marxists claim it will, serving to concentrate businesses in the hands of a few big corporations, which then eliminate their competitors? Are economic considerations regarding the absolute allegiance to the free market and convenience for consumers the only factor state lawmakers should consider, rather than the health and economic viability of local communities?