By: John Kerr
It was not entirely surprising that Nevada last week ponied up $1.3 billion in tax breaks to win the business of Tesla Motors. TSLA -1.83% State officials for decades have struggled to diversify an economy based on gambling and tourism, and the prestige of attracting the high-end electric-car company's massive new lithium battery factory was too great to resist.
But who could have guessed that the Silver State's auto dealers would help usher Tesla into the state?
As Nevada lawmakers celebrated luring billionaire Telsa CEO Elon Musk's factory to the Reno area, critics and supporters of the deal debated the long-term benefits of businesses playing states against each other to secure tax breaks in return for promises of job creation and development. It is also worth noting, though, how the compact exposes the hypocrisy of state laws that ban consumers from buying a new car from anybody but a licensed dealer.
Until last week, it was illegal for a Nevada resident to purchase a Tesla directly from the manufacturer.
All across the country, including in Nevada, Tesla has clashed with dealership groups that vehemently oppose the company's efforts to cut out the middleman and sell its cars straight to buyers. Dealers argue that Tesla's sales model runs afoul of state "franchising" laws banning direct automaker-to-buyer transactions. These statutes go back decades and intricately dictate the relationship between auto manufacturers and sellers while effectively protecting the investments of new-car dealers, an influential political constituency thanks in large part to their high sales-tax collections.
Yet in addition to rubber-stamping the agreement that waived Tesla's property, sales and business taxes for a decade or more—while throwing in discount power rates—the Nevada legislature also approved a bill last week that would exempt the auto maker from franchising regulations outlawing the company's retail approach. The state's auto dealers, who only weeks ago threatened to sue over the matter, shifted gears and endorsed the legislation.
"My car dealers want to assist in any way they can," John Sande of the Nevada Franchise Auto Dealers Association told the Reno Gazette Journal. "Nevada law does not allow Tesla to come in and sell directly to the consumer, so we are going to have to come in and change it so they can sell directly to the consumer."
No doubt the dealers balanced the pros and cons of agitating for their own self-interest against overwhelming political support for the deal and the spending potential of thousands of new, well-paid workers who may prefer a Ford or Chevy pickup over a $70,000 Tesla Model S. But the fact that Nevada legislators so quickly jettisoned a key provision of the state's dealership-franchise provisions speaks volumes about how essential these statutes really are to the well-being of their constituents.
There is no rational reason Tesla—or any other automobile manufacturer—should be restricted from selling new cars directly to those who seek to buy them. Arguments that franchise arrangements benefit consumers ignore not only the higher costs inherent in regulations that limit choice, but the benefits of a vibrant and responsive market in which new-car buyers are free to avail themselves of multiple purchasing options.
Franchisees in many other sectors of the economy, particularly the restaurant industry, prosper while creating jobs and generating state and local tax revenues—all absent the regulatory protection enjoyed by auto dealers. Relaxing laws shielding new-car lots would provide room for entrepreneurs to experiment and innovate while leaving existing interests free to do the same.
Tesla's habit of panhandling for taxpayer support—it also gains millions yearly through a politically imposed system of emission credits in California—makes it a lousy poster child for free markets and regulatory restraint. And Nevada's revised statute should be broader rather than just singling out the electric-car manufacturer for special treatment. But the state's decision to alter its franchise laws represents a modest step forward.
Resource:
Tesla Breaks the Auto Dealer Cartel
Tesla Breaks the Auto Dealer Cartel
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