Governments have regulatory regimes in place for a number of areas of commerce, some more and less important. Recently, some of the more self-serving and corrupt arrangements have been brought more into the public consciousness, primarily due to the efforts of start ups to upend the systems that are currently in place. Uber works city by city against taxi and limousine lobbies, which have immense control in major cities like NY. Why is a Medallion licence worth over $1M? But that is not the point of this post.
Tesla is another example of a company that is challenging the traditional status quo. While they make electric vehicles and have been on a tear recently in the markets, Tesla also has set up a retail model with direct sales to consumers. They argue that without dealers, they are able to more effectively advocate for the concept of the electric vehicle, and it has certainly helped with their publicity. So what’s the problem?
NJ just banned Telsa’s model, mostly at the behest of the New Jersey Coalition of Automotive Retailers, a lobbying organization for car dealerships. They will need to convert their stores to “galleries”, or shutter them completely. All of the arguments I’ve read so far from NJCAR pushing the legislation to ban Tesla’s approach lack strength, and mostly rely on the safety and recall implications of having separate dealers, competition (but its with each other on margin over dealer cost…), and the economic benefits to smaller towns of having dealerships placed there (that wouldn’t be if the legislation and requirements did not exist).
Frankly, having car dealers all over the place is a very poor use of scarce economic goods. What efficiency is gained by having so many resources devoted to selling cars, and inherently non-value adding activity? It’s work and economic activity that sure, generates tax dollars and provides jobs, but its akin to tax preparation – it’s an activity that does not really need to be done. We would all be better off if folks were focused on more productive efforts.
It is sad to see an entrenched business group lobby to protect their economic moat and be so easily successful. The system of dealerships is a hidden cost that anyone that buys a car bears, and is protected by law. If Tesla’s model really added less value, it would not be successful, and would fail of its own accord. The market does not get to decide here.