I’m not overly fond of the Tesla automobile. It’s publicly-supported rich man’s toy that hasn’t made huge technological strides but likes to pretend it has. And I’m dubious that it will ever be anything other than a curiosity. The last decade has seen big leaps in fuel efficiency in our automobile fleet. Part of this is because people are demanding and buying more efficient cars. A little bit of it is hybrids. And much more of it just good engineering:
When many people think of fuel economy, they think hybrids or electric cars. But that’s only part of the story. The chart above shows various efficiency technologies that have become more prevalent since 2008.
As it turns out, improvements to the existing combustion engine has been a huge source of innovation over the last five years. There’s gasoline direct injection, which is a more efficient technique for delivering fuel to the engine. Or there’s cylinder deactivation to save fuel. These get less attention than electric cars, but they’re key advances.
I was recently in Montana and my in-laws had an SUV that got as good mileage as my old Ford sedan. Direct injection, a continuously variable transmission, variable valve timing — all of these combined to make it a reasonable vehicle.
But despite my distaste for the Tesla, this is ridiculous. Tesla is being banned in many states from selling cars directly to the consumer.
This week, the Georgia Automobile Dealers Association filed a petition with the state’s Department of Revenue in an attempt to bar further sales of Tesla sedans. Such battles have erupted in numerous states, from Missouri to New Jersey. In the latest issue of Regulation, University of Michigan Law professor Daniel Crane argues that dealer distribution restrictions are based on faulty ideas of consumer protection. Traditional dealers claim that competition among a brand’s dealers prevents the manufacturer from “gouging” consumers and extracting monopoly profits. Crane argues that standard economic theory demonstrates that these claims are nonsense. Firms with market power will be able to claim monopoly profits, regardless of whether middlemen, such as dealerships, are involved.
Moreover, by restricting competition among business models for auto sales, laws such as those in Georgia stifle competition among automakers. When companies such as Tesla seek to lower costs through innovative business designs, they face costly regulatory hurdles and legal challenges such as the sales ban in Georgia. These laws protect existing dealers and hurt consumers.
This is about more than Tesla, which is filling a niche market at best. Indeed, that’s a big reason they want to sell direct instead of through dealers. What this is about is other companies, companies that have not been born yet but could potentially compete with the big automakers. Imagine if, instead of having a handful of huge automakers, you had a hundred Teslas out there, all upending the market in their own way. Won’t someone please think of the unions?
Similar laws protected wine distributors in various states until the Supreme Court struck it down for violating the interstate commerce powers of the federal government. Of course, several states — including my own — have refused to comply with the ruling in the nine years since that decision hoping they can rope in enough Congressmen to re-institute the shipping restrictions. In light of SCOTUS’s precedent, I can’t see that the auto dealer cartels can possibly be legal. But I don’t expect anything to be done.