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New law may nail shut Elio Motors' coffin

If Republican state Rep. Thomas Carmody didn’t plan on nailing shut Elio Motors’ coffin, he could have fooled Caddo Parish.

Democrat Gov. John Bel Edwards recently signed SB 107 by GOP state Sen. Bodi White that unambiguously would prohibit bulk sales of motor vehicles in Louisiana without a dealer’s license. State law promulgates a long list of qualifications necessary, such as one has a fixed location with adequate space, that the dealership has a positive effect on the economic well-being of the state, and specifies what it sells. However, statute created an exception to a violation of direct sales for “operating a dealership” without defining “dealership.” SB 107 changed the language to grant an exception only to “an existing, licensed, and franchised motor vehicle dealership.”

The Louisiana Automobile Dealers Association stumped for the amendment to the bill to facilitate these changes, trying to fight the tide of deregulation in car sales that continues to spread. The extra costs forced upon them through regulation that they must pass on to consumers puts them at a competitive disadvantage to the direct sales model that more and more states have legalized. Having government protect them by disallowing such sales only can stave off this threat to shrink the impact of their business model.

As states have started rolling back these regulations, dealers have defended maintenance of these by calling themselves aggregators of consumer preferences that can lobby on the whole’s behalf. This argument resonates from over a half-century ago, when the very few and large manufacturers that could sell in America used their power to coerce dealers that provided the genesis for state licensing laws in this area of business.

But the world has changed considerably since then, with more domestic manufacturers plus the influx of foreign makers increasing supply and choice while decreasing anti-competitive pressures. Presence of the Internet further has opened up channels for consumers, making archaic the need for any such licensing laws.

The argument in response, that describes virtues of dealers as needed to build and operate infrastructure and to employ people in a community, plus act as corporate citizens, confirms that this kind of regulation has devolved into crony capitalism. Rather than help the consumer, it costs them: a 2009 U.S. Department of Justice report estimated direct sales would save the consumer 8.6 percent of the cost of a new car.

Pushing costs higher will continue now because of Edwards’ unwise decision. But, had the legislative environment behaved differently, the instrument signed by the governor might have had Carmody’s name on it. His HB 167 contained the language amended into SB 107 but, having made it to the brink of the Senate floor, withered when the phrasing went into the other bill.

While state dealers mainly aimed the change against Tesla Motors, which only employs the direct sales approach, Elio got caught up in it as well. The latter, which four years ago to great fanfare announced it would build three-wheeled cars at Shreveport’s old General Motors Plant, also has that as an aspect of its business model,.

Since then, all has gone downhill for Elio, which now teeters on bankruptcy. Unfortunately, Caddo Parish spent $7.5 million through a subsidiary agency on a lease-purchase deal concerning the facility, whose present owner leased part of the space to Elio.

The new law obviously only affects Louisiana, but with its location in the state its residents might have disproportionately bought its product. Now with no legal way to sell nearby, the curtains on Elio might draw permanently closed.

If that dissolution doesn’t cause the lessee to walk away from the deal – which does not seem likely as Elio doesn’t pay its bills already -- that actually could work out best for Caddo taxpayers. With Elio gone, marketing the remaining space might get easier, bringing revenues that can insure with greater fidelity future lease payments.

So, while this action in essence punishes a local producer, it could make things turn out for better overall. At least for area taxpayers, this change may compensate for the anti-competitive aspects of the new law.

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