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Veto bill to reduce LA penchant for overregulation

Louisiana’s penchant for overregulation strikes again, in this case concerning new car sales, that a governor’s veto can correct.

SB 107 by state Sen. Bodi White, ostensibly to facilitate delivering specialty law enforcement vehicles, went uncontroversially to Gov. John Bel Edwards. But in the process state Rep. Tanner Magee slipped in an amendment that clarified language regarding direct sales of new vehicles.

State law mandates that motor vehicle dealers obtain a license, and promulgates a long list of qualifications necessary, such as having a fixed location with adequate space, that it has a positive effect on the economic well-being of the state, and specifies what it sells. However, statute creates an exception to a violation of direct sales for “operating a dealership” without defining “dealership.” SB 107 changes the language to grant an exception only to “an existing, licensed, and franchised motor vehicle dealership.”

This unambiguously would ban consumer-direct sales, a model followed by Tesla for the distribution of its electric vehicles. Will Green, president of the Louisiana Automobile Dealers Association, alleges that the law as written already prohibits such sales, yet Tesla has sold directly to Louisianans for years without any hint of legal action against it. Nor has anyone lifted a finger to stop Elio Motors, planning to manufacture vehicles in Shreveport (although this production seems increasingly unlikely). This inaction reveals as meritless his argument that the bill would change nothing, for clearly if the group thought current law could stop sales it would have acted under it and not felt it necessary to lobby for the change.

Laughably, Green suggests prevention of direct sales is good for consumers, calling dealers 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.

Instead, as Green confirmed when he extolled the virtues of dealers required to build and operate infrastructure and employ people in a community, plus act as corporate citizens, 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. 

Incredibly, the National Automobile Dealers Association disputes that, claiming dealer competition lowers prices. But this has nothing to do with direct sales: dealers of some models can compete side by side with manufacturers of others, and if they really can offer lower prices for comparable vehicles then consumers will respond by favoring dealerships.

In fact, dealers know this will not happen. The extra costs forced upon them through regulation that they must pass on to consumers puts them at a competitive disadvantage. Having government protect them by disallowing direct sales only can stave off this threat to shrink the impact of their business model.

The dispute echoes the state’s past efforts that backed mortuaries in monopolizing casket sales, eventually overturned by the federal judiciary to allow direct sales of these. This amended bill shows policy-makers haven’t learned their lesson. Edwards typically favors bigger, more intrusive government. Let’s hope he puts that aside in the case of SB 107 and vetoes it.

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