Commentary: Why make direct car-buying illegal?

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With gas prices soaring to well above $4 per gallon, every day seems to bring new examples of federal and state lawmakers decrying the situation and, in many cases, pushing for more environmentally friendly transportation. It seems strange, then, how many states actively limit the ability of consumers to directly purchase an electric vehicle (EV) — something that could help on both counts.

Amazingly, it is illegal in some states for consumers to purchase an EV — or any car — directly from an auto manufacturer. Buyers must go through a dealership, even when they don’t need help from a middleman (not to mention the markup). States with outright bans on direct sales include Alabama, Arkansas, Iowa, Kansas, Nebraska, North Dakota, South Carolina, West Virginia and Wisconsin.

Other states severely restrict direct car purchases by imposing a variety of conditions of their sale. Still others allow direct sales from EV leader Tesla, but not from other, newer automakers. And shockingly, only 10 states permit consumers the freedom to purchase vehicles however they wish.

Why would lawmakers make it illegal for us to directly purchase electric vehicles, or any cars for that matter? Sadly, the answer comes down to pure power politics: Local car dealerships don’t want the competition, and they’ve convinced some state leaders to protect their businesses with the law.

Imagine if your local florist didn’t like competition from a grocery store and coaxed lawmakers to make it illegal for you shop for flowers anywhere else, forcing you to always buy from them. You’d likely be outraged. Yet that’s the sort of protectionism car dealerships enjoy.

These prohibitions were imposed decades ago when car dealerships and lawmakers feared large automakers would bully “mom-and-pop” dealers. But that logic no longer works in a nation full of mega-dealerships that have huge market share — thanks at least in part to the aforementioned legal protections from competition that they enjoy.

The Biden administration has been pursuing efforts to promote EVs in the hope of “positioning America to drive the electric vehicle future forward, outcompete China, and tackle the climate crisis.” State efforts to block or limit direct sales of EVs are clearly at odds with these goals.

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President Joe Biden could encourage the Federal Trade Commission (FTC) to investigate whether these state restrictions on direct car sales violate federal antitrust laws. The FTC already studied the issue in 2015 when it commented on Michigan’s sales restrictions, calling them “a special protection for dealers — a protection that is likely harming both competition and consumers.” The FTC rightly concluded that “consumers are the ones best situated to choose for themselves both the vehicles they want to buy and how they want to buy them.”

Federal regulators rarely use antitrust laws to combat state-imposed restraints on competition, however. Even so, states have good incentives to eliminate these laws themselves. It represents a rare, triple win that can help expand consumer choice, save people money, and advance environmental objectives. State lawmakers shouldn’t let local dealerships drive this debate.

Unfortunately, instead of permitting consumers to take the wheel, many states are steering policy in the wrong direction by either refusing to reform these restrictions or, worse yet, proposing new bills to limit competition. It’s clear that local dealerships don’t like new rivals such as Tesla, Rivian, Lucid, Lordstown Motors and other EV makers that use the direct sale business model.

Moreover, with fewer mechanical parts, EVs may not need as much service as traditional vehicles, meaning they could undercut service centers, which are a major profit engine for many local dealerships.

Of course, many consumers still enjoy going to local car lots to test drive options, and those service centers offer real value to many of them, too. But that does not mean the traditional business model should be locked in stone by force of law.

There aren’t many other products where such naked protectionism is still tolerated except for hard liquor sales. But even there, reforms are being considered. It would be shocking if state lawmakers were able to liberalize direct booze sales before granting consumers the freedom to buy a car directly.

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Then again, perhaps it all makes sense considering just how drunk on power some of these local dealerships have gotten.

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University and author of “Evasive Entrepreneurs and the Future of Governance.”

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