By Nick Sibilla, New York Times Op Ed
When President Trump announced plans to withdraw the United States from the Paris climate accord, Gov. Dannel Malloy of Connecticut responded that his state would continue its push to reduce its carbon footprint. “Connecticut has been a national leader in combating climate change,” he declared. “We have no plans of slowing down our efforts.”
Yet Connecticut is a surprising laggard when it comes to one obvious way to cut carbon emissions: Consumers are not allowed to buy electric vehicles without a costly middleman. Connecticut is one of at least six states that bans carmakers — including Tesla, the nation’s largest manufacturer of electric vehicles — from opening their own storefronts and selling their cars directly to consumers.
With cities and states moving to the forefront of the climate battle as the federal government steps back, even small regulatory changes, like allowing carmakers to sell electric vehicles directly to the public, could have an outsize impact.
Although Tesla can already sell directly to consumers in neighboring New York and Massachusetts, Connecticut is an especially alluring market. Long known for its clusters of wealth (it was the top-ranked state last year in per capita income), Connecticut has pledged to put around 155,000 “zero-emission” vehicles (including electric cars and hybrids) on the road by 2025. To reach that goal, Connecticut offers rebates of up to $3,000 for anyone who purchases or leases a green car, and hosts about 300 charging stations.
Connecticut and Tesla should be a perfect fit. But lawmakers failed to act on a bill in this year’s regular legislative session (for the third straight year) that would have legalized direct sales by Tesla, whose business model is rooted in selling directly to consumers.
The culprit? Heavy lobbying by the state’s car dealerships.
Thanks to Connecticut’s decades-old franchise laws, new cars can be sold only through licensed franchises independent of carmakers. Even though only about 5,500 zero-emission cars have sold in Connecticut since 2011, Tesla’s effort to cut out the middlemen would undermine the lucrative stranglehold that car dealerships have on the new car market.
The Connecticut General Assembly’s failure to act follows a rough year of defeats for Tesla. In Texas this spring, the car dealers lobby killed a similar measure in the legislature for the third year in a row. In April, the Utah Supreme Court unanimously upheld the state’s Tesla ban, handing a win to the Utah Auto Dealers Association, which filed an amicus brief in the case. And last month, Louisiana’s governor signed a new law that entirely bars direct sales by carmakers. Michigan and West Virginia have similar laws.
This flurry of lobbying by car dealerships is a prime example of so-called bottleneckers in action. As used in the title of a new book by the Institute for Justice, where I work, a bottlenecker is “a person who advocates for the creation or perpetuation of government regulation” in order to accrue “an economic advantage without providing a benefit to consumers.” Often, bottleneckers urge lawmakers to create new regulatory bottlenecks (as in Louisiana) or to preserve existing ones (as in Connecticut and Texas).
Since manipulating public policy to increase profits is hard to defend publicly, bottleneckers rely on other arguments.
For instance, the Connecticut Automotive Retailers Association, which represents 270 car dealerships and led the charge to kill the Tesla bill, claimed that allowing direct sales would mean “10 percent of employees at dealerships could lose their jobs.”
But after reviewing employment figures for car dealerships in Massachusetts, New Jersey and New York, the Acadia Center, a nonprofit focused on creating a clean energy economy, concluded that “there has been no negative impact on auto dealer job levels or trends” in neighboring states that allow direct sales of electric vehicles.
Using a different argument, the National Automobile Dealers Association claimed franchise laws “keep prices competitive and low.” However, a 2009 paper by an economist at the Justice Department’s Antitrust Division instead concluded that “car customers would benefit from elimination of state bans on auto manufacturers’ making direct sales to consumers.” The paper pointed to a study by a Goldman Sachs analyst in 2000 that found that direct manufacturer sales could lower costs by 8.6 percent, with most of the savings resulting from more efficient matching between consumer demand and supply, and a subsequent reduction in inventory.
No wonder the Federal Trade Commission has criticized franchise laws as a “special protection” for these dealers — “a protection that is likely harming both competition and consumers.”
The battle between Tesla and car dealers is echoed in other industries. The hotel industry has started a “multipronged, national campaign” to counter the short-term rental company Airbnb, which now has a valuation on par with Marriott International. And, facing stiff competition from Uber and Lyft, taxi associations are suing to block their ride-hailing rivals.
The failure to legalize direct sales by Tesla is a testament to how archaic laws stifle entrepreneurship and limit consumer choice. If America wants to combat climate change, it needs to take on bottleneckers and change its climate for innovation.