With gasoline prices well above $4 a 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. So it seems odd how many states are actively limiting consumers’ ability to directly purchase an electric vehicle (EV) — something that could help on both counts.
Surprisingly, it’s illegal in some states for consumers to buy an electric vehicle — or any car — directly from an automaker. Buyers have to go through a dealership, even when they don’t need the help of a middleman (not to mention the markup). States that categorically ban 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 various conditions of sale. Still others allow direct sales from electric vehicle leader Tesla, but not other newer automakers. And surprisingly, only 10 states allow consumers to buy vehicles the way they want.
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Why would lawmakers make it illegal for us to directly buy electric vehicles, or cars for that matter? Unfortunately, the answer comes down to pure power politics: local car dealerships don’t want competition, and they’ve convinced some state leaders to protect their businesses by law.
Imagine if your local florist didn’t like the competition from a grocery store and persuaded lawmakers to make it illegal for you to buy flowers elsewhere, forcing you to always buy from them. You would probably be outraged. Yet this is the kind of protectionism that car dealerships enjoy.
These bans were imposed decades ago when auto dealers and lawmakers worried that big automakers would bully “mom and pop” dealerships. But that logic no longer works in a country full of mega-dealers who hold a huge market share — thanks at least in part to the aforementioned legal protections against competition they enjoy.
The Biden administration has continued efforts to promote electric vehicles in hopes of “positioning America to advance the future of electric vehicles, outperform China, and tackle the climate crisis.” State efforts to block or limit direct sales of electric vehicles are clearly at odds with these goals.
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 considered the issue in 2015 when it commented on Michigan’s sales restrictions, calling them “special protection for dealers — protection that likely hurts both competition and consumers.” The FTC correctly concluded that “consumers are in the best position to decide for themselves both which vehicles they want to buy and how they want to buy them.”
However, federal regulators rarely use antitrust laws to fight state restrictions on competition. 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 goals. State lawmakers shouldn’t let local dealerships drive this debate.
Unfortunately, instead of allowing consumers to drive, many states are steering policy in the wrong direction by refusing to reform these restrictions or, even worse, by introducing 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 using the direct-selling business model.
Additionally, with fewer mechanical parts, electric vehicles may not require as much maintenance as traditional vehicles, meaning they could undermine service centers, which are a major profit driver for many local dealerships. .
Of course, many consumers still like to visit local parking lots to test drive options, and these service centers offer real value to many of them as well. But that doesn’t mean the traditional business model should be set in stone by force of law.
There aren’t many other products where such outright protectionism is still tolerated, with the exception of hard liquor sales. But even there, reforms are envisaged. It would be shocking if state lawmakers could liberalize direct alcohol sales before granting consumers the freedom to purchase a car directly.
Then again, maybe this all makes sense considering how drunk some of these local dealers are.
Adam Thierer is a senior fellow at the Mercatus Center at George Mason University and author of “Evasive Entrepreneurs and the Future of Governance”. ©2022 Tribune Content Agency, LLC.