Bacon's Rebellion

Democracy Thrives in Sunlight

Best State for Business? Tell It to Tesla!

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by

James A. Bacon
in , , ,

Tesla's L.A. showroom.
Tesla’s L.A. showroom.

Tesla Motors, manufacturer of the premier-priced Tesla electric car, has opened a gallery at Tysons Corner. Too bad would-be buyers can’t actually purchase a car there. It turns out that Virginia law prohibits car manufacturers from operating their own dealerships. Writes the Washington Post: “The California-based company is using the Tysons Corner location as a showroom where employees are forbidden from discussing purchases.”

The state law is designed to “encourage competition and protect consumers,” says the Post. In actual practice, as Tesla amply testifies, the law protects automobile dealers from competition by manufacturers.

Tesla has petitioned for an exemption. What do you think its odds of success are in the state that often touts itself as “the best state for business?” Let’s check the Virginia Public Access Project and see which industry has more clout in Virginia: automobile dealers or automobile manufacturers.

Here are the numbers for total donations, 2009 through 2013:

Auto dealers — $3,401,230
Auto manufacturers — $152,027

A 22-to-1 ratio in favor of the auto dealers. End of story. If you want to buy a Tesla, you’ll have to purchase it online. Hmmm. I wonder who gets the sales receipts — Virginia or California?

Update: Jeff Schapiro at the Times-Dispatch writes about Tesla’s lobbying effort in Richmond to get an exemption to the auto dealers franchise law. His kicker: “Don’t expect dealers to give up easily. They’ll defend complex laws that cushion their bottom line. It’s a bottom line, dealers worry, threatened by their rare defeat this winter in the General Assembly: McDonnell’s $6 billion tax increase for transportation that relies, in part, on higher levies on car sales. Car dealers have no intention of losing — again.”

— JAB

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22 responses to “Best State for Business? Tell It to Tesla!”

  1. Peter Galuszka Avatar
    Peter Galuszka

    Actually, if a Virginia resident buys a Tesla he or she pays the tax when he goes to Va. DMV to get plates and registration.

  2. DJRippert Avatar
    DJRippert

    The Imperial Clown Show in Richmond has been bought and paid for by special interests. In related news, allegations are swirling that special interests have been taking Bob McDonnell’s wife on all expense paid shopping trips. Since Mrs. McDonnell isn’t an elected official this conveniently side-steps any requirement for reporting.

    The biggest corporate contributor ro Virginia politicians is a company with a state sanctioned monopoly for the sale of electricity. Absent free market competition, the presumed protection for Virginia electricity consumers is a series of laws passed by the state legislature along with regulations put forth by the State Corporation Commission. Unfortunately, the legislators are beholden to the company they are paid to regulate and the SCC is elected by the very legislators who receive the oceans of campaign contributions from Dominion. Just to keep the whole sordid process buttoned up the SCC is exempt from Virginia’s FOIA laws.

    Virginia is utterly and totally corrupt.

    1. Neil Haner Avatar
      Neil Haner

      Let me edit your first sentence just a little bit.

      Those who hold power and/or make laws have been bought and paid for by special interests all across the world and throughout the history of human civilization.

      I find my indignation tempers a little when I remind myself that it’s just how humans have always behaved… that many people with the ambition to rise to positions of power are likely to have the ego to put personal interests (not saying bribes or even favors, but ‘having the campaign money to get myself reelected and keep my prestige and title’ counts as a personal interest) ahead of the public interest.

      That being said, Virginia’s “rules” on personal gifts and campaign finance are kind of a joke. Not New Delhi bad, but definitely behind-the-times as far as this country goes.

      A gold star to any gubenatorial candidate that’s willing to make reform of this subject (donations and gifts, not necessarily auto dealer monopolies) a campaign issue. Though I’m not holding my breath.

      1. DJRippert Avatar
        DJRippert

        Among American states Virginia gets very poor grades for potential corruption and corruption. In particular, the legislature is over-powered and under-accountable.

        1. Virginia is the only state that does not allow the governor to run for a second, consecutive term. This dilutes a critical check on the legislature.

        2. Virginia is only one of two states that allow the legislature, including practicing attorneys, to elect the members of the judiciary. The judges who preside over trials are elected by the legislator – lawyers who try the cases. Take my advice if you get into trouble in Virginia – find a lawyer at a law firm that has a General Assembly member as one of the partners.

        3. Virginia is one of two states that hold off-year elections. These off-year elections keep voter turnout low and allow hyper-partisan groups to dominate the election.

        4. Per Ballotopia, Virginia has the least competitive legislative elections in the United States.

        5. Unlike many states, Virginia allows unlimited campaign contributions.

        6. Virginia has one of the most draconian implementations of Dillon’s Rule in the USA. This badly dilutes the ability for local authorities to provide a check on the nearly unbridled power of the state legislature.

        7. Virginia has no ethics commission.

        8. Virginia has the fifth worst gerrymandering in the US.

        Neil – Virginia is an extreme outlier. While there may be more corruption elsewhere in the world, Virginia ranks at or very near the top of the list in the United States.

  3. TMT Avatar
    TMT

    If one looks at the history of government regulation of franchises, there is a trend that attempts to protect franchisees against “unfair” treatment by franchisors. One of the protections has been to prevent a dealer from also operating as franchisee, which, in turn, opens the risk of favoritism or unfair discrimination against the independent business operator. Recall all of the consternation that arose when GM cut back on franchises and shut down franchisees.

    So do we want to protect franchisees or not? Or is it different with electric cars? I don’t see how we can have a fair set of rules when we regulate some auto manufacturers, but not others.

    1. DJRippert Avatar
      DJRippert

      Why is it the province of the state to regulate franchisees? The franchisor / franchisee relationship should be a matter of private contracting between the two entities. If franchisees want protection from the franchisor then the franchisee should obtain those protection in the franchise agreement.

      If Tesla wants to use a direct sales business model what possible justification does Virginia have to deny that?

      As for the consternation about GM cutting back on franchisees – they did it anyway. The real consternation was that Obama would use public dollars to fund the continuance of unionized jobs while allowing the subsidized company to kill non-unionized jobs by cutting back franchises.

      1. TMT Avatar
        TMT

        Both the federal government and the states regulate franchise relationships. See http://www.franchiselawsource.com/overview_franchise_regulation.html
        A contrarian point of view. http://www.bostonglobe.com/opinion/2013/05/25/the-fight-for-direct-car-sales/7LRkSsXFHB31gXHebmSfOL/story.html

        1. DJRippert Avatar
          DJRippert

          Agree that they do regulate car sales. They demand that cars be sold through franchisees. But why? The Boston Globe and Jim Bacon are right – because the car dealers have lots of lobbyists and lots of money to throw at politicians.

          As this fight heats up the dealers will spend more and more to win. In states like Virginia they can spend all they want. Does that sound right?

          The Globe article says the mandatory use of franchisees costs the consumer 6 – 9%.

          So, every $30,000 car purchased costs you between $1,800 and $2,700 more than it would if you purchased directly.

          And why does it cost you several thousand dollars more?

          Because car dealer lobbyists push money into the hands of America’s politicians in order to preserve a low-to-no value added middleman.

          TMT – given that – should Virginia join dozens of other states by implementing campaign contribution limits? Doesn’t the acceptance of unlimited campaign contributions escalate the power of the special interests? And what about “gifts”? Car dealers monopolize car sales because the state grants them a monopoly. Should industries receiving monopolies from the legislature be able to give legislators gifts?

          Virginia is an outlier in the excessive amount of power special interests are allowed to wield.

          You could give yourself a gift of between $1,800 and $2,700 every time you buy a new car by insisting that our elected officials stop lining their pockets with graft money.

          1. TMT Avatar
            TMT

            A couple of points. First, society tends to believe franchisees get screwed more often than franchisors. Hence, the many laws regulating franchises. Second, this is not universally true. Third, repeal of the franchise laws would likely hurt more franchisees because franchisors tend to have more economic power.

            With this preface, I don’t have a problem repealing the law that prohibits manufacturers from operating dealerships. I do have a problem repealing it for Tesla and not for others. Isn’t that one more special deal? We need one set of rules that apply to everyone. What’s sauce for Tesla is sauce for Ford.

            On campaign contributions, I support a federal constitutional amendment that would limit campaign contributions at all levels to live human beings. No corporations; no unions; no nonprofits; no bundling. But absent this limit, I have a problem saying some entities can give, but not others. I have trouble with saying some people can bundle, but not others. Absent this rule, I have a problem saying Dominion or the Auto Dealers cannot give or bundle.

            Gifts. Put a cash limit and apply it to everyone in government. Apply it to every giver.

            It makes little sense to me to try to fix special deals by creating more special deals.

  4. larryg Avatar
    larryg

    so what’s killing innovation and incubation with Telsa is state laws that prevent direct factory selling?

    I have to say that DJ has made a prima facie case against Virginia’s politics and business paradigms….

    so I wonder what else you can’t buy direct from the factory these days….

    These are things that I would expect Conservatives even Tea Party people to lead the charge on… but it’s almost like they are ineffectual in their efforts, basically preferring to demonize their favorite “lefty” boogeymen rather than really work for true reform.

    1. TMT Avatar
      TMT

      If you repealed the law and allowed manufacturers to sell directly, you’d still need independent dealers, as there are many markets where cars are sold, but manufacturers would not serve. I don’t see any problem with this. But soon, we’d see claims that manufacturers were favoring their sales operations over those of independents dealers. So how do we handle this?

      1. DJRippert Avatar
        DJRippert

        Oh c’mon! Manufacturers and franchisees co-exist in industry after industry. In hotels, Marriott owns about 30% of its hotels and franchisees own about 70%. No need for government intervention there. In high technology, companies like IBM sell directly to customers and through certified resellers called VARs (Value Added Resellers). No need for government intervention there.

        The state mandates that cars be bought through car dealerships because care dealers stuff money into the pockets of the politicians in the state.

        Why should I be prohibited from buy my cars directly from the manufacturer? I could care less if other people want to use dealers. That’s fine. If the dealers can justify their premium to some customers – good for them. But I should be able to buy my next F-150 directly from Ford.

        The mandate to buy vehicles through dealers is crony capitalism at its absolute worst.

  5. larryg Avatar
    larryg

    re: ” So, every $30,000 car purchased costs you between $1,800 and $2,700 more than it would if you purchased directly.”

    The interesting thing – and I am not justifying it or advocating it – is that the $2000 does not disappear into a black hole never to reappear.

    It actually does provide jobs.

    one could argue that they are not legitimate jobs… perhaps but the $2000 spent on something else would not provide any more jobs – just different ones.

    then I could tie this back to local food which I agree with DJ – is limited in variety and more expensive than food from other “out of state” – “farmers”.

    1. James A. Bacon Avatar
      James A. Bacon

      Think of locally grown food as a luxury good. The main customers are wealthy people who can afford it. The transaction is entirely voluntary. Nobody is forcing people to eat locally grown food (not yet, anyway).

      Think of the extra $1,800-$2,000 you’re paying to buy your car as an exaction, an involuntary transfer of wealth from car buyers to automobile dealers.

      Both may create local jobs. Big deal. You can argue that the guy who holds you up at gunpoint and takes your wallet is “creating a job,” insofar as he makes a living at it. I don’t care. Neither the mugger nor the auto dealer engages in a voluntary transaction with me. The main difference is that one form of theft has been deemed “legal” by the authorities and the other form of theft has been deemed “illegal.”

      1. larryg Avatar
        larryg

        you can view cable TV, electricity, water/sewer, Verizon in the same way when the Cable company makes you buy their selections not yours so they can charge you more… same deal with Verizon… same deal with a bunch of other things.

        You could make the same argument with a Dentist being the only one who can drill your cavity or a pharmacy being the only one who can fill your prescription!

        I’m not trying to confuse the issue here – just pointing out that there are a LOT of ways that a LOT of businesses can get more dollars out of you for things you don’t necessarily want or need but they are “included”.

        So you have a car dealer who employs a few more people because he can sell cars, but not the manufacturer.

        But then again you have a few more Comcast/Cox employees as a direct result of you paying for more in a “bundle” than you really want.

        It’s not a “govt” thing – per se. Businesses will do this even without govt unless the govt regulates them not to.

        right?

  6. Darrell Avatar
    Darrell

    Anyone that can afford a Tesla has the ability to fly their private jet to California to buy it.

    1. larryg Avatar
      larryg

      as usual, Darrell cuts through to the essence of the issue! 😉

    2. billsblots Avatar
      billsblots

      but then 10 days later when you got the tesla back in virginia, 300 miles at a time and then waiting the better part of a day for it to recharge, you’d still have to pay dmv to register here.

  7. larryg Avatar
    larryg

    re: franchises

    everything from 7-11 to Direct TV are franchises with mandatory fees and mandatory product selections.

    companies will do this independent of govt.

    companies would do “dealerships” independent of govt … probably did.

    but then if other business models “threaten” their model – they will seek govt “regulation” to protect their model.

    the question is – do you blame govt for this?

    govt basically represents people and people of all stripes from non-profits to entrepreneurs to hard core businesses will seek rules that benefit them and disadvantage their competitors.

    there are over 200 countries in the world – and it works pretty much the same way – with all 200+ govts.

    I’m not defending it. I’m saying it’s a human condition that expresses itself through govt.

    Just as a guy would charge you 10% interest per month on a loan – without the govt being involved, that same guy would seek the protection of the govt if competitors offered the same deal for only 1% a month.

    1. DJRippert Avatar
      DJRippert

      “the question is – do you blame govt for this?”.

      Of course I blame government for passing laws that favor those who stuff money in the pockets of politicians at the expense of consumers.

      Here’s a good article from a columnist I generally detest ….

      http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/14/auto-dealers-and-state-legislatures-conspire-to-make-cars-more-expensive-can-tesla-change-that/

  8. James A. Bacon Avatar
    James A. Bacon

    Larry said, “I’m not defending it. I’m saying it’s a human condition that expresses itself through govt.”

    You are approaching wisdom.

  9. TMT Avatar
    TMT

    How many lobbyists and government affairs specialists would be employed if it became illegal to attempt to harm the competition through regulation? Not too many.

    Many business owners believe in the free market, but not for them. We need one set of rules.

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