It’s time for Georgia lawmakers to end the auto dealership monopoly

Earlier this afternoon, I took part in a Google Hangout hosted by the Cato Institute on Tesla Motors and disruptive technologies that have entered the marketplace. Below are my prepared remarks — and, yes, I write them out because I have a terrible memory — as well as the video of the event. The Hangout was hosted by Cato’s Rebecca Bernbach. Andrew Moylan of the R Street Institute and Peter Van Doren of the Cato Institute spoke at length about the regulatory issues Tesla and other innovative technologies that have gained popularity face.

Regulatory battles over disruptive technologies have slowly made their way to Georgia. Earlier this year, for example, legislation was introduced at the behest of the antiquated taxicab industry that would have driven ridesharing services, such as Uber and Lyft, out of the state. There was a significant amount of backlash that forced the measure’s House Republican sponsor to agree to a much less restrictive substitute in committee, though it never went to the floor for a vote.

Though this regulatory battle stalled out, at least for now, the legal battle between the Georgia Automobile Dealers Association and Tesla is one that could be one of the more interesting to watch in the 2015 legislation session, which begins on January 12 and is expected to run through late March or early April.

In late-August, the Georgia Automobile Dealers Association, a powerful monopoly which represents more than 500 dealerships, filed a complaint with the state Department of Revenue alleging that Tesla had sold vehicles in excess of the legally set 150 limit — O.C.G.A. §10-1-664.1(7) — at its only manufacturer-owned store in the state, located in Marietta, a city located about 20 miles northwest of downtown Atlanta. Telsa also plans to build two more showrooms in the Atlanta area.

Derrick Dickey, a spokesman for the Georgia Automobile Dealers Association and a Republican political operative, told CNN Money, “There’s real demand for electric cars in Georgia. All we’re asking is that Tesla sell cars in compliance with the law.” The special interest group’s president, Bill Morie, said something along the same lines in a story at Automotive News. “It’s just very simple,” Morie said, “we want them to comply with the law the way others are.”

These two statements were disingenuous. The Georgia Automobile Dealers Association, which has doled out political contributions in excess of $48,000 since 2006, isn’t just asking for Tesla sell its vehicles in compliance with the law, it’s seeking prohibit Tesla from selling any cars in Georgia.

Peach Pundit editor Charlie Harper recently chided Tesla and what he deemed as faux outrage, noting, “The fact remains, the auto market in Georgia has had this barrier for decades. It’s how the market currently works.” That may be true, but the market is centered around laws that are beneficial to a certain special interest. That’s cronyism, and there’s no way around it.

Tesla argues that it’s in compliance with state law. The complaint filed by the Georgia Automobile Dealers Association makes note of sales from October to June, during which the automaker sold 173 cars out of its Marietta store. But Tesla says that its license with the state counts sales made within the calendar year, from January through December. Tesla also skirts the regulation by allowing customers to buy online from its California headquarters, though the buyer, obviously, has to register the vehicle in their home state.

Dealerships want a piece of Tesla’s business. They want to use the state to force Tesla into agreements to sell their cars. Though electronic vehicles and hybrids have been on the market for some time, sales associates at dealerships may not have the knowledge necessary to make a sale of any one of Tesla’s models. What’s more, they may be incentivized to steer prospective buyers to another vehicle from a different automaker. There’s also the middleman markup.

By selling at its own stores, Tesla avoids the middleman. Sales associates know the cars they’re selling and, obviously, aren’t going to drive customers to another vehicle made by a different manufacturer. Additionally, Tesla has a niche base of potential consumers. That’s not to say that the average car buyer can’t be swayed to a more environmentally friendly car, but the nearly $70,000 price tag for the Model S is going to scare most shoppers away.

Some Georgia legislators have realized the problem that current law presents. In the 2014 session, state Reps. Chuck Martin (R-Alpharetta), Buzz Brockway (R-Lawrenceville), and Earl Ehrhart (R-Powder Springs) introduced legislation, HB 925, that would have carved a larger exemption for manufacturers selling zero-emission vehicles to sell up to 1,500 per year. Though the clock ran out before this legislation could be considered, one would expect a similar push in the 2015 session, in which lobbyists from both Tesla and the Georgia Automobile Dealers Association will be heavily engaged.

Though they’ll need to convince Republican leadership — which controls the flow of legislation — to get behind any change to existing law, ironically, Tesla’s biggest friends in the Georgia General Assembly may be 20 or so young, free market-minded Republicans who are skeptical of big business. These legislators probably won’t need much convincing to get behind updating an outdated, protectionist law.

HB 925, however, is not a perfect solution, by any stretch of the imagination. Ideally, the restriction on manufacturer-direct sales would be eliminated in its entirety, or, at the very least, the restriction would be phased out. If HB 925 is reintroduced next session and passed as previously written, the Georgia Automobile Dealers Association will emerge with its monopoly still largely intact, but it’ll serve as a warning that legislators aren’t completely beholden to old institutions.

Still, Tesla should brace itself for deserved criticisms, including charges of cronyism. While the car manufacturer likes to talk about the free market, in 2009, Tesla received a $465 million loan at a 3 percent interest rate from the Department of Energy for production of its Model S and to build a new manufacturing plant.

Tesla also takes advantage of the $7,500 federal income tax credit available to consumers for the purchase of an electric vehicle. Georgia offers an additional $5,000 income tax credit for the purchase of an electronic vehicle.

As Georgia legislators approach this issue next year, they should seriously consider either reducing the state’s income tax credit for the purchase of an electric vehicle or eliminating it entirely. The fact of the matter is, the success of Tesla should stand on the merits of its vehicles, not credits that both distort the market and shift the tax burden.

42 comments

  1. Noway says:

    While they’re at it let’s get the legislature to protect lawyers from Legal Zoom and the veterinarians from Pet Meds! But the vet lobby ain’t puttin’ mucho dinero in the pocket of corrupt legislators. Laws restricting Tesla and Uber will rightfully die.

  2. saltycracker says:

    Georgia probably has auto dealer standards to protect consumers.
    Manufacturers have dealership agreements that set standards for retail operations.
    Dealerships are owned by individuals, multi-location corporations including ones that sell competitive models. There are also the leasing companies in the mix.
    The capitalization of those dealerships is also varied.
    Most manufacturers prefer not to be in the retail business but it is not easy with the demands of the big players in the business. The days of a local person with their friendly Ford place doing as he wants are long gone.

    If Georgia has a law that forbids a manufacturer from owning a retail dealership it needs repealing.
    For the state to subsidize retail sales or limit units sold with no justification (customer dissatisfaction) is a government going where it should not.

    • You’d have to ask Rep. Martin to be certain, but I don’t think there’s anything magical about 1500 units per year, other than it’s 10 times what they can sell per year currently. Rather than have to come back every year and fight this battle again, give Tesla some breathing room and give us some more time to work something out with the traditional auto dealerships.

      • Chuck Martin says:

        Buzz, you are correct, raising the number to 1500 in HB 925 would have allowed Georgians continued access to Tesla products without upending the current system.

        Also, addressing Jason’s comment, “carve out”, Tesla is a bit different in that they don’t have an established dealer network and therefore allowing for customer access would not have affected other Georgia businesses; therefore, in the short term it seemed like the best way to assure Georgians access to a free market for an evolving product.

        Further, blakeage80 is also correct, revisions to the current law in its entirety, need to be fully vetted to allow manufacturers and dealers with long term contracts and investments time to adjust.

        In the last paragraph in the main post Jason also writes about the Georgia Income Tax Credit for alternative fuel vehicles and suggests it should be reduced or eliminated; I agree and introduced HB 257 in 2013 toward that end. The bill failed to pass in the 2013 – 2014 Session — I intend to reintroduce a bill to address the credit in the next session as I believe it is currently fiscally irresponsible and could cost Georgia taxpayers well over $25 in 2014.

        Forgive typos, I’m hurrying to watch the Cambridge Bears play at Central Forsyth.

    • Jason says:

      I have mixed feelings about HB 925. Tesla should be able to sell its vehicles, but I don’t like the idea of another carve out for a special interest, which is why I said I’d like to see the legislature eliminate or phase out the regulation in its entirety.

      • blakeage80 says:

        Agreed. I also think it should be something that allows time for the current industry to have an adjustment period. They’ve build a huge expensive business model based on current regulations.

        • Noway says:

          For example, didn’t Barnes and Noble, Borders, B. Dalton and other book retailers have brick and mortar expensive storefronts, too? Didn’t see anyone protecting their backsides from Amazon! I guess some businesses (car dealerships who pony up wheelbarrows for of cash to the right legislators) are more equal than others.

        • Noway says:

          With respect, John, I’m not sure you do anything with them. I’ve purchased two cars from CarsDirect, an internet way of doing it. Saved thousands. Now, dealerships are offering their own version of an internet sales option. Ed voyles Jeep does this now .They need to adapt or lose business to the new ways of selling.

            • Noway says:

              Yes, they do. I picked both up from a participating dealership (Hennessey) but I paid the CD price, not the dealerships’ huge markup…A new/different way of buying

              • John Konop says:

                I would bet the real issue Tesla has is getting dealerships to sell their cars. Paying for a footprint cost more than leveraging off dealerships…The dealerships have exclusive location and territories based on manufacturer…..Tesla is not moving enough unites I would guess for dealerships to invest into locations via ROI. For them to break into the market they must first get in the market place. Which is why Tesla would take the loses to gain footprint…Chicken or egg issue of what comes first…

  3. To be sure, Rep. Martin’s bill was a temporary solution, but one that would allow Tesla to continue to operate here in Georgia. Currently Tesla sells to the luxury auto market and perhaps 1500 cars per year would work for a while. However, when they roll out their mid-level models their sales model will clash with the current auto-dealership sales model.

    Charlie’s column which Jason referenced, raised some good points. Tesla and other electric vehicles do benefit from tax credits. Georgia’s is particularly generous and has helped make electric vehicles very popular here. As I drive around Lawrenceville, I see dozens of Nissan Leafs every day. Rep. Martin had another bill last session to phase that tax credit out. It passed the House (it might have been watered down, I can’t exactly remember) but ultimately did not pass the Senate. This tax credit is starting to cost taxpayers serious money. We need to take a hard look at it again next session.

    It’s also true that dealerships have significant capital investments and we in the legislature should be cautious when thinking about blowing up an existing marketplace. That being said, the auto dealerships could give a little too. Is Tesla selling a couple hundred cars, or even a couple thousand without opening a string of dealerships in GA really a threat to the entire auto industry? I don’t think so.

    As Jason points out, destructive technologies are changing how business is being done in a host of industries. We in the Legislature should do what we can to allow those technologies to thrive – doing so is good for the customers and good for our economy.

    • Jason says:

      Rep. Martin had another bill last session to phase that tax credit out. It passed the House (it might have been watered down, I can’t exactly remember) but ultimately did not pass the Senate.

      Oh, I wasn’t aware of that. I spent a little time researching the tax credit, but it wasn’t the main part of the talk. Thanks for the head’s up, Buzz. I do hope the legislature does something about it next year.

      And, yeah, Charlie did raise some good points in his column. I don’t disagree with much of what he said.

    • saltycracker says:

      All dealerships involve a significant capital investment which comes from various setups. Many auto/truck dealerships began by principles repurchasing the corporate stock. And many big corporations own multi-dealerships. Then we have the leasing companies and venture capital programs. Dealerships operate under tighter guidelines from manufacturers than ever before and in most cases, particularly service, the customer is better off.

      The state getting into pricing incentives for individuals does help the dealer raise his margins. It’s dumb for taxpayers, clever for political support.

      • saltycracker says:

        All dealerships, including those owned by the manufacturer, involve a significant capital investment……..

  4. saltycracker says:

    Jumped from this to GA Trend to see 2 articles on electric incentives:

    Telsa in court over legislation and legislation incenting charging stations:
    http://m.bizjournals.com/atlanta/blog/atlantech/2014/10/state-incentive-program-to-boost-electric-vehicle.html?r=full

    Where do our elected find so much time and money to meddle in retail business ? If power stations are needed on campus for professors cars, let the university add it to their extensive employee perks.

    The power companies and retail stores get good attention by doing this. Unfortunately, Costco took theirs out.

  5. gcp says:

    Good luck trying to deregulate the auto sales industry in Ga. State Senator Butch Miller will do everything he can to stop any such efforts.

    • saltycracker says:

      Allowing dealerships capitalized by the manufacturers and without unit sales limitations is a far cry from deregulation.

      • gcp says:

        My preference is to let Tesla sell as many cars as they want however they want to sell them without any state or federal tax subsidy. Rather than forcing Tesla to conform to the current dealership model we have in Ga. maybe its time for dealerships in Ga. to move to the Tesla way of selling cars.

        This situation is similar to the Uber/taxi industry fight. Maybe its time for the taxi industry to change to the Uber model rather than using state legislature to force Uber to become a taxi business.

        • saltycracker says:

          Agree with first sentence.

          Don’t understand meanings in second sentence. Does Telsa want to operate different than dealerships today or does the association just want manufacturers blocked from owning dealerships ? How would dealers sell cars like Telsa ?

          In Charlie’s earlier post I covered reasons Telsa might have challenges independently distributing.

          Uber can comply with operating standards but object to an environment of limited medallions and the high cost of permit acquisition.

          • gcp says:

            Should have been “manufacturers ” need to move to Tesla’s way of selling cars. In other words dump the franchise dealer model and sell directly to buyer.

            • saltycracker says:

              Gcp

              You might not be aware of how the mfgs keep the service and parts centers somewhat honest. The computer/electronic systems are intended to send us back to the dealer.
              I won’t bore you with franchise agreements but one article forbids a dealer from telling you, buy from me or get your warranty elsewhere. The manufacturers also keep pressure on their suppliers and parts pricing – checked out tire prices or battery prices lately – my Linc/Ford dealer crushes Wal-Mart. Discount auto parts and others.

              Dealers are a love/hate relationship with manufacturers and customers. Just can’t give them free reign or manufacturers either. But you better know dealer costs on a new car consideration before you get near a salesman from any outlet.

              • gcp says:

                Agree and that’s why franchising dealerships may not be the best way to sell your product.

                A bad analogy but Chick-fil-a sells their product through outlets without conforming to the franchise model and they do quite well. Compare to Mcdonalds that mainly uses a franchise model and Mcdonalds profits been stagnant for past couple years.

                There are different ways to move your product; its up to owners to figure which way is most efficient; its not for the state of Ga. to favor one over the other.

                • saltycracker says:

                  I know we are wearing out pm this but it is a great topic.

                  Maybe to say it better from info here:
                  GA dealers do not want factory owned dealerships.
                  The legislators allowed Telsa to put one in and limited their unit sales.
                  As I’ve mentioned many times there is nothing wrong with
                  Factory dealerships that provide full services.
                  There is no Deregulation needed.
                  Allow factory owned dealerships.
                  End the individual incentives.
                  End unit restrictions.

                  • gcp says:

                    Agree. BTW Apple does a pretty good job selling and servicing their products at the Mall of Ga. Apple Store while also allowing T-Mobile to sell the same I-phone at the same mall.

          • gcp says:

            I agree with those above that say it can be very inefficient for a buyer to buy from a dealership and that’s why you see much more internet car buying. But heck, if a manufacturer wants to continue to sell its product through franchise dealers, let them do so, just don’t force others by law to adopt that way of doing business.

            Understand dealers will fight any changes particularly now that dealers have become such huge businesses, with one owner often selling multiple car brands.

  6. NoTeabagging says:

    Nostalgia. Remember the federal tax credits for business/self employed that limited you to specific gas guzzling, inefficient cars and trucks? If you played the numbers properly, you could write off an SUV or H2 on one year’s return.

    • gcp says:

      I don’t own a Nissan Leaf but I am told with state/fed tax credits you can lease one for almost free on a two-year lease

      • saltycracker says:

        🙂 try skipping those payments and pay one year of a 3 year lease

        “Almost like a free……”

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