Cronyism vs. Competition

The Texas Legislature is considering a bill that will allow auto makers to sell directly to consumers. Currently, new automobiles must be purchased through a franchised dealership. Not surprisingly, the bill is opposed by dealership owners. Wyatt Wainwright, president of the Houston Automobile Dealers Association, recently met with lawmakers to explain why auto dealers oppose the bill.

According to the Chronicle,

Dealerships, he [Wainwright] said, battle for consumers with low prices and deals and provide access to services such as maintenance and financing.

“The franchise system creates competition, and that’s what saves consumers money,” he said.

If Wainwright and his colleagues are in favor of competition, why do they want to prohibit others from entering the market? Clearly, the auto dealers fear true competition–a market place in which individuals are not barred from producing and trading goods and services.

The proposed bill will allow consumers to bypass the middle man–the auto dealers. The dealers see this as a threat to their business, and rather than actually compete in the market, they are busy competing in Austin. They are competing to influence legislators.

Auto dealers contribute millions of dollars to the campaigns of legislators. In return for this political support, they expect lawmakers to protect them from competition. Both legislators and auto dealers benefit from this cronyism, while consumers are stuck with fewer choices and higher prices.

Similar bills have been proposed in past legislative sessions, but auto dealers have managed to bribe influence enough legislators to defeat the bills. The bill appears to be gaining some traction, largely because of the efforts of Tesla. The electric car maker has increased its lobbying efforts in support of direct sales to consumers.

Interestingly, this isn’t the only regulation that curtails freedom in the automobile market. Auto dealers are prohibited by law from being open on a consecutive Saturday and Sunday. Efforts to repeal this remnant of the state’s Blue Laws have been opposed by auto dealers, who claim that they will not see increased sales but will incur higher costs being open seven days a week.

Whether this is true or not, it is irrelevant. Repealing the law will allow them to be open seven days a week, but won’t force them do so. But the existing law does force dealerships to close one day per weekend, whether they want to or not. The owner, not legislators, should make that decision.

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