Free Market Groups: Feds Ignoring Evidence in War on Car Dealers

Electric vehicle giant Tesla beefs up lobbying muscle as FTC weighs anti-franchising measures

A charging station for Tesla electric cars / AP
January 20, 2016

A coalition of free-market groups accused federal regulators on Tuesday of ignoring evidence that would undermine proposed measures governing automotive sales that stand to enrich a politically-powerful company at consumers’ expense.

The coalition, led by Americans for Tax Reform president Grover Norquist, released a letter on Tuesday to coincide with a Federal Trade Commission workshop examining states’ automotive franchising laws, which limit car manufacturers’ abilities to sell vehicles directly.

Critics of the laws, including the FTC, say they restrict new market entrants such as luxury electric vehicle manufacturer Tesla, which says its sales would be threatened by the franchise dealer model.

Norquist’s coalition, which includes representatives from four other free-market groups, insists that ending or restricting automotive franchising would actually decrease consumer choice by reducing competition among dealers selling the same car brands.

The letter pointed to a March study by the Phoenix Center for Advanced Legal & Economic Public Policy Studies, which found "that intra-brand competition does, in fact, lower new car prices for consumers."

The coalition says the FTC has ignored that study in an effort to protect its anti-franchising position. "In short, the FTC appears to be trying to find a problem in a market where no evidence of a problem exists," they wrote.

The FTC declined to comment directly on the letter.

"The agency carefully considers all correspondence, whatever the topic, but doesn’t respond publicly," spokesman Frank Dorman said in an email.

The keynote speaker at Tuesday’s event, University of Chicago economist Dennis Carlton, insisted that franchising laws do distort markets. He cited a 1984 study that found a slight bump in gasoline prices when gas companies were prohibited by law from directly selling to consumers and had to rely on a franchising model.

The FTC has cited the same study, which George Ford, the Phoenix Center’s chief economist, rejects as irrelevant to the automotive franchising debate.

"With all due respect to the FTC's staff, when a simple Google search of ‘intra-brand auto competition’ would have led to more relevant (and recent) empirical evidence, such intellectual laziness does not inspire confidence that the FTC can be trusted to hold a neutral workshop," Ford wrote in a Tuesday column.

Automotive franchising laws are opposed by an unusual coalition of critics, with some libertarian economists criticizing them as rent-seeking measures by car dealers. However, Norquist’s coalition says that franchising laws were actually created by anti-trust efforts at the FTC and that they sustain market competition rather than undermine it.

The competing claims of governmental distortion of the market even led Tesla, a company that received substantial federal government backing in its infancy, to appeal to the free market in defense of its position at Tuesday’s workshop.

If "you’re interested in promoting competition and free market principles … you recognize direct distribution, particularly for a company like Tesla, is critically important," said Todd Maron, the company’s chief counsel, during remarks at the FTC event.

Appeals to "free market principles" are surprising, coming from a company that has recently beefed up its lobbying muscle in Washington.

Late last year, Tesla engaged outside counsel for the first time since 2012 to supplement its considerable in-house lobbying operation. The move came as the FTC scrutinized state franchising laws.

The company hired 38 North Solutions, a D.C. green energy lobbying firm that has set up nonprofit advocacy groups funded by its lobbying clients, to push for favorable government policies.

Tesla also engaged the services of Chambers, Conlon & Hartwell, also based in Washington. Between the two firms, Tesla enjoys the influence of former aides to two U.S. Senators, three House members, former Interior Secretary Ken Salazar, and former National Transportation Safety Board director Jim Hall.

Despite Maron’s appeals to the free market, he made it clear that the company seeks an end to the gas-powered vehicle market altogether.

"We don’t simply believe that [electric vehicles] represent a nice complement to gas powered cars. We believe that it’s imperative that they are replaced entirely by electric vehicles," Maron said. An end to franchising laws would help advance that goal.

Tesla did not respond to a request for comment.