Why Not Allow a Market in Vanity Plates?

Vanity Plates Take in a Small Percentage of All Vehicle License Plate Fees
State fees for vanity plates bring in only a small amount of money, but auctioning off popular plates could boost revenues significantly, raising more funds to fix roads and take care of other transportation needs.

Quick-which of these creatures could exist in Michigan?  A) the Abominable Snowman; B) the unicorn; C) the Loch Ness Monster; D) a popular tax source.

Give up?  The answer is D, a popular tax.  Millions of Michigan drivers are sitting on-or, more precisely, in front of-a way to have fun or promote a business or cause while raising funds for transportation needs in their community.

How?  It's as plain as the license plate on your vehicle.  In fact, it is the license plate on your vehicle.

Like many states, Michigan offers "vanity plates," a specific combination of numbers and letters for an extra fee.  (Specialty plate designs to benefit certain causes or institutions, such as universities, are also available.)  These plates are popular because Michigan drivers like having more choices to express themselves and the state likes the revenue raised.

How does the present vanity-plate assignment system work?  The state uses a simple first-come, first-served system to assign vanity letter combinations.  In other words, I can request, say, the "IDEAMAN" vanity plate.  But if someone already has taken it, then no matter how much money I might be willing to pay the state, there is no way for me to get that letter combination (and the state of Michigan will continue to collect only the original flat $35 "asking price" for it).

The problem with the present system is that it is actually an overlooked golden opportunity to raise more transportation dollars that could be used to fix Michigan roads and fund other needs.  The present system is inefficient because it ignores the market-based reality that many letter combinations are desirable to a number of people and companies.

That's opportunity knocking.  The Legislature should have the Secretary of State set up an online auction system so that any Michiganian can bid on any available letter combination, with each one going to the highest bidder each year.  How would it work?  We start by setting the minimum bid at the current vanity plate surcharge of $35.  That means we're even on plates that only one person wants.

But some combinations will attract many bidders because they can be quite valuable to businesses, groups, or individuals, and each one is unique.  For example, letter combinations for passions (such as #1 M FAN, GO BLUE, SPARTAN, GOFISHN, QUILTER, TEACHER) are fun and could make great gifts.  Combinations for businesses (EYE DOC, ATTORNY, CPA, SALES, PLUMBER, SURGEON, and TV/radio station call letters) can be invaluable advertising.

Auctions ensure a fair market price-the price a willing buyer will pay to have that unique combination.  Bidding would open on the Internet for two weeks, with the winner getting rights to the plate for a year, after which it would go to auction again before the current license expires. 

Michigan already has attracted national attention for its online auctions of surplus property.  Extending that idea to include license plate combinations is not a big leap.  Public computer terminals in state licensing offices would ensure that no one is excluded.

Best of all, the new revenue generated could be earmarked to help fill gaps in transit and transportation funding.  Ideally, money raised this way would be used to offset property taxes now going to transportation projects.  The result would be revenue neutral and help move transportation funding toward a fairer `user fee' model that garners money from vehicle licenses instead of property taxes that burden everyone the same, no matter how much or how little they use the roads.

Like gambling, vanity plate auctions are totally voluntary-no one is forced to have one.  But unlike gambling, these auctions won't create negative social costs and addictions.  Buyers will be able to buy only one letter combination per registered vehicle at a time.

The market for Internet domain names proves that, for many people and businesses, certain unique identifiers have significant value. A vanity plate's real value is its uniqueness-a value created entirely by the state.  Vanity plate auctions are a way to capture that value and put it to use for the benefit of the people and communities of Michigan.

Michigan has been a leader in raising revenue with vanity and specialty plates. We should lead the way again and fund transportation needs more efficiently with auctions for unique letter combinations.  


(John Gear is an operations management consultant in Lansing and an adjunct scholar with Mackinac Center for Public Policy, a research and educational institute in Midland, Mich.  More information on economics and Michigan government is available at www.mackinac.org.  Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.)

Michigan, like many other states, allows motorists to purchase for their vehicles "vanity" license plates that carry unique combinations of letters and numbers, such as "GO BLUE." Rather than charging a flat fee for each unique vanity plate, the state should auction plates off to the highest bidder, giving motorists who want the same plate a chance to buy it and raising additional revenues to fund state transportation needs.

Main text word count: 712