Technological innovations benefit consumers, but often come at the expense of existing businesses profiting from the status quo. That is, unless those businesses are artificially protected by law. That’s the case now with electric vehicles: EV producers and would-be consumers are running up against legal barriers instituted decades ago for the benefit of car dealers. And no matter your opinion of EVs, this type of crony capitalism should be disconcerting.
Michigan law currently makes it illegal for automobile manufacturers to directly sell their product to consumers. That means companies like Tesla or Rivian cannot directly sell an EV to a consumer residing in Michigan. Why today’s consumers, who buy phones directly from Apple, computers directly from Dell and countless other products directly from their manufacturing, need a middleman to buy a vehicle is not clear. What is known is that this law was created decades ago with the intent of protecting small car dealerships from the potential competition of Michigan’s Big Three automakers.
But times have changed, and no one who passed the law protecting car dealers could have envisioned the way cars can be sold and serviced today. Modern vehicles can be individually customized, ordered online and serviced remotely with over-the-air software updates. But these innovations are currently stifled by an antiquated law artificially protecting car dealerships at the expense of everyone else.
This is a fine example of crony capitalism. Open and free market competition benefits consumers and promotes technological innovations, but only when existing firms face real competitive pressure from new businesses.
That’s why the Mackinac Center joined a diverse group of organizations to draw attention to this problem and call on state legislatures, including Michigan’s, to repeal laws that prohibit the direct sale of automobiles, including EVs. The coalition includes more than 75 environmental groups, consumer protection advocates, unions, legal experts, economists and more. While our reasons for interest in this issue varies, we all agree that artificially limiting how consumers purchase EVs is bad public policy.
A letter sent out this week by the coalition articulates the problem:
Prohibiting direct distribution of EVs is not supported by legitimate public policy objectives, and has a variety of negative consequences, including: (1) slowing the market penetration of EVs; (2) correspondingly, maintaining a higher share of internal combustion vehicles on the roads, with negative environmental consequences and prolonging singular dependence on petroleum fuels in transportation; (3) interfering with manufacturers’ freedom to experiment with new distribution models for new technologies and market conditions, thus reducing the competitiveness of the U.S. EV industry and advantaging foreign competitors; (4) interfering with consumers’ freedom to decide how they will purchase cars; and (5) interfering with free markets to privilege economic special interests.
For more information about this issue, see this report that makes the case for legalizing direct auto sales.
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