The car dealers' racket

By Michael Shermer

March 17, 2014 12 AM PT

The New Jersey Motor Vehicle Commission last week voted to prohibit Tesla from selling its electric vehicles directly to consumers, a decision endorsed by the New Jersey Coalition of Automotive Retailers and Gov. Chris Christie. New Jersey is the third state, after Texas and Arizona, to block Tesla from direct sales, all under the guise of protecting consumers. Some free market.

Of course, auto dealers prefer an arrangement in which they have exclusive rights to sell a certain manufacturer’s product. I know because my father owned a Ford dealership for decades in Montrose, Calif., and we were proud to represent such an honorable American product. And there’s nothing wrong with a manufacturer offering to sell its products only through designated retailers. This is common practice in many industries so that manufacturers don’t compete against themselves and undercut their retailers.

But there’s also nothing wrong with a manufacturer offering to sell its products directly to consumers. This too is common practice, as evidenced by the billions of dollars that are exchanged online between manufacturers and consumers. Some bricks-and-mortar businesses have suffered as a result. But as conservatives like to say, that’s the free market at work.

Except when it comes to industries that grease the wheels of politicians. Tesla’s chief executive, Elon Musk, tweeted that Christie “has gone back on his word” and that “his administration, under pressure from auto dealers, may shut down Tesla in NJ as soon as today.” Note that three members of the motor vehicle commission are from Christie’s cabinet and four more were appointed by the governor, including the chairman.

This move against Tesla is nothing more than naked economic protectionism of the type that Adam Smith railed against in 1776 in his book “An Inquiry into the Nature and Causes of the Wealth of Nations.” This work, which conservatives treat with almost biblical reverence, is one long argument against the mercantilist system of protectionism and special privilege. Smith demonstrated that practices similar to what is being done to Tesla may benefit other producers in the short run by protecting them from competition, but in the long run they harm consumers and thereby decrease the wealth of a nation: “In the mercantile system,” he wrote, “the interest of the consumer is almost always constantly sacrificed to that of the producer.” Whereas in a capitalist system, Smith explained, “Consumption is the sole end and purpose of all production.”

In the old mercantilist system — what we today call “crony capitalism” — instead of consumers telling producers what they want, government agents and politicians tell consumers what and how much they can buy, and at what price. This is done through tax subsidies for corporations (estimates vary, but Fortune 500 companies combined receive about $100 billion annually), regulations (to control prices, distribution and sales), licensing (to control wages, protect jobs, exclude newcomers) and other deals between industries and politicians.

New Jersey is not only stopping Tesla from selling cars to consumers. They are, in essence, saying that we the government will tell you where you will be allowed to buy your cars. This move against Tesla reminds me of a wickedly satirical essay by the 19th-century French economist Frédéric Bastiat titled “The Petition of the Candlemakers,” in which he lampoons special-interest groups — in this case, candle makers — who have petitioned their government for protection from a certain producer of light:

“We are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light, that he is flooding the domestic market with it at an incredibly low price.... This rival … is none other than the sun.... We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds; in short, all openings, holes, chinks, and fissures.”

Elon Musk has been compared favorably to Steve Jobs. Imagine where we’d be if, in the 1980s, typewriter manufacturers lobbied to block Apple from selling its computers directly to consumers. The very idea is absurd. Consumers should be free to buy any product they want from any manufacturer without the consent of the government. And if anyone should understand this simple principle, it should be conservatives.

Michael Shermer is the publisher of Skeptic magazine and a monthly columnist for Scientific American. His next book is “The Moral Arc of Science.”