One of the more head scratching things I’ve learned about during the 2015 Utah Legislative Session is how car dealerships in Utah work. Namely, that car manufacturers cannot own more than 45% of an auto dealership and that you cannot buy a new car online if the seller doesn’t have a franchise in the state.
This, in an age when almost anything can be delivered to your door within days of finding it on Amazon.
In other words, if you want to buy a new Tesla–sleek, shiny, and 100% battery-powered–you’ve got to leave the state to buy your new Model S. It sounds like can’t even order it online and pick it up here in Utah. The Salt Lake Tribune reports that “Utah’s first Tesla dealership is on hold indefinitely after the state refused to grant the dealership a license.” Ostensibly, the state refused the license because the dealership would have been owned 100% by the manufacturer, Tesla.
This leads to the obvious question: has this law outlived its usefulness?
Indeed, when a fast growing percentage of the economy relies on the on-demand nature of the internet, the archaic nature of new car sales is set in high contrast by the comparison. Designed at the turn of the 19th century, the auto dealership model is a relic of days before even the telephone, and it has some asking if innovators like Tesla’s Elon Musk are being stymied by outdated models of business.
Economists argue that it is because of the high revenues states derive from auto dealerships that keep the old school model protected, not because of market forces. Further, taking auto dealerships out of their middleman position and allowing consumers direct access to manufacturers–like most other industries–provides “costs by better matching production with consumer preferences.”
So why isn’t Utah, with its special sauce for encouraging economic growth, lining up to strengthen the market and support consumer choice?
To that end, Rep. Kim Coleman, in her freshman session at the Utah Legislature, is sponsoring HB 394 to allow consumers to buy their cars online with the assistance of an “online salesman” in a sales location that exclusively sells vehicles online. While it won’t remake the industry, it will allow Tesla to sell its car directly to consumers without going through a middleman.
Not surprisingly, perhaps, New Car Dealers of Utah opposes the law. After all, says its executive director Craig Bickmore to the Salt Lake Tribune about the current model: “It has worked very well.”
Sometimes change is difficult. But if there’s a better way to do things, Utah should give innovators a chance to take the risk. Protecting entrenched interests serves no one…except the entrenched interest.