Skip to main content

Insider Dealing: Car Dealer Protectionism Run Amuck


Imagine you wanted to open a restaurant. Imagine you were allowed to cook the food yourself, but you were prohibited by law from serving it to customers yourself; instead, you were forced to hire a waiter. Next, imagine that the waiter wasn’t pulling his weight, but you weren’t allowed to fire him unless you could prove you had good cause, and the people you had to prove it to were the waiters friends, who also happened to be employed as waiters. Finally, imagine that you had to get permission from the waiter before you could hire another waiter. If he refused, you could appeal his decision… to that same group of his waiter friends. Each of these imaginary scenarios is a close analogy to the very real laws that hinder the distribution of new cars. 

Car manufacturers are not allowed to sell directly to consumers. They can make the vehicle, but then must hire dealers (a.k.a. waiters) to interact with consumers. These state-mandated middlemen will surely want a cut of each sale, making the price consumers pay higher than it might otherwise be. 

Car dealers have powerful protections to keep themselves inserted firmly between makers and consumers. Once a dealer selects a franchisee to represent a particular area, the manufacturer must show good cause to revoke the franchise, even if the contract term has expired. It also includes the dealer’s heirs and whomever he wants to sell to. The manufacturer must have a good reason to remove a franchisee or to reject his chosen successor. And the people who second-guess the manufacturer’s decision are a commission of other car dealers in Oklahoma, who are protected by those same laws, and have a financial interest in making sure they are broadly enforced. 

Dealers also enjoy exclusive territories. If a manufacturer wants to put a new dealership within 15 miles of an existing dealer of the same line-make, they must give notice to the existing dealer, who has the opportunity to object. When the dealer objects, the manufacturer can appeal. The appeal goes before the same commission composed of car dealers - still with a vested interest in making sure there aren’t too many dealers in the state. But here, instead of looking out for a fellow dealer in the hopes that someday he might do the same for them, the commissioners have an interest in keeping the number of dealers small. The scope of this conflict of interest will depend somewhat on where the commissioner/dealer is in relation to the proposed dealer and how closely they compete. For instance, a BMW dealer in Tulsa probably isn’t too worried about a Dodge dealer in Lawton. But there is still enormous potential for a commissioner to have a direct financial interest in keeping a new dealer out of his market. What happened to the idea that you can’t be the judge in your own case? 

One more scenario: Imagine that when you go to buy a building for your restaurant, you are not allowed to hire a real estate agent. Even though you are a professional chef whose skills are in the culinary arts, not the art of the deal, you are legally prohibited from hiring a professional with expertise in buying real estate. Your only options are to negotiate yourself or bring in a friend willing to help you out for free. 

This too is akin to what happens with car dealers. But this time it’s not the manufacturer on the other side of the table; it’s the buyer. It is illegal to accept payment to arrange a transaction involving a new car on behalf of someone else. And it’s not some slap on the wrist: the first offense is a misdemeanor that carries up to a $1000 fine and one year in jail, but if you’re convicted again, it’s a felony - for nothing more than helping someone arrange to buy a car. 

There may not be a clearer example of naked protectionism in the laws of Oklahoma than the protection afforded to car dealers.  But what is the legislature so afraid of? If their dealers are really so valuable, won’t people keep buying from them? And if people don’t want to buy from a dealer, why should the State of Oklahoma make them?

Mike Davis is Research Fellow at 1889 Institute. He can be reached at mdavis@1889institute.org.


Popular posts from this blog

About Those Roads in Texas

A s Sooner fans head south for the OU-Texas game next week, they will encounter a phenomenon most of us are familiar with: as you cruise across the Red River suddenly the road gets noticeably smoother. The painted lane stripes get a little brighter and the roadside “Welcome to Texas” visitors’ center gleams in the sunlight, a modern and well-maintained reminder of how much more money the Lonestar State spends on public infrastructure than little old Oklahoma. Or does it? Why are the roads so much, well… better in Texas? Turns out, it isn’t the amount of money spent, at least not when compared to the overall size of the state’s economy and personal income of its inhabitants. Research conducted by 1889 Institute’s Byron Schlomach reveals that Oklahoma actually spends significantly more on roads than Texas as a percentage of both state GDP and personal income . And that was data from 2016, before Oklahoma’s tax and spending increases of recent years. The gap is likely gr...

The Truth About COVID-19: Better Than You Think

As the media turns its attention back to COVID-19, there is a renewed push to shut down the economy. Some states have even begun to scale back reopening plans for their economies; others continue to delay opening. It is essential to look past their catastrophizing and focus on the facts of COVID-19. One fact to consider: while testing has risen 23%, the rate of positive results has only risen 1.3 percentage points to 6.2%. Even as alarmists point to the rise in cases, they still admit that the boost in testing has played a role in the rise in the total number of known cases. Therefore, the total number of positive cases is not of much use in this case, as it only paints a partial picture. The rate of increase in total positive cases is a more meaningful measure, and it has barely increased. Even more important is who is getting infected. The data show that recent cases are primarily younger people. But that’s a good thing; these are precisely the people that are key to building herd ...

What if Legislators Were Licensed? Well, Just to Make a Point...

1889 Institute, as a general matter, objects to occupational licensing. We have written about it more than any other subject. The scant benefits simply do not outweigh the enormous costs to consumers and entrepreneurs, and  the  burdens that disproportionately impact the poor.   It must be noted that the remainder of this post is a work of satire. This should be obvious to anyone who has read even one of our papers, but each of the proposals below has an analogous provision in Oklahoma licensing laws. To those supportive of government-created cartels, these proposals might sound almost reasonable.  A material threat to the public safety and welfare has for too long gone entirely unregulated, unrestrained and unchecked. This menace has the power to corrode not only mere industries, but to corrupt the entire state economy. It’s no overstatement to say that the practitioners of this perilous profession hold the power to destroy democracy as we know it. After a...

Same Ol’ Story: Blocking Opportunity, Freedom, Prosperity

I know. Sometimes we sound like a broken record. ANOTHER blog about licensing? Long-term care administration licensing? Seriously? Does this theme not get old? Well, yeah, it’s old. We wish we could stop writing about what may very well be the stupidest, most onerous, and most disgusting type of regulation on the books. Frankly, until something is done about it, we don’t believe we have a choice. And more should be getting done. This is not a partisan issue, after all. The Obama administration put out a white paper on the over-abundance of licensing in the United States and its deleterious effects. Nevertheless, Oklahoma has a do-nothing Occupational Licensing Advisory Commission headed by Labor Commissioner Leslie Osborn who clearly couldn’t care less. They rarely meet and almost never recommend that the legislature repeal a license. Nonetheless, NOTHING is more fundamental to freedom than the ownership of oneself. Therefore, the most basic freedom we have is the right to sell our...