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

George Floyd versus Union Cops: Is that the Real Story?

No one with a brain can look at the video of the Minneapolis cops putting their weight on George Floyd’s entire body, including a knee to his neck, and see his resulting death as anything but murder. The first autopsy cited pre-existing health conditions as a contributing factor in Floyd’s death. The second autopsy found Floyd’s death to be murder due to his carotid artery being crushed, cutting off blood flow to his brain. The official coroner seems to have come around to the murder conclusion, but regardless, those cops killed a man for passing a counterfeit 20-dollar bill; and because he’s dead, we can’t even find out if Floyd knowingly did so. Were the cops indifferent to Floyd’s pain because of racism? I don’t know, and no one else does, either. The cop with his knee on Floyd’s neck is obviously responsible for Floyd’s death. The other cops, who did nothing to alleviate Floyd’s suffering when he complained that he couldn’t breathe, are at least culpable in the murder. Three of the...
Read more

The Legislators in Black Robes Strike Again

Once again, the Oklahoma Supreme Court has usurped the Legislature’s constitutional authority. This time, it has legislated new election rules, behind closed doors, on a compressed timetable, and without public input. All with an election looming in which the new rules will apply. On Monday, the Court eliminated the requirement that citizens voting by absentee ballot have their identity verified by a notary. If left unaddressed by the Legislature, absentee voters will be permitted to vote with little more than a pinky-swear promise that they are who they say they are, while in-person voters will still be required to show ID at the polling place. The Court’s decision not only harms the integrity of our election process, but was arrived at through a highly unusual process. The legal challenge to the notarization requirement was launched by a coalition of progressive organizations calling themselves “Let the People Vote.” Their stated reasoning for allowing unverified voting is...
Read more

A Teacher Walkout Leader’s Distorted View of School Choice

The Tulsa World recently published a piece by a leader of the teacher walkout a few years ago predictably opposing Governor Stitt’s proposal to expand the Equal Opportunity Education Scholarship program. There is much to take issue with in the piece, which is full of disinformation, but perhaps the most preposterous claim is the following: You’ve probably also heard of “school choice.” The term is extremely misleading because it implies that parents don’t have a choice, when the reality is every parent already has school choice for their child. Parents can choose to send their child to a public school, private school, religious school or even home school. School choice isn’t about giving parents more options. It’s about using taxpayer dollars to give wealthy families a discount on their choice of school. (emphasis added) Try telling that to the truancy officer. The model of public education in America is that we assign every student to a government school base...
Read more

A Simple Way to Improve Oklahoma’s Selection of Judges: Open Up the Process

The synod has finished its secret meetings and taken its vote behind closed doors. The public waits with bated breath (well, some of us) to get a glimpse at the new high priest who will don his formal vestments and take his seat at the commanding heights of doctrinal authority. Who will it be? Who will it be?! Then, as if delivered from the heavens, the names appear in a short announcement tucked in an obscure corner of the internet . WE HAVE CHOSEN. I am not describing the last papal conclave . I am describing Oklahoma’s unnecessarily mysterious process for selecting Supreme Court justices. All we are missing is the plume of white smoke. The nuances of the judicial selection methods employed by the 50 states are as varied as the cuisine. Some utilize elections, some gubernatorial appointments, some even have legislative appointments. We have commented on the relative strengths and weaknesses of these various methods, and will continue to do so, but some things are so f...
Read more