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

Oklahoma Mayors Acted Unlawfully With COVID-19 Orders

In response to COVID-19, the mayors of Oklahoma’s three largest cities subjected their citizens to draconian shelter in place orders, restricting their freedom, damaging them financially, and undermining their constitutional rights. The mayoral decrees were more restrictive than those of the Governor, and in significant ways contradicted his policy. To this day, city-mandated social distancing rules remain in place in Oklahoma City, Tulsa, and Norman that are not required by the state’s reopening plan. The mayors claim that where their rules are more restrictive than the state’s, the city rules apply. Was any of this unilateral mayoral activity legally valid? For the reasons examined in my paper published today, An Argument Oklahoma’s Mayors Acted Unlawfully During COVID-19 , the short answer is no. (A summary of the paper can be found here .) A close examination of relevant city ordinances and state laws governing the mayors’ COVID-19 decrees forces the conclusion tha...
Read more

COVID-19 Proves Our Schools Are Social Service Centers First, Education Institutions Second

There is no way the 180-day (or 1,080 hours) school year can be completed by the end of previously established school calendars for this year given the fact that spring break has now already been effectively extended an additional two weeks. One option would have been to extend the school year into the summer. Given the level of family togetherness being experienced now, and the fact that incomes are being lost and many would be interested in making up the losses, it’s not unreasonable to expect vacation plans to be radically remade or canceled anyway. Instead, Oklahoma’s State Board of Education precipitously closed the schools and did not call for an extension of end-of-school dates. Thus, the summer option has been foreclosed. The State Board is within its rights. Oklahoma statutes (70 O.S. § 1-109 E) state, “A school district may maintain school for less than a full school year only when conditions beyond the control of school authorities make the maintenance of the term imp...
Read more

Do-Something Syndrome Won’t Produce Groceries in Oklahoma’s Cities

We have to do something ! We hear it all the time. Any time there is a tragedy, or now even a perceived problem, policy makers, news anchors, and everyday citizens demand government take some action that might have prevented it. But all too often the proposed responses do little to actually improve our lives. We become victims of the Do-Something Syndrome. Either the policy doesn’t achieve what it is intended to, there are unintended consequences, or it is actually counterproductive. This shouldn’t come as a huge surprise.   Government works best when it makes generally applicable rules intended to prevent large, foreseeable harms. Government generally performs far worse in responding to highly specific, immediate circumstances. Inherently, everyone gets a voice in a democracy. This is normally a good thing. But when there is a crisis - real or perceived - the emphasis is often on “doing something.” Too often there is disagreement about the problem, much less the best sol...
Read more

COVID Inspires Tyranny for the "Good" of Its Victims

The Christian philosopher, C.S. Lewis, once said, "Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies." The moral busybodies C.S Lewis warns of reminds me of those who would have Americans give up their liberty to combat COVID-19.   A recent Oklahoman op-ed compared COVID-19 to World War II, stating that the number of deaths from COVID-19 is approaching the number that died fighting for this country and the freedoms it protects. This comparison is, of course, nonsense. This suggests that a virus with a high survivability rate is an equivalent threat to the Nazi and Japanese regimes that brutally murdered millions. The piece uses wartime rationing of meat and cheese, a sacrifice necessary to ensure men on the front lines had adequate nutrition, to justify Americans accepting counterproductive lockdowns in exchange for additional stimulus c...
Read more