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Cronyism: Feature, Not a Bug, for Used Car Dealer Licensing

Used car dealers in Oklahoma are governed by the Oklahoma Used Motor Vehicle and Parts Commission (UMPV). Like most licensing boards, it is made up of industry insiders. The UMVP's stated mission is to protect consumers from harm, but its structure and history indicate that its primary concern might be protecting licensed dealers from competition. This, of course, is the prime directive of all licensing boards. My recent paper deals with the licensing of used car dealers. 

The person hit hardest by this is the hobbyist, especially in times of economic turmoil.  Imagine someone stuck at home due to coronavirus. We'll call him Frank. He can’t work due to the economic shutdown. Unfortunately, Frank’s lack of work does not mean he no longer has to put food on the table for his family. Fortunately for him, he is able to find a good deal on a used car that needs a little work. Frank has all the tools and garage space necessary to fix up the car and isn't violating any quarantine rules while doing so. He sells the car for a tidy profit, which is enough to sustain his family until he is granted the “privilege” of working again. 

In a state without cronyism, the above story would end there. But Oklahoma is not a cronyism free state. Shortly after selling the car, he fixed up the UMPV shows up at his door. They slap him with a fine for not being licensed by them. Afterward, Frank attempts to get a license but is denied. While his garage is suitable for fixing used cars, it doesn't have adequate space to display his vehicles or a parking lot for customers. Nor does he have any industry experience. Frank has to give up any additional income he could have made from selling used cars. 

If he wished to continue fixing and selling used cars Franks would have to pay a $600 fee to obtain a license. On top of the fee, he is required to own a building that fits what the UMPV believes is necessary to conduct the business of dealing used cars. The building must have a certain amount of parking for customers and display vehicles, a sales office, and a sign of minimum size. Additionally, Frank would need to be bonded. Once Frank does meet these requirements, he can apply for a license, but he may still be denied one by the Commission.

Licensing boards will sometimes be created not necessarily for anti-competitive intent but to protect a profession from being swallowed into the regulatory scheme of another. There isn’t much difference between selling new cars and selling used cars. The Oklahoma Motor Vehicle Commission regulates new car dealers, who enjoy incredibly strong protections that shield them from competition. Fearing the idea that a body of new car dealers could govern them, used car dealers pushed for their own licensing agency. But no matter how noble the intent, licensing always becomes a cronyist scheme that benefits industry insiders. This is likely the case with used car dealers who sought to avoid the more burdensome regulations of new car dealers, such as the 15-mile radius rule. 

The problems that arise with licensing could be avoided with other regulatory schemes or putting laws into place to prevent licensing boards from increasing their scope. However, those with cronyist intentions appear to have seen the chance to really take control of the market and pushed for strict regulations on who can become a used car dealer and, by doing so, drove up their prices. Most importantly, they were able to outlaw the sale of all used cars by anyone but a licensed dealer. By contrast, most states will allow for individuals without a license to sell a limited number of cars a year. 

The UMPV uses its powers to protect its licensees from competition by putting unnecessary and costly barriers in the way of would-be practitioners. Besides the requirements for a place of business mentioned above, the Commission requires applicants to have industry experience to get a license to work in the industry. This creates a catch-22 for prospective dealers. They need industry experience to get a license, but they can’t get industry experience without a license. Of course, the Commission can waive this requirement on a case by case basis. This way, their friends aren’t affected. 

The Oklahoma legislature should deregulate the used car industry and allow Oklahomans to buy and sell used cars from each other without any interference from the state. The freedom to fix up and sell old cars represents an opportunity for any Oklahoman make a living or earn income on the side. There was never a problem with consumers buying cars from unlicensed dealers before licensing unless you consider lower profits for used car dealers to be problematic.

Spencer Cadavero is a Research Associate at 1889 Institute and can be reached at 

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