Tesla Motors and the Car Dealer Lobby

Tesla Motors makes expensive electric cars that some people think are awesome. But as Tesla tries to expand across the U.S., they are running into a major legal obstacle. Forty five states have laws that forbid car manufacturers from selling directly to the public and require them to work through locally-owned car dealerships. Tesla could, of course, develop their own dealer network, but they don't want to. Their people come out of the high-tech, internet-based culture of Silicon Valley, and they despise both the culture of car dealers and the inefficiency of these complex distribution arrangements, which economists think add at least 5% to the cost of cars in America. State laws protecting car dealerships go back to the days when the Big Three automakers were among the most powerful and profitable companies in America, and the idea was to force them to distribute some of their money around to every community. Because at the time they liked the idea of having a local face on their product lines, they didn't fight. These days the automakers would like to experiment with other arrangements, but car dealers are politically well-connected, and they have fought hard against any change in the laws.

I can't decide how I feel about this. Fifteen years ago I would have been all on Tesla's side, and if I had had a blog I would have written a rant about selfish car dealers driving up prices for everyone so they can be sure to take their cut. Plus I just hate car dealers.

But now that ever-growing inequality dominates my thinking about economics, I have to wonder. Car dealers say they create lots of middle-class jobs. Are they right? Is this the sort of inefficiency that ends up redistributing money from investors to regular people, or at least capturing some of what people pay for cars and turning it directly into jobs? The lesson of the past 25 years seems to be that ever greater corporate efficiency leads to lower prices by squeezing out lots of jobs; the most efficient possible arrangement seems to be the one that pays out the least in salaries and returns the most to billionaire investors. In the long run, do those lower prices come out of the future of the middle class?

Or does most of the money actually flow to a few thousand dealership owners who are themselves in the 1 percent? Are laws protecting dealers actually just helping one class of millionaires stiff another?

I really don't know. But I am sure that if we want to preserve the middle class and limit inequality, we have to get used to balancing other things against greater efficiency and lower prices.