Over 130 years ago, Thomas Edison invested in technology and infrastructure to build electric power distribution systems that would power communities and industries using direct current (DC). Initially his DC system was the standard in the United States, but other inventors, like Nikola Tesla, claimed that many of the inefficiencies and limitations of DC systems could be solved using alternating current (AC).
Edison and his investors engaged in a "War of Currents" in order to protect their investment and attempt to eliminate the threat of AC systems. Misplaced fear for public safety, attempts to ban AC system use of light bulbs, and frivolous lawsuits were just a few of the protectionist tactics used by DC advocates. Though AC did eventually triumph in the 1890s, it wasn't until 2007 that the last commercial DC system was decommissioned.
Just this week, there was an important development in a current protectionist battle involving a popular vehicle company named after AC advocate Nikola Tesla. The Utah Supreme Court upheld the constitutionality of Utah's franchise laws that prevent a "wholly owned subsidiary of a motor vehicle manufacturer from obtaining a license to sell the manufacturer's new motor vehicles in stores in Utah." In other words, Tesla Motors cannot legally sell cars directly to you, the consumer. Instead they must use an archaic dealership model that legally imposes middlemen between you and the vehicle manufacturer of your choice, Tesla or otherwise.
This court ruling comes after multiple previous attempts by Tesla to ask the Utah Legislature to change the current laws to accommodate direct to consumer sales of motor vehicles. In 2015, it appeared that the Legislature would solve this problem, but the entrenched protectionist opposition of auto dealers scuttled the bill at the last minute. This political tragedy proves, once again, that if you pay enough money to lobbyists and claim that you are "protecting the consumer," you can accomplish almost anything.
Just as Edison and his partners attempted to protect their investment in an inferior technology, auto dealers today continue to fight against the innovative sales structure that Tesla proposes to use in Utah. Decades from now, we will look back at this protectionist scheme in the same way we look back at the "War of Currents" — as a futile attempt to stop the natural progress of the free market. Eventually, auto dealership monopolies will be a thing of the past. The question that remains to be answered is whether Utah will be a leader or a reluctant follower.
Now that the Utah Supreme Court has ruled on a narrow issue and was neutral on judgment of how Utah should allow new motor vehicles to be sold to the public, the time has come for the Legislature to act and bring Utah into the 21st century. With the emergence of the internet, the monopoly created by a collusion of auto dealers is inefficient and no longer necessary. Even the Federal Trade Commission recommends removing the middleman and allowing direct vehicle sales, a move that is estimated to save the average consumer 8 percent on vehicle purchases.
When was the last time you heard someone look forward to the stress of trying to buy a new vehicle? How often do you hear your friends give glowing reviews of their car buying experience? For the few of us who enjoy haggling with car salesmen on overpriced vehicles, let’s continue to have auto dealerships. But for those of us who would like to try something new, Utah needs to update its laws to allow for innovative companies like Tesla to sell their cars to the public directly, with the benefits of increased choice and decreased price that competition inevitably causes.
We call upon the Utah Legislature to prepare a bill for the 2018 session that will remedy this “War of Vehicle Sales” and allow for the direct sale of new motor vehicles to consumers. Only then will the free market be allowed to decide, just as with AC and DC current, which method is preferred (or if they can coexist).
Other states like Massachusetts, New Hampshire and Wyoming have already taken the steps to allow Tesla to sell vehicles in their states — and now it’s time for Utah to live up to the ideals that don't just reside in "Silicon Slopes," but within the entrepreneurial spirit of our entire state.
It’s time to establish a free market for vehicle sales in Utah.
Michael Melendez is director of policy at Libertas Institute.