Drew Bixby


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Tesla was blocked from selling cars in Texas. Is this a bad sign?

In the book Why Nations Fail, (http://whynationsfail.com/) the authors argue that inclusiveness is what made the US great and extractive-ness is what makes nations like Venezuela fail. Very generally, inclusiveness means everyone has an equal opportunity to compete and the laws support such an environment. In contrast, extractive-ness is an environment where rules, over-regulation, political favors, and financial weight give preference to certain groups over others.

This case with Tesla seems very "extractive"/non-iinclusive by their definition. Is this just isolated or is this a bad sign for the state of things in the US?

In case you are not aware, here is a brief synopsis of the Tesla case:

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    Jun 17 2013: It is not the first time in America. PrestonTucker designed a really good car (1948 Tucker Sudan) and the politics of the time prevented him from producing them in the US.
    Tucker was his name: See this: http://en.wikipedia.org/wiki/Tucker:_The_Man_and_His_Dream

    He went to court and told the jurors that Capitalism is harmed by the greed and aggressiveness of huge corporations with political power. He ended up bankrupt and died of a heart attack a few years later.

    North Carolina is also trying to pass a law similar to the one in Texas.
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      Jun 18 2013: Interesting. I had heard of that long ago. Thanks for the contribution!
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      Jun 18 2013: John,
      My recollection is a little different then the movie version you've quoted. It was he SEC took Tucker to court based
      complaints by dealers who paid for dealerships and had not received the cars. As I understand only about 50 cars were built. Major Auto companies were not even aware... ok, really didn't care that there were several new small companies that formed after the war to build cars. Studebaker, Kaiser Fraiser .to name a few. I believe the Fraiser Company also ran afoul of the SEC too. Tucker had some production problems, design and execution of various components. But, he wasn't as bad as the SEC made him out to be.
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        Jun 18 2013: Yes his car was ahead of it's time with disk breaks, etc. Did you ever read the storey about variable speed wind shield wipers?
  • Jun 17 2013: Yes, for consumers, this is a bad sign.

    The laws that require auto dealerships were put in place by locals who wanted a cut of the very lucrative automobile market. They may have claimed that they were protecting consumers, but the motivation was for local profit.

    The laws are clearly anti-competitive and are costly for consumers. The remedy is to gradually change the laws. All competitors should have to comply with the same laws and regulations, but those laws and regulations should serve all the people, not just the dealers.

    The world is now changing much more quickly that in the past, and if the USA is going to keep up (perhaps catch up?) with the rest of the modern world we had better get rid of old anti-competitive laws that profit the few while costing the many.
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      Jun 17 2013: I guess you could see it that way, I have a different take. The question seems to be, why dealerships.
      OK. Ford assembles... I don't know... a million cars a year. They have hundreds of suppliers doing what is called JIT logistics. Suppliers and payrolls take a ton of cash on a daily basis. Ford delivers 200 new cars to
      Bob's Ford in downtown Austin, They want a check now. They are gong to park $4 to 5 Million in Bob's parking lot for the duration. So, Bob takes a short term loan from his bank to cover the cost of the cars. Bob has 3 months to sell these cars. Bob's dealership is the marker to the bank.
      So, here is Bob with 200 new Fords, A $5 mill note to the bank, His payroll and taxes for sales and service people, Taxes on his 15 acres on a main street in town, Mortgage on his buildings,cost of tools and maintenance, etc. etc.
      So, the laws that tax the shorts off Bob, are costly for consumers? True. Bob passes his cost onto his customers.. Thank goodness, all dealerships are taxed equally.

      PS. Laws deemed anti-competitive were made illegal by Federal Law during the term of Roosevelt, not Franklin but Teddy.
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    Jun 16 2013: It's a good sign. Or rather a good consumer policy. Texas Law say that cars for public sales must be sold through local dealer ships. Like anyone who ever bought a car didn't have to take it back to the dealer for some reason, even scheduled maintenance. So, Tesla wants to sell cars from California to some buyer in Austin, TX. 3 months later, the clock falls off the dashboard. Where does our buyer take his car for fixing? All the way back to California? And lets say there is a bigger problem, does our guy go to Federal Court to seek redress, After all, it's across state lines.
    Are these real consumer problems? They were and that's why the laws were passed.

    The bigger question is... Why doesn't Tesla open dealerships in Austin and all over Texas?
    Further, as a Texan, I like to think the way Texas goes, so goes the nation. But, to be honest, not so much..
    So why does this example effect national policy as implied?
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      Jun 17 2013: MIke, Thanks for your comment and role in discussion.

      Regarding your first point, how is a California company selling to someone in Texas any different than the thousands of other products sold that way every day?

      Regarding the bigger question, Tesla doesn't open dealerships BECAUSE of the lawsuit. They have a "showroom" here in Austin, however, they can not sell cars out of it and can't even say a price because of the laws. The laws require them to work with existing dealerships and the current system in place which limits who can participate and how. That seems very non-competitive to me.

      Why does this effect national policy? Well, that is the question. Is it a sign? I think it might be after having read Why Nations Fail as mentioned above.
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        Jun 17 2013: Drew,
        Like Amazon from Washington sells more stuff the can be counted?
        Amazon has a different marketing strategy the any automaker. I think if Ford could sell cars without a dealership arrangement and Tesla was denied, the argument would make more sense to me.

        Honestly, I haven't read the book nor am I completely familiar with the lawsuit. There are several dealerships in Austin that handle cars in the 6 figure range. I am confused by all the legal play. The state law I understand.for consumer protection.
        Are you making the case that Tesla is being denied dealerships?
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          Jun 17 2013: My case is that it is proving difficult for a new entry in the car market to sell their cars. There IS a lot of legal play and I propose that is the problem. The laws are hindering competition. Competition is a critical part of a healthy inclusive market.

          When is the last time you saw a new entry into the car market?
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    Jun 16 2013: I am glad I read the synopsis, or I would have misunderstood your question!

    As I read it, numerous states have laws that prohibit direct sales of cars over the internet. It is not that the states are singling out Tesla but rather that they have been unwilling to grant Tesla an exception to the rules that apply to all other manufacturers. In other words, in Texas, GM and Ford cannot sell over the internet either.

    So the issue in the article is really not that any particular manufacturer is being prevented from selling cars. It is that no manufacturer is permitted to sell their cars there over the internet.

    I think the question of what public policy reason there is for not allowing any manufacturer to sell over the internet might be more pertinent to the situation you describe.
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      Jun 17 2013: Fritize, thanks for your contribution!

      I agree that Tesla should not get an exception. My concern is that the laws are so complex (and biased toward certain established entities) that they need to get an exception to simply sell a new type of car. Are we locked into requiring car dealerships to sell cars for the next century? What if we had required all TV's and stereos still to be sold only through TV repair shops?
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        Jun 17 2013: Are you saying that there is something about the type of car that makes it impossible to sell through dealerships? Is there a reason Teslas could not be sold through dealerships that makes the dealership requirement a bias?

        This seems a separate question than whether the public interest is served by mandating a particular sort of distribution system for a product- particularly cars.
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          Jun 17 2013: They could arguably sell through dealerships, but this would significantly increase the cost to the end user.

          Also, dealerships are not likely to be interested in selling them as the maintenance is little to none. Dealerships make profits on maintenance and repairs. Tesla's are fully electric and have few parts. The repairs are simple since the motor is one relatively small part. If TV repair shops had the laws car dealers do, the introduction of transistor radios and TV's
          might have taken a lot longer to make it to the market (and been more expensive for longer).

          Allowing competition and innovation is absolutely to the public interest.
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        Jun 17 2013: Robert above asked whether the proposal at hand to forego setting up or working through dealerships is about getting a pricing edge by avoiding taxes. That competition is good does not mean that one would necessarily offer a subsidy (such as a tax waiver) to any potential new entrant.

        I think we will get a better handle on the issues if we stick to the issue of what the economic justification is, if any, for requiring dealerships rather than staying at the "competition is good" level.

        Mike focuses on this specific matter above.
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    Jul 15 2013: Auto dealers have an effective lobby, so - as I understand it - many or most states, including Texas, have laws that prevent car manufacturers from selling their cars directly, as opposed to through a franchised or independent dealer. Tesla wanted to sell directly in violation of Texas laws, and was told - as I understand it - that they have to follow the same rules as other manufacturers. If that's right, what's the issue?
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      Jul 15 2013: The issue isn't the whether Tesla should have to follow the rules. The issue is whether the "rules" hinder competition and limit inclusivity. The Tesla case is evidence that those "rules" require extensive time, money, and resource. They favor the established players by creating a significant barrier to entry. The issue is whether that barrier to entry reduces the inclusivity, which is critical for long-term successful economies (according to the book Why Nations Fail).
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        Jul 16 2013: Thanks for the clarification. I didn't get all that from your brief set-up. The problem was that Tesla was not necessarily "blocked from selling cars" (they could apparently sell through a franchise), but that getting permission to sell directly from the manufacturer was time-consuming, and their application didn't make it out of committee in the Texas legislature in time to be acted on this year (or next). It is, of course, a common thing that complying with commercial rules or legislative requirements is difficult, expensive, and time-consuming, and always favor the big actors over the little guy. I frankly don't know of a place where this does not hold true, where "everyone has an equal opportunity to compete." Minor parties in politics, for example. It would be nice ...
  • Jul 9 2013: The world burns, and mice and men play silly games... to protect interests that will inevitably vanish...Go figure.

    Reminiscent of the documentary "Who killed the electric car".
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      Jul 10 2013: Tify,

      You evidently didn't read the comments before you opined. The manufacturer of this car did not meet compliance rules established by the state. One could debate the validity of the rules, but all car manufacturers that sell cars
      must comply and most did.
      Tesla asked for exception and was denied. Nothing onerous,
      The documentary about the electric car... again, no big conspiracy here, It was that 4500 km extension cord needed to drive from New York to .California
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    Jul 9 2013: Texas is an oil state. They don't want this electric genius knocking down their profits, so they pay off politicians to ban the product.
    It just proves that with enough money you can get anything you want.
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      Jul 10 2013: Not so true, but Texas also is one of the top renewable electric producing states. Second only to California for wind power and soon will have the largest solar farm in operation. We sell oil we don't burn it.
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    Jun 22 2013: Usually rhetorical questions are not meant to be answered, yet who wants to be usual? :o)

    And as we all know that Texas is known for its excellent cattle, exclusively, there is no bad sign in sight whatsoever. Anything else is purely coincidental and if your conclusions are different, you are just another conspiracy theorist. ;o)

    Do you have any idea how much electro-smog one Tesla emits? Well, the Texas House and Senate did and as it obviously failed to hinder the cell-phones back then, it surely learned from this for us to be certain, that our beef will be low in 'e-radiation' if not 'e-radiation free' also in the future ... :o)

    The worst enemy of any innovation is the 'status quo', 'patent laws' and 'patent attorneys' as the genuine idea of 'the common good' has been blocked out a long time ago by the most powerful motivation there is: Financial Interests.

    The coal mines - which are in China nowadays - haven't heard any twitter since ...
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    Jun 18 2013: Yes, he had some great ideas. Some of his ideas were hard to engineer and led to many of his problems. He could not get all the functions into the cars and then into the showrooms in a timely basis. Maybe if his distributors were patient and the SEC stayed out of the picture, he very well could have made a great car and gotten it on the market.
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    Jun 18 2013: Good points. As you imply, I wouldn't characterize the Tesla situation as a crisis, but the question is whether it is an indicator or a "canary in the coal mine".

    I agree that it is getting harder to do business in many industries and areas. The difficult part is that most of the laws are very well-intentioned to provide safety, security, and presumably protect consumers. I just think the cost of that safety and security is potentially more than we realize in it's effect not only on the economy, but on inclusiveness.
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      Jun 18 2013: Hi,
      I am not sure that Tesla qualifies as your canary. I would put the Boeing factory as a canary. California has raised fees and taxes on business startups, that could be a canary. In fact, as we look around the country,
      we may be confronted by a flock of canaries.
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    Jun 18 2013: Hi Drew,
    You have opened a can of worms. I guess it's going down hard on Texas. however, as I am a new Texan, I have to stand proud. OK, I got that off my chest.
    But you brought up a good point. Is what happened to Tesla here indicative of a national problem. As I look at in the context of the book you cited.... I am conflicted.
    I am not sure that Tesla's situation meets the level of a crises. The law involved could be an issue,. Tesla could be problematic in it's business model. and it's request for exception.
    Is it getting harder to do business in many parts of the country?
    I think so. I have previously noted that states are getting tapped out funding employee retirement programs and expanded welfare programs. I've heard numbers in the trillions of state debt. I've heard stories of almost ridicules fees, taxes, charges by states to stay afloat. And some of these fees., charges are directed at new businesses. And let's not forget the Feds. NLRB trying to stop Boeing from building a factory back east, because it is a non union state?
    Feds directing new business models? EPA ordering use of materials that don't yet exists, Regulations requiring forms
    stacked to the ceiling, requiring businesses even the smallest to hire a battery of lawyers to complete?
    I know that government is there to protect us, but how protected can we get?
    Yes, with Federal regulators and states taking every dime they can squeeze from everybody... that book may have hit a note....
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    Jun 18 2013: There may be some truth in the book that was cited, but I don't believe that Tesla's problems in Texas have much bearing on the state of opportunity for entrepreneurs in the US. Tesla had some issues related to funding involving the Department of Energy. Private investors were "uncomfortable" in additional investing that was required. Although, not addressed, it may have contributed to Tesla looking to cut expenses.
    As far as opportunity goes, Texas had some of the best environments for business in the country. Business growth is on a vertical climb. New companies supporting the energy production in Eagle Ford. Major medical business growing in San Antonio. Houston, Dallas/Fort Worth even Austin growing by leaps and bounds.
    Now, there maybe a a case to be made for extractiveness in some states. The regulations, taxes, etc., are placed on entrepreneurs to support state long terms bills and expanding welfare programs. If too many states take this position, the US may be in trouble.
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    Jun 17 2013: This is a molehill. You can't sell cars in Texas any other way than from a showroom. That's the way the ball bounces in the Lone Star State. Legislate to change it if you want, in fact, is that what this post is about? Are you starting a campaign to change the law? If not, I can only assume your point is to ask the rather strange question if it is a bad sign when the law is adhered to.
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      Jun 18 2013: The post is not about changing this legislation. The post is whether this type of situation is a "canary in the coal mine" for a bigger issue about a non-inclusive environment as I mention above.

      And the question is not whether or not the law is being adhered to, but whether the laws in place are supportive of an inclusive environment. I appreciate your response, but from your tone I take it that you just accept whatever laws get passed and assume they are the best and final. Is that true?
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        Jun 18 2013: I do not think you are warranted to accuse me of accepting all laws as eternal and unchangeable. I am absolutely not opposed to utilizing proper legislative channels to change existing laws. Every law is non-inclusive in some way. The purpose of any law is to disallow doing, or not doing, something. To break the law means to do something which is not allowed, or to not do something which is required. I still see only two possible purposes for your question: to illustrate the need to change a law; or to get people's opinions about if obeying the law is bad sign. Since the latter is obviously scant basis for a post, I assumed the former to be your motive. In a civilized free society obeying the law is never a bad thing. Not all laws are good, but all laws are binding upon the citizenry. Isn't your question asking if Texas should change the law to allow selling new cars without having a dealership showroom in the state?
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          Jun 18 2013: Thank you for your perspective. I am sorry for my implied accusation. I apparently read too much into "that is the way the ball bounces."

          Regarding the purpose for the question, I'm sorry I can't make it any clearer than in my previous response.
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    Jun 17 2013: My point is that it is not clear. What IS clear is that it is not easy to compete - even for an entity with deeper pockets than some, but not as deep as others. They wish to sell something something of value to end users. The fact it is a morass of issues is the problem. That morass is what I argue is "non-inclusive" because it is strongly biased toward the existing established players.

    Market economies thrive on competition, yet, the existing system makes it difficult and expensive to compete. When is the last time you saw any other new car manufacturer enter the market?? THAT is the problem here and that is what concerns me.
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      Jun 17 2013: I can't speak of Austin. But just down I-35 from me is a new car lot filled with Fiat 500s, hundreds of them. 3 years ago, who ever heard about Fiat 500s. Fiat has deeper pockets then Tesla? OK....

      My thing is that Tesla has a right to sell cars in Austin. But, they have to comply with the rules of the game. Are you saying the existing established players are those who have already compiled and Tesla wants in the game without paying the ante?
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        Jun 19 2013: I think you may have proven his point for him considering the Fiat 500 has been in production in one form or another for over 50 years and widely available everywhere except the US.
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      Jun 17 2013: If politics did not intervene from time to time, it is possible to create a device that would unbalance the economic state of affairs and bring it all down. What if someone created a home electric generator that ran off the air we breathe and could have it on the market in two years? Our whole economy would fall flat on its face... but we would have cheap electricity... if we had a job to buy one of the machines.

      Or, to put it another way, what good does it do, over all, to create a market for "one" designer and kill a huge market for "many". The wealth gets concentrated in the hands of one person or corporation while many fail as a result.

      Capitalism can be fragile in the wake of fast technological progress.
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        Jun 18 2013: Thanks for contributing, John. Contrary to general belief, the Luddites were not afraid of technology so much as they feared that the new technology would eliminate jobs. While their fears were understandable, it turns out they were off base. Yes, some specific jobs were eliminated, but more jobs and opportunities were created.

        Regarding your concerns, check out this TED talk: http://www.ted.com/talks/andrew_mcafee_what_will_future_jobs_look_like.html
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    Jun 17 2013: Drew, Every article I read on this causes me to read another. It seems that Telsa is asking for exception to the law that all autos must be sold through a dealer to avoid tax and franchise laws. However if that is true it would just be a matter of the state saying no ... the law suits are being filed by the auto dealers. Why would they file a suit if the law was on their side and it being illegal to not sell through a dealer.

    As I read I saw that many other states are involved not just Texas.

    When I rotated back to the states one of the big thing in the military was the offer to buy autos direct from the manufacturer and go there to pick them up. My question is ... wouldn't that be about the same thing. The dealers in the state are left out ... state franchise and tax laws would have been bypassed ... why didn't the dealers sue over that program.

    I can see this going to the high court soon ... more federal intervention as if we need more federal control.

    Everytime I read a article on this I have more questions .... any way to clear this up for the non lawyer?

    Thanks. Bob.
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      Jun 17 2013: Bob, I also took advantage of the program for the military in Europe. AAFES was actually the dealer for paperwork and instead of hiring people to have a dealership, You did that part of the job for them. And you probably never read the local papers to hear the local dealers cursing AAFES. The power of status of forces agreements. That's another conversation.
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    Jun 17 2013: I did a little home work and checked out the book. Good points made. If their worries come to pass, our nation could become "difficult". Maybe the land of the 'not so free'.
    However, In my life time, I have seen the American electorate shift political patterns. Today's political shift has been described by some as swinging in one direction. My point is that when the electorate is uncomfortable with a political shift, they'll vote to make the shift to the other direction. They always have.
    In the matter of Tesla in Texas, I believe that Tesla should have the right to market here following the same rules that all auto manufactures have to play by. And if someone tries to crown them out, Tesla has my vote as a jury member.
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      Jun 17 2013: Good points Mike.

      I question the statement, "when the electorate is uncomfortable with a political shift, they'll vote to make the shift to the other direction." History of democracies does not necessarily agree, particularly when the politics confuse the issue or infuse it with emotions which counter logic or the better long-term solution.
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        Jun 17 2013: I still think America has been lucky in the past. My concern is that a case maybe made that a political party may get voters so tied to a particular philosophy... that the party could "buy" an election.
        That's concerning.
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      Jun 17 2013: No question that Tesla should play by the same rules. What I question are the rules. I question the rules because they seem to be so arduous that only certain entities can meet the rigid (arguably biased) requirements. I believe it was the guilds of Venice who had such strict rules that only the elite or wealthy could play by them. I would say those rules were not "fair" and certainly not part of an inclusive economy.
  • Jun 16 2013: Apologies. It is a bad sign. Not a new sign. Its trending that way. The evidence is overwhelming. Difficult to imagine an argument (consise) against......bigger questions Really Need to be Asked.
  • Jun 16 2013: :-) Your legislators are owned friend. Fear not. This is the case everywhere.
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      Jun 16 2013: Scott, thanks for the response, but I would love to hear your answer to the question proposed.