Opinion: Bill banning direct auto sales is not a free market

A key principle of the free market is that economic freedom and consumer choice should underpin economic policies. Mississippi’s House Bill 833 is a bill that goes against these principles by creating a regulation that automakers must use a third-party franchise dealership to sell their cars. The bill recently passed the House and was referred to the Senate Finance Committee.

In the wake of innovative technologies, innovative business models have emerged with them. The automotive industry is no exception. As electric cars have developed, manufacturers have looked for other ways to reduce costs for consumers. One of the ways manufacturers are doing this is by selling their vehicles directly to consumers instead of using the traditional dealership franchise model.

Why did the government get involved with car dealerships in the first place? To better understand the root of this debate, it is helpful to consider the historical context. Instead of selling their cars directly to consumers, manufacturers have historically sold their cars through third-party franchises.

By the middle of the 20th century, the automotive market had consolidated to just a few manufacturers. Since there were only a few manufacturers, dealers feared that manufacturers would use their market dominance to force dealers into one-sided franchise agreements. To combat this, dealers have successfully lobbied for franchise laws to set minimum standards for contracts between manufacturers and dealers.

Under current law, an automobile manufacturing subsidiary is not prohibited from obtaining a license to operate a dealership. Some have argued that this violates franchise laws that govern agreements between manufacturers and franchisees.

However, the original purpose of franchise laws was to regulate contracts between manufacturers and actual third-party dealerships, not to require all automakers to use the franchise model. Suppose a company does not use the franchise model. In this case, it should not be driven out of the market by laws designed to regulate franchise contracts.

Should the government decide that since cars have always been purchased through franchises, this must be the case indefinitely? Ultimately, the issue comes down to consumer choice. If a consumer decides that he does not want a dealer to participate in the purchase of his vehicle, government policy should not require him to do so.

Some consumers may prefer the dealer franchise experience to buying a vehicle directly from the manufacturer. Yet, it is an anti-free market policy for the government to require all citizens anywhere in the state to only purchase a vehicle exclusively from franchisees.

Similar to the issue of mandating auto dealer franchises, there is the consideration of other goods in the marketplace. For example, imagine if Mississippi required all chain restaurants to be franchised. Chick-Fil-A, Subway and other franchise restaurant chains would still be options on the table for consumers. Meanwhile, Mississippians couldn’t enjoy a meal from Cracker Barrel, Chipotle, Panda Express or other non-franchised restaurants.

Fortunately, the government’s overreach hasn’t gone that far yet, but House Bill 833 would impose such a rule on car choices. Mississippians could take the car and drive it to as many non-franchise restaurants as they wanted. But buying that new electric car from a non-franchised dealership? No indeed no.

Personal preferences and choices are the cornerstone of a free economy, not a system where individuals are forced to conform to harsh government regulations. House Bill 833 is bad for consumers, the free market, and the state of Mississippi. Free people should be given the opportunity to make free choices without a nanny state forcing them to buy certain items in their state through a third party.

Matthew Nicaud is a technology policy analyst at the Mississippi Center for Public Policy.

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