A Tale of Economic Protectionism, Car Dealerships, and the Utah Legislature

Several legislators are attempting to push back against protectionist laws that favor the car dealership industry. And the car dealerships are, unsurprisingly, pushing back.

Under current law, a new car dealership cannot be located within 15 miles of an existing dealership that offers the same kind of cars for sale. This protectionist provision prohibits competition within a specific geographic area, and excludes certain cities from qualifying for having a dealership locate in city limits—along with benefiting from the taxes it would provide. Representative Mike McKell is proposing legislation that would decrease this distance, making it easier for other companies to compete.

Following lobbying by Larry H. Miller in 2000, Utah law now prohibits car dealerships from operating on both weekend days—a legislatively creative way of saying that they must close on Sunday, since everybody will elect to operate on Saturday. This protectionist policy was introduced as a defensive response by Miller to thwart off national competitors whose policies would require them to open on Sunday, leading him to either require his employees to also work on Sunday, or continue to close on the Sabbath but lose business to competitors. Representative Marc Roberts is proposing legislation to repeal this requirement.

A third bill dealing with car dealerships aims to clean up and clarify the law regarding direct sales. The recent success of Tesla has brought to the fore its conflict with state governments that restrict its direct sales model. Utah law has some text that prohibits manufacturers from competing against dealerships or selling new motor vehicles directly. Representative Kim Coleman is working on legislation to fully legalize the direct sales model to allow for more competition and migrate away from an antiquated, protectionist system.

Finally, Representative Ken Ivory has sponsored legislation to change how sales tax works for motor vehicle sales, allowing the tax money to flow to the city where the vehicle purchaser lives, rather then where the dealership is located. This is being done, from what we understand, in an attempt to reduce the consolidated power of a few car dealerships, as a sort of second option in lieu of not removing the mileage requirement.

We have received several reports regarding the reaction of car dealerships and their lobbyists to these bills. To say they are unhappy would be an understatement—they are, from what we are told, vehemently opposed to any alteration to these protectionist laws, and frustrated with the audacity of legislators to chip away at their favorable protections.

It remains to be seen what will result; it is likely that negotiations will lead to one or two bills being dropped in order to allow the others through. Regardless, this exercise makes clear that industries that accrue significant financial and political power tend to exercise that power in favor of minimizing competition and boosting their own bottom line. This is not at all the proper role of government, and as such we look forward to supporting these bills as their work their way through the system.