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Comment by PaulDavisThe1st | Hacker News Reader

This is a great example of the problems with the precise wording of laws.

The intent of the NM law that prevented Tesla from doing this e.g. in downtown Santa Fe was to prevent manufacturers from undercutting dealers who had done the work of proving a market by opening their own stores in direct competition. There are arguments for and against this, but it's not clearly a completely stupid idea on its face.

But of course, the law wasn't written to deal with a scenario where there's a new(ish) manufacturer that has no dealers anywhere, least of all in NM, and has no plans to ever have dealers. It only sells its cars in company-owned stores, and opening a new store is not undercutting any existing dealers.

Would the legislators who voted for the legislation have understood the difference if the idea had been presented to them back when this was passed? Would they have worded it differently?

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> The intent of the NM law that prevented Tesla from doing this e.g. in downtown Santa Fe was to prevent manufacturers from undercutting dealers who had done the work of proving a market by opening their own stores in direct competition. There are arguments for and against this, but it's not clearly a completely stupid idea on its face.

No, it’s pretty much a stupid idea on its face. This is one of many thousands of examples of cronyism in the country, but the political justification at least sounds nice (as they tend to do), in this case the sugar takes the form of protecting local businesses.

> and opening a new store is not undercutting any existing dealers

They wouldn’t be undercutting existing Tesla dealers because there aren’t any, but they would be going Mano-a-Mano with dealers selling other cars. There’s not a Tesla market and an automobile market separate from that.

The wording is irrelevant. The law is working as intended, although it can’t account for dealerships outside their jurisdiction (on Tribal land or out of State). It’s just a bad law.

It could be argued that when it was initially written it was not as bad a law, but the reasons it's still on the books today come down to incumbent corporations paying for that to be the case to suppress competition.

We’re still talking cronyism whenever it was written, and we’re still talking cronyism whilst it remains on the books. Whether it was slightly better in the past is something you would have to explore through counterfactuals which is basically alt-history and not a good use of time, especially for so little of a point.

So it remains in the present that it is 1. cronyism, one of many thousands of forms of it in the country 2. stupid on its face and 3. basically indefensible, but people who have buy-in can be persuaded that it is very defensible.

But now that these laws are on the books, the existing owners of dealerships actively lobby the state legislators to keep this as the status quo and reduce competition. The dealers, and lawmakers, hope that Tesla will give in and start selling through existing dealerships.

Reminds me of how the alcohol distribution system in some states causes ridiculous situations such as requiring Trader Joe's to sell their inhouse wine to a distributor and then requiring them to buy it back in order to sell it in their stores. Obviously the distributor loves this as they get to rent seek while adding no value at all. That gives them plenty of money to lobby with to keep them in the loop.

I can confirm this. I opened a distillery during the pandemic and had to pay a middle man during some online sales simply to cover legal requirements. The middle man never even handled the product. Very frustrating way to spend money.

Have you considered having your wife start a distribution company?

Clever idea!

I have no knowledge about any of this whatsoever, but would venture to guess that in states where this kind of thing happens, licensing to become a distributor may be very difficult. For example, the total number of licenses may be constrained.

You could provide this service to other companies. Flat rate, instant shipping $500 a year.

“Notify us when you want stock, and we will instantly order, receive and deliver your product to your warehouse. Flat rate charge no matter how large the order.”

One difference is the alcohol rules are a remnant of (post-)Prohibition and are meant to make alcohol harder or more expensive to get.

Right, but if the goal is to make alcohol expensive and unavailable the ideal lever to pull would be a vice tax. Instead of that money going to random unaccountable middleman, it goes to the people - who are already shouldering much of the social cost of alcohol (healthcare, policing, etc). I'm not sure i support vice-taxes, but they're clearly better than just giving it to whichever random rich person or industry insider that manages to insert themselves.

Politicians get blamed for taxes. Middlemen are a safe hidden tax that has the bonus of padding their campaign funding.

Maybe we should get together an angry mob

I support vice taxes, at least insofar as their good intention is concerned - making it hard(er) to engage in the vice, while not prohibiting it.

However, consumption based taxes (direct or indirect) also disproportionately proscribe lower income people from engaging in such activities. Tax a carton of cigarettes? Worthless if I can just hit the Rez or hop to another town that doesn’t tax. Screwed if you don’t have that kind of mobility. There’s a disturbingly classist nature to them, which gets all the more concerning when it involves fundamental rights - if only the rich can afford to own a gun, get an abortion, speak freely, for example.

Additionally, vice taxes at some high point are effectively prohibition. Make alcohol too expensive (directly/indirectly) and bootlegging becomes more popular, with its attendant health risks, crime, etc. Make cocaine too expensive and meth gets more popular. Sell untaxed cigarettes and witness how laws are only enforced with an implicit threat of violence that may become explicit (ask Eric Garner).

Tough job, controlling societies.

Yup, agree with everything you said. Just want to add that all of those problems are also present with the “byzantine monopolistic middlemen” model.

all laws are enforced with threat of violence. dont beleive me try not filing your taxes. first you will get nasty letters from the IRS, fallowed by a court summons where you may end up evicted from you home by the sheriff/police try to resist and see what happens ultimately all laws are enforced with the threat of violence its only a matter of how polite the system is to you first

Yes, but it's vanishingly rare to see crimes like securities fraud enforced with ACTUAL violence. "Vice" laws disproportionately effect marginalized communities, down to the amount of violence used to enforce them.

That's probably because it's vanishingly rare that people physically arrested for securities fraud resist. That doesn't mean the threat's not there.

That's probably because it's vanishingly rare for people to be physically arrested for securities fraud.

Yes it's true that states want to reduce alcohol consumption; drunk driving, alcohol related illnesses and crime are all tied to alcohol use, so there is a public health aspect.

But like many things that are opined on on HN, it's a little more complex than what you wrote, in that they were also trying to prevent tied houses (1) and vertical integration wherein brewers would basically tie into every local bar, creating a local monopoly.

Washington State got rid of the common three tier (2) system in 2012, and it seems to have lead to higher prices. (3)

The options we have for alcoholic consumption might not exist without these sort of regulations.

To be clear I'm not an expert on liquor laws and their economic impacts, but my point is that it seems like there is a complex interplay wherein regulation, enforcement, and power relationships between companies can affect availability and pricing in complex and sometimes counterintuitive ways.

And that's not even getting into smaller regulatory policies that I don't know enough about to even throw out an opinion on. Unlike food, alcohol distributors aren't isn't pay for play slotting fees for shelf placement, and many states require distributors to post and hold prices for 30 days, for example.

1 https://en.wikipedia.org/wiki/Three-tier_system_(alcohol_dis... 2 https://en.wikipedia.org/wiki/Tied_house 3 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4608622/

This comment implies that manufacturers need 3rd party dealers/distributors. I think Tesla has globally proven their market.

> Tesla will give in and start selling through existing dealerships.

What is stopping Tesla from structuring a corp owned dealership in NM? I know there are lots of "dealerships" that exist only on paper with no lot or cars that exclusively sell OEM parts online.

Why is Tesla going so far out of their way to avoid state laws here?

to avoid setting a precedent that can be used against them in their fight archaic laws that have outlived their usefulness

In general the idea of laws essentially banning competition in the dealership market is a crap idea, manufacturer or otherwise.

Exactly... I hear people say that it was a good idea at some point in time, and I still don't understand it. Why did they need the law to protect them from competition back then?

Undoubtedly being protected from competitors is good for someone, but it is rarely the consumer that benefits. Its hard to see how car dealers could be the exception.

> Why did they need the law to protect them from competition back then?

It kept more profits in the states with dealerships versus car manufacturers.

How?

Car dealership owners are among the richest people in many rural and blue-collar towns in the USA. While you can conceivably tax the profits of company-owned stores on the state level, dealership owners may spend their profits in their local area (building their houses, purchasing local entertainments, visiting local stores, etc.), rather than having the profits go to Detroit and being spent there.

They are also generally speaking the largest political donors in rural and suburban areas.

Bingo.

There is no law of the universe saying both noble and base motivations can't be true simultaneously :)

I don't see how a law restricting new dealers aids that goal?

That reasoning doesn't make sense to me. Am I missing something?

Let's say non-manufacturer revenue over a car's TCO is X. The largest portion of X will be spent on non-local goods and local labor regardless of who takes the profit, which has to be low enough to prevent stronger 3rd party service. It isn't like all cars would be shipped back to the factory for service.

The car manufacturer can undercut a dealership, because they have fewer costs. At the time these laws were written, having a dealership was vital to get timely repairs. In Tesla's case, timely repairs might still be an issue - you cannot get a general mechanic to work on them. Therefore, it was designed to ensure sales were locked into a repair system.

Electrified garage and Gruber don't exist? Tesla will even sell access to service manuals and most parts afaict.

High voltage parts are a little different, but I expect that even that will change as demand grows and training becomes more readily available. Right now there are some real safety concerns there.

Early on 'dealers' would set up shop and build up the market for a particular car brand. In many cases the manufacturers would see which markets were 'best' and then setup their own sales floor directly competing with the car dealers.

They could easily undercut the dealers and drive them out of business. The law was designed to protect the dealers from the manufacturers.

We are seeing it more and more now in many markets and niches as manufactures are cutting out dealers that built the markets and selling 'direct to consumer'. The difference is that most manufacturers saw what happened to the car companies and are trying to carefully avoid having the same thing happen to them.

Yea but this works, what, once? And now the manufacturer has to deal with the things the dealer was doing like customer service, hiring sales staff, training technicians, etc.

“Oh don’t open a Chevy dealership, in 6 months they’ll come in and undercut you”. And then there it is. Either you don’t open a dealership (fine) or the manufacturer builds a reputation for not undercutting dealers (also fine).

IMO the law was protecting special interests from the start. This is an example of poorly regulating capitalism.

Yes, I would think this as well. If your company is known for dicking over your dealers, then no one will open up a dealership for you.

Then again, Apple dicks its partners over and hasn't suffered much.

Not really comparable in situation nor scale.

There are Apple stores but they don't really compete with the big box stores that sell Apple products. Though I would be interested in seeing data on where most Apple products are purchased from.

No. They wait a few years, dealerships are everywhere, then move in and take the most profitable regions.

When did they do this?

Dealers have franchise contracts with the manufacturers that provide some short term protection, I'm pretty sure the story of the laws is that once dealers were organized enough to lobby they asked governments to make laws protecting their businesses from their suppliers, not that governments saw the burning need for dealers and decided to protect them from this one narrow case.

You say "early on" but... Are there any actual cases of this strategy being executed by a manufacturer at any time in history?

If so, I guess I'll have to eat my words, but it just really sounds like a hypothetical scenario the dealerships would have cooked up to try and push these laws that massively benefit them.

This is just what I read off of the internet, but IIRC at the time the reasoning was in part because opening any is business is somewhat risky.

Thing was that by allowing dealers to open the business first, manufacturers could entirely offload that risk of opening a location that wasn't profitable, and watch the orders from the dealers. Anywhere that sold well, just open up your own store and undercut the dealer until he goes out of business and then return prices to what the dealer was originally selling for.

Putting in laws was meant to put a stop to that practice. Like I said, it's just something I vaguely recall reading on the internet so take it for what it's worth.

Interesting, what you describe as the motivation of the law sounds suspiciously familiar to what Amazon does to 3rd party businesses.

Amazon needs regulation, severely, before it becomes a genuine monopoly. It's already at the stage of effective monopoly, but competition still exists, technically. It won't be long before they're driven under or bought out too though.

But I wouldn't bet on it, since Amazon already has all the people capable of doing anything in their pockets anyways.

If the dealership entrepreneurs were savvy enough to predict this then why wouldn’t they simply not open dealerships?

Because regulatory capture created viable, local small businesses for decades...

That sounds like a very interesting hypothetical.

Was there any legitimate basis for this fear though? Was this a tactic that was ever provably executed by a manufacturer? Or was it just a made-up scenario by dealerships to push these laws that massively benefit them?

This is a tactic still used by e.g. Amazon today. Let 3rd party entities establish a viable online market for niche items, then start selling them "directly", undercutting 3rd parties.

Amazon of course denies that it does this, but the anecdata seems irrefutable to me.

They needed the law to create competition - otherwise the natural state of things would be a monopoly for the manufacturer. The conditions under which competition is good for consumers (a free market) generally only happen under careful regulation.

I don't know about this argument. There's already competition for the manufacturer in the form of other car companies. More middlemen on top of that seems unnecessary.

In the uk we don’t have this law and manufacturers don’t have a monopoly - We have a system of dealerships, so I think you can have a system without careful regulation?

The UK doesn't really have dealerships competing with each other (there will generally only be one x dealer in each town, and while the manufacturers do compete with each other to a certain extent, nearby dealers tend to be targeting different segments - in contrast to e.g. banks or supermarkets where you often get two very similar direct competitors right next to each other), and you absolutely do get charged monopoly rents as a result. There are strong consumer protection laws that mean people do generally have access to repairs, which blunts the worst impact, but I wouldn't hold it up as an example of a system that works well.

This hypothetical of manufacturers swooping in and undercutting the dealers out of business sounds real spooky - but has it ever happened?

What do you mean? Car sales have very low margins. If the manufacturer swoops in and under-prices you after you setup a dealership to prove the market, you’re going to get screwed.

If someone underprices a dealership the general driving population (90% of Americans) would benefit while people that own dealerships (1% of Americans) would suffer.

I fully agree with your viewpoint. But it’s also important for someone to take the risk, otherwise that market might not even be served by anyone (dealer or manufacturer).

Which would discourage manufacturers from developing a reputation for undercutting their own dealers.

It's almost like the interests of the market lead it to self-regulate or something...

Yeah you sure would be screwed if that did happen.

But did it ever actually happen before those laws were put into place? Or was it simply the justification of the richest man in town creating a monopoly for himself?

Proving that there was a market for cars? If so that seems unlikely that you'd need to prove that there's a market for them in NM. So perhaps the dealers proved the market for specific types of cars, like Fords and GMs. In that case, they never did that for Tesla, so it's not a fair law. In any case, this belongs in a contract, not the legal code.

> it's not clearly a completely stupid idea on its face

A law to protect a useless middleman? Seems completely stupid to me.

They're not all that useless... dealers took on the initial risk of starting the business.

To come in and undercut dealers is much less risky! the manufacturer would be effectively be avoiding the risk (proving the market) and stealing the reward.

I have zero idea of whether or not it's good to regulate against that type of thing, but there's logic there.

In the case of the law, it seems ridiculous that there's no room to say "well clearly this is an exception that doesn't violate the reason the law exists" - is this a matter of dealers pushing to uphold the law because they don't want competition?

Best Buy sells Apple Products. Apple has Apple stores. Best Buy took the same risks. I don't see the logic.

Best Buy also sells a million other things.

The car dealers are free to sell other cars? Or dashboard bobbleheads, perhaps?

It’s not feasible to stock a thousand different cars, and provide servicing and support for all of them. You really can’t make random comparisons, it doesn’t further the discussion.

it's not clearly a completely stupid idea on its face

It wasn't a stupid idea to provide some protection to dealerships from the manufacturers they represent, but it is stupid to use it to block manufacturers that have no dealers.

We did present it to the legislators that way. They didn't care. The way it works is, the lobbyists for the dealers go and meet with the legislators behind closed doors or in the hallways of the Roundhouse (NM State Capitol) and they tell them not to vote yes on a bill in committee. They provide a few talking points as to why. Usually these legislators already take money from the lobbyists. (Dealers give like half a million a year to the legislators' campaigns; it's all disclosed.) So by the time the committee has its hearing, the votes are already decided. The whole "debate" and the testimony from witnesses is largely theatre. You wind up with anti-Tesla legislators all rattling off the verbatim talking points of the dealers, as if the whole thing is scripted. We pointed out that Tesla has no franchisees so how does this law apply, etc. Doesn't matter. Falls on deaf ears. They're already bought. Their mind is made up.

A lot of people complaining this is a stupid law, but if you substitute dealership with startup, manufacturer with Amazon, and cars with managed service running on AWS, then maybe it’s more relatable?

In general though, I’m always elated to see sovereignty of native nations.

In order for that scenario to be an issue, I'd need to have made an agreement with Amazon to sell AWS out of a building and then Amazon decided to open up an Amazon AWS store in the strip mall 2 roads over, right?

Think what they're really protecting here is that dealerships must house, maintain, and purchase a lot of very expensive merchandise (vehicles) and if a more "official" distribution channel popped up in town, that'd hose dealerships that have invested a lot in a particular brand(s).

Tesla doesn't "sell" it's cars to company-owned stores. Tesla has a D2C business model like Warby Parker. The stores are mainly for show and tell and consumer education, they're not dealerships. People just order online.

Somehow I think their understanding would jump exponentially for ICE autos, but not for Tesla or any other EV builder. That seems to be the bespoke irrationality for this market segment.

Laws to protect middle men? Not very free market of them.

Regulations that make 100% sense the day they are enacted, often become less and less relevant over time, and after a few decades they've set in stone some ancient order that is bad for most everyone.

But usually it's very hard to change them, and so they pile up as so much Legacy Code.

Indeed. And eventually they just go unenforced but still on the books.

Often waiting for a clever law enforcement officer or lawyer to use them to their advantage.

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