Tag: auto companies

Auto Dealers Attempt to Ban Tesla from Georgia

Rather than selling cars through independent dealers, the upstart electric car maker Tesla sells its automobiles directly to consumers. However, many states prohibit direct auto sales, thanks to laws from the mid-20th century that ostensibly were intended to protect dealers from automakers’ market power. The need for that protection was questionable when the laws and regulations were adopted and are even more dubious in today’s highly competitive auto market. But they are especially inappropriate when applied to a small new automaker that solely wants to engage in direct sales.

This week, the Georgia Automobile Dealers Association filed a petition with the state’s Department of Revenue in an attempt to bar further sales of Tesla sedans. Such battles have erupted in numerous states, from Missouri to New Jersey. In the latest issue of Regulation, University of Michigan Law professor Daniel Crane argues that dealer distribution restrictions are based on faulty ideas of consumer protection. Traditional dealers claim that competition among a brand’s dealers prevents the manufacturer from “gouging” consumers and extracting monopoly profits. Crane argues that standard economic theory demonstrates that these claims are nonsense. Firms with market power will be able to claim monopoly profits, regardless of whether middlemen, such as dealerships, are involved.

Moreover, by restricting competition among business models for auto sales, laws such as those in Georgia stifle competition among automakers. When companies such as Tesla seek to lower costs through innovative business designs, they face costly regulatory hurdles and legal challenges such as the sales ban in Georgia. These laws protect existing dealers and hurt consumers.

Goodbye, Secretary LaHood

Just 12 hours ago I expressed disappointment that Secretary of Transportation Ray LaHood had expressed his intent of “sticking around for a while” as a cabinet member in President Obama’s second term. Now – I suppose it’s just coincidence – LaHood says he’s departing after all. Promoted as the Republican in the Obama cabinet (at least the one left after the departure of Defense Secretary Robert Gates), the former Illinois Congressman has been a veritable fount of anti-libertarian proposals and regrettable policy decisions over the past four years: 

  • LaHood’s best-known crusade, against “distracted driving,” enthusiastically built on earlier Washington initiatives muscling into traffic laws formerly decided at the state and local level. While he did back off earlier press reports that had him favoring a national ban on cellphone use in cars, even handsfree, he promoted such wacky ideas as having cops peer down into cars from overpasses to see whether drivers are paying enough attention to the road, and mandating technologies that would automatically disconnect phones in moving cars (what could go wrong?).
  • Known while in Congress as friendly toward pork-barrel projects, LaHood provided a bipartisan gloss for his free-spending department: the Post recounts his efforts “helping implement billions of dollars in transportation projects from the 2009 economic stimulus bill and promoting the plan to wary Republicans.” Combining his two enthusiasms, LaHood pushed a program of local “nanny grants” that drew resistance from House Republicans.
  • After trial lawyers and feckless reporters ginned up an “unintended acceleration” scare against Toyota, LaHood wasn’t in a position to reverse the engineering judgment of the career technical staff at the National Highway Traffic Safety Administration (NHTSA), who concluded the scare (like earlier ones against Audi and other makes) was bogus. But he seems to have done what he could to make life hard for the foreign-owned automaker, levying heavy fines over disclosure issues and delaying the release of the technical findings exculpating the company. Some felt that as a high officer of a government that had taken over and was running competitors GM and Chrysler, LaHood was in a bit of a conflicted position as judge-and-sentencer of Detroit’s envied Japanese rival.
  • Early speculation on a replacement includes the name of Los Angeles Mayor Antonio Villaraigosa. He’d probably leave me nostalgic for LaHood.

Obama Bank Tax Is Misguided

Perhaps I am a little confused, but didn’t the Obama Administration tell the American public only months ago that TARP was turning a profit?   But now the same administration is proposing to assess a fee on banks to cover losses from the TARP. Maybe President Obama is coming around to the realization that the TARP has indeed been a loser for the taxpayer. He appears, however, to be missing the critical reason why: the bailouts of the auto companies and AIG, all non-banks. This is to say nothing of the bailout of Fannie Mae and Freddie Mac, whose losses will far exceed those from the TARP. Where is the plan to re-coup losses from Fannie and Freddie? Or a plan to re-coup our rescue of the autos?

If the effort is really about deficit reduction, then it completely misses the mark.  Any serious deficit reduction plan has to start with Medicare and Social Security.  Assessing bank fees is nothing more than a rounding error in terms of the deficit.  Let’s put aside the politics and get serious about both fixing our financial system and bringing our fiscal house into order.  The problem driving our deficits is not a lack of revenues, aside from effects of the recession, revenues have remained stable as a percent of GDP, the problem is runaway spending.

The bank tax would also miss what one has to guess is Obama’s target, the bank CEOs.  Econ 101 tells us (maybe the President can ask Larry Summers for some tutoring) corporations do not bear the incidence of taxes, their consumers and shareholders do.   So the real outcome of this proposed tax would be to increase consumer banking costs while reducing the value of bank equity, all at a time when banks are already under-capitalized.

But now the same administration is proposing to assess a fee on banks to cover losses from the TARP.  Maybe President Obama is coming around to the realization that the TARP has indeed been a loser for the taxpayer.  He appears, however, to be missing the critical reason why:  the bailouts of the auto companies and AIG, all non-banks. This is to say nothing of the bailout of Fannie Mae and Freddie Mac, whose losses will far exceed those from the TARP. Where is the plan to re-coup losses from Fannie and Freddie? Or a plan to re-coup our rescue of the autos?

Our Tax Dollars Are Being Used to Lobby for More Government Handouts

The First Amendment guarantees our freedom to petition the government, which is one of the reasons why the statists who wants to restrict or even ban lobbying hopefully will not succeed. But that does not mean all lobbying is created equal. If a bunch of small business owners get together to lobby against higher taxes, that is a noble endeavor. If the same group of people get together and lobby for special handouts, by contrast, they are being despicable. And if they get a bailout from the government and use that money to mooch for more handouts, they deserve a reserved seat in a very hot place.

This is not just a hypothetical exercise. The Hill reports on the combined $20 million lobbying budget of some of the companies that stuck their snouts in the public trough:

Auto companies and eight of the country’s biggest banks that received tens of billions of dollars in federal bailout money spent more than $20 million on lobbying Washington lawmakers in the first half of this year. General Motors, Chrysler and GMAC, the finance arm of GM, cut back significantly on lobbying expenses in the period, spending about one-third less in total than they had in the first half of 2008. But the eight banks, the earliest recipients of billions of dollars from the federal government, continued to rely heavily on their Washington lobbying arms, spending more than $12.4 million in the first half of 2009. That is slightly more than they spent during the same period a year ago, according to a review of congressional records.

…big banks traditionally are among the most active Washington lobbying interests in the financial industry, and the recession has done little to dent their spending. …Since last fall, companies receiving government funds have argued that none of the taxpayer money they were receiving was being spent on lobbying.

…American International Group, the insurance firm crippled by trades in financial derivatives that received roughly $180 billion in bailout commitments, closed its Washington lobbying shop earlier this year. AIG continues to spend money on counsel to answer requests for information from the federal government, but the firm said it does not lobby on federal legislation.

The most absurd part of the story was the companies claiming that they did not use tax dollar for lobbying. I guess the corporate bureaucrats skipped the classes where their teachers explained that money is fungible.

The best part of the story was learning that AIG closed its lobbying operation, though that does not mean much since AIG basically now exists as a subsidiary of the federal government. The most important message (which is absent from the story, of course) is that the real problem is that government is too big and that it intervenes in private markets. Companies would not need to lobby if government left them alone and/or did not offer them special favors. Indeed, that was the key point of my video entitled, “Want Less Corruption: Shrink the Size of Government.”

Bachus Plan a Good Start toward Ending Bailouts

Today Congressman Spencer Bachus, along with several of the Republican members of the House Financial Services Committee, offered a plan for reforming our financial system and ending future government bailouts of the financial sector

At the heart of the financial crisis has been the Federal Reserve’s willingness to invoke its powers under Paragraph 13-3 of the Federal Reserve Act to bail out firms like Bear Stearns and AIG — all without a single vote from Congress or any form of public debate. Almost 10 months after the initial AIG bailout by the Fed, there is still no plan for resolving that firm, and no strategy for recovering the taxpayers investment.

While some might pretend that the Fed puts no taxpayer funds at risk under the use its 13-3 powers, it is the American taxpayer who ultimately stands behind any Federal Reserve actions. In focusing on 13-3, the Bachus proposal rightly targets the largest, and least accountable, source of the bailouts. The Bachus proposal would require the Treasury secretary to approve any 13-3 actions and allow Congress the ability to disapprove such actions. While a complete repeal of 13-3 would be preferred, the presented reforms are a step in the right direction.

Another feature of the Bachus plan is to require large, non-financial firms to be resolved under the bankruptcy code, and not under a regime of continuing bailouts or political manipulation. Despite whatever flaws it may have, the bankruptcy process is one that is separated from politics. As we have witnessed in the recent government restructuring of U.S. auto companies, allowing Washington to resolve firms is an invitation for violating contracts and rewarding political constituencies.

The Bachus plan also addresses the two institutions at the center of our mortgage crisis: Fannie Mae and Freddie Mac. Their model of private profits and public losses has become an expensive one, with little public benefit. Any reform proposal that does not deal with Fannie and Freddie does not merit being called reform. The Bachus plan would rightly begin phasing out the privileged status of Fannie and Freddie.