We’ve heard it before and, at the risk of sounding as old as I am (pushing 60), I’d even venture to say it sounds like a broken record: Connecticut is not friendly to business.
The list of examples one can cite is a mile long. To be fair, it’s not all about taxes. Sometimes it’s the regulatory burden; sometimes it’s the state’s highly unstable budget situation and its unfunded pension liabilities that hint of a day of reckoning in the not-too-distant future.
But for anyone thinking of relocating a business here or starting one in Connecticut, impressions are important. And the stories coming out of the state are not encouraging. The latest involves the incredible fuss being made about proposed legislation allowing the luxury electric car manufacturer Tesla to sell its product directly to the people rather than using a middleman — namely the franchisee auto dealers.
Naturally the dealers are apoplectic at the thought of the state allowing new automobiles to be sold directly to consumers, as just about every other product is. Some have called auto dealers “parasites” because they don’t actually create anything of value. I wouldn’t go that far. Auto dealers derive the bulk of their revenue from servicing the vehicles they sell, which creates economic synergy for the dealers, while benefitting consumers as well.
But the arguments used to derail recent legislation that would have allowed Tesla to bypass the dealers are absurd on their face. Since the Great Depression, Connecticut has not allowed car manufacturers to sell new cars directly to consumers — unlike neighboring New York and Massachusetts. Tesla does have a service center in Milford, but if they want to purchase one, Connecticut consumers must travel to such exotic locations as Natick and Mount Kisco.
There is only one group that benefits greatly from the current arrangement: the legacy automobile dealerships. Consumers lose in any deal in which good and services can only be sold through one type of outlet. It’s an anti-competitive practice that should be done away with.
It reminds me a little of the state’s package stores and the grip they have on lawmakers, most of whom don’t realize how preposterous it is to protect liquor stores from meaningful competition through the scourge of minimum pricing, a practice that punishes consumers in the name of protecting the fiefdoms of small business owners.
Under pressure from the powers-that-be, Senate Majority Leader Bob Duff may have put the kibosh last week on the pro-consumer legislation, but Tesla returned with a counter offer. If the state enacts a law that enables Tesla to own and operate five stores in Connecticut, company officials say they will also open a regional distribution center that will bring 150 jobs to the state. Plus, each of the Tesla stores will employ up to 25 people, for a total of 275 jobs with salaries ranging from $40,000 to $100,000 per year. That’s not exactly chump change in a small state where decent-paying jobs are becoming harder and harder to find.
The Connecticut Automotive Retailers Association responded by running advertisements, including one on this website’s morning email blast, arguing that Tesla had made similar promises in other states and never fulfilled them. To that I answer, “Pot, meet kettle.”
I don’t know how many times I’ve walked into a dealership having been promised a certain price by a high-pressure salesman, only to find that I’m going to wind up paying $2,000 more because of various fees the sweet-talking man had neglected to tell me about. Sorry, complaints about bait-and-switch tactics coming from auto dealers don’t carry much weight with me.
On top of that, the dealers’ lobby couches its opposition to lifting the ban on direct sales in terms of protecting the consumer, when in fact its very support of the ban hurts consumers. They say the absence of a network of dealerships will have an adverse effect on the manufacturer’s ability to deal with mass recalls, for example. Or if a manufacturer goes out of business, there will be no place to take the car for dealer-quality service. But if consumers know that information upfront, aren’t they intelligent enough to make their own decisions about assuming such risks?
The dealers moan about how direct sales are a “slippery slope” that might lead to the eventual demise of their own franchises. Yes, if the ban is lifted, it could eventually spell the end of the dealership/middle-man model, resulting in the loss of the tens of thousands of jobs. But that’s not a compelling reason to keep the ban in place. By that tender logic, the automobile itself should not have been allowed to be manufactured and sold. After all, think of all the jobs associated with buggy whips that were eliminated. Nor, for that matter, should there be news websites. Just ask the 16,200 U.S. newspaper journalists who lost their jobs from 2003 to 2012 alone.
A vibrant economy is a creative economy. And innovation rarely takes place without disruption. As long as certain special interests are protected from competition, empires are preserved and consumers lose. How sad that so many of our state’s leaders are either unable or unwilling to see that.
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