Tesla Could Use Institute for Justice Precedent to Challenge Auto Dealership Monopoly

Tesla Motors, a car manufacturer known for producing premium priced electric cars, is looking to introduce a new car that would be more affordable to the average consumer. However, the company has hit a roadblock. In six states, it is illegal for car manufacturers to sell directly to consumers without a dealer’s license, including Arizona, Connecticut, Michigan, Texas, Utah and West Virginia. That represents nearly a fifth of the new car market in the nation.

But on Monday, the Wall Street Journal revealed that Tesla is looking into using precedent from a successful Institute for Justice case to challenge the ban:

The auto maker’s legal staff has been studying a 2013 federal appeals court ruling in New Orleans that determined St. Joseph Abbey could sell monk-made coffins to customers without having a funeral director’s license. The case emerged amid a casket shortage after Hurricane Katrina. The abbey had tried to sell coffins, only to find state laws restricted such sales to those licensed by the Louisiana Board of Funeral Directors.

The Abbey partnered with IJ and the Fifth U.S. Circuit Court of Appeals struck down the licensing requirement in 2013. In a resounding win for economic liberty, the court slammed the “‘economic’ protection of the rulemakers’ pockets,” and ruled that “the great deference due state economic regulation does not demand judicial blindness to the history of a challenged rule or the context of its adoption nor does it require courts to accept nonsensical explanations for regulation.” Tesla, like the Abbey, is now burdened by an arbitrary, anticompetitive licensing requirement.

According to Northwestern University law professor John McGinnis:

“Until now, [economic liberty] decisions have been in niche areas of the economy…With Tesla behind it, it would go into something as economically important as the structure of the industry for retailing cars.”

The company filed for a dealer license in Michigan last year, and has been preparing for a legal battle should it be denied the license.

As IJ Attorney Greg Reed told the Wall Street Journal, “[t]here is no legitimate competitive interest in having consumers purchase cars through an independent dealership.”

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