Tesla slips the noose of regulatory capture in Missouri

A regulated industry sometimes is able to use a regulatory agency to restrict competition. In Missouri, licenses for dealers of new cars have been issued only to applicants which hold franchises granted by manufacturers, with the franchisees each maintaining a place of business within the state. The value of a dealership is strengthened if a manufacturer cannot open a competing dealership.

Under Tesla’s business model, purchasers buy directly from the manufacturer, not from a separate dealership. Tesla granted itself a franchise and was thus both franchisee and franchisor, sparing customers the cost of supporting a separate dealership.

The Missouri Automobile Dealers Association (MADA) sued the Missouri Department of Revenue and Tesla Motors, claiming that issuing the license to Tesla created “a non-level playing field.” The Cole County Circuit Court determined that MADA had a right to challenge the issuance of the license to Tesla and agreed with MADA that the issuance of the license to Tesla was unlawful.

The Missouri Court of Appeals reversed the Circuit Court, holding that MADA (as well as another car dealer and a motor vehicle manufacturer) had no right to challenge the issuance of the license to Tesla, lacking standing. The appellate court examined the motor vehicle licensing statutes and found that the statutes permitted an applicant to challenge the refusal of the Department of Revenue to issue a license, but said nothing about the right of a dealer to challenge the issuance of a license to a potential competitor. Moreover, a court could not order the Department of Revenue to revoke the license, because the Department’s power to do so depended upon the existence of specified acts or events that were deemed by the Department’s director to be a “clear and present danger to the public welfare.” The director had not made such a discretionary finding.

The appellate court characterized the MADA challenge as that of “competitors seeking to avoid competition and not as vindicators of the a larger public interest.” Thus Missouri follows several other states that have allowed Tesla’s business model to disrupt old ways of doing business.

Uber and Lyft, Airbnb and HomeAway, and Zillow are similarly changing the economy, taking advantage of internet and smartphone technology to be responsive to consumer preferences. Lobbyists will have plenty to do.