Can The Federal Government Require States To Allow Direct Sales Of Cars?

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There’s an old saying: “When someone with experience comes across someone with money, the person with experience takes the money and the person who had the money gains experience.”

Nobody has fun buying a car at a dealer. Well, some people love it, but they’re so naive that they don’t know how badly they’re getting ripped off. Any pleasant interaction with a dealer is probably one in which you’re gaining experience and they’re gaining money. Getting a fair deal is a painful process in which they’ll pull every emotional string they can to make you feel bad about not getting ripped off.

For those reading this and saying “I loved my dealer, and I didn’t get ripped off!,” I know you people are out there. While I’ll stick with my position that you got ripped off and just don’t know it, I also want to point out that your opinion about dealers is something only a minority of customers agree with. Most people either want to deal with the manufacturer directly or are neutral about this. So there’s a clear preference for customer choice on this. Feel free to keep getting hosed by dealers! Just don’t make the rest of us work with them.

With state legislatures in many states bought and paid for by dealers’ lobbyists, EV companies that do direct sales in a growing number of US states are finding that the remaining states are unlikely to budge. In New Mexico, a theoretically blue state, Tesla had to work around dealer-only laws by opening a sales and service center on a native American reservation where state laws don’t apply (but federal laws that don’t prohibit direct sales still do).

Now, companies are setting their sights on maybe aiming for federal legislation to make states allow direct sales to customers.

“We’d love to have federal legislation that allows direct sales in all states.” Elon Musk said during a recent conference call. “But we have not seen willingness on the part of Congress to enact such laws…Unfortunately we have to fight it on a state by state basis.”

Aptera Motors also commented on this, saying that they think it’s time to push for a federal law again:

.@elonmusk we have legislation drafted to allow direct to consumer sales at the federal level.

Let's join forces to change this 👊

— Aptera (@aptera_motors) April 21, 2022

But, manufacturers and customers wanting something isn’t necessarily enough to get it. The question over whether the federal government can force states to allow direct sales is one we need to take a closer look at.

Let’s Review The States’ Rights Debate

I know some readers are going to pipe up in the comments about the Civil War. “The Civil War settled that question! The Federal Government can tell states what to do!” And, while you’re partially right, that’s nowhere near the whole story.

For those unfamiliar with the states’ rights debate in the United States, let’s quickly review that. The United States isn’t really a country as much as a federal system of independent states. In international relations, a state is equivalent to what we’d call a country today, and a US state is one of those states. The federal constitution doesn’t dissolve those states and turn them into mere provinces. It’s only an agreement to give some powers to a central government over a limited number of things, like defense and diplomatic relations with states outside of the United States. The other government powers not mentioned specifically in the constitution remain the power of states (this is stated very specifically in the Tenth Amendment).

Want an example of this playing out? Look at the Coronavirus pandemic. Some states had strict lockdowns and then mask mandates, while others were either a lot less strict or had no such controls at all. That’s because emergency powers during a public health emergency largely remain in the hands of state governments, with the federal government only allowed to dictate things like interstate travel or international relations.

The Changing Relationship Between States & the Federal Government

But, this relationship has changed over time. After the Civil War, federal powers were expanded with the 13th and 14th Amendments. Slavery was prohibited, and states were required to respect the civil rights of all citizens, which was defined broadly to include everyone born in the United States to avoid letting slavery continue on a technicality. It took a large number of court battles over more than a century, but the different rights protected (but not granted) by the Bill of Rights were eventually applied to the states by federal courts.

Another big moment in the history of states’ rights versus federal power came with the Wickard v Filburn Supreme Court decision in 1942. I won’t go into the full historical details on this case, but the core question was whether the Commerce Clause allowed the federal government to regulate things that aren’t sold across state lines. The court ruled that because a farmer’s wheat crops affect the market for other wheat that does get sold across state lines, it’s within the purview of the federal government to regulate, and allowed much President Franklin D. Roosevelt’s New Deal agenda to go forward.

This very broad power greatly expanded the size and reach of the federal government since the New Deal, but there has been some pushback. For example, the US v Lopez case cut back congressional power to make basically any law they want and restricted it to activities that are commercial or economic in nature, and even then only to things that “substantially affect interstate commerce”.

So, for example, Congress can’t just cry “interstate commerce” and do something like regulate non-commercial firearms possession (US v Lopez was about that issue), but they certainly can regulate a business selling an item made in another state or country.

After all, the original Commerce Clause says “[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” In D.C. v Heller (another gun case), it was it was made clear that “regulate” doesn’t mean to control something absolutely as much as to keep it regular and flowing well (in more of a Metamucil sense of the word). When it comes to militias, the idea of the Second Amendment wasn’t to control private ownership, but to make sure the militias act like regular (full-time) troops and are able to do their job well without impediments to it, like a federal ban on weapons ownership that leaves citizens unable to muster for militia duty.

I know not all readers will agree with the D.C. v Heller decision, but regardless of that, it’s been decided and established that “regulate” means keep things working well and doing their job. When it comes to commerce, it’s Congress’s job to keep good and services flowing between the states, and get rid of impediments to commerce.

Congress would be well within its authority to remove an impediment to interstate commerce and keep the movement of goods and services flowing between US states. I can’t think of a bigger impediment to the commercial flow of automobiles, especially electric vehicles, than state dealer franchise laws. I’d further argue that it’s a violation of the property rights and freedom of association of both customers and manufacturers. I’m sure readers could come up with more ways that Congress has the power to fix this situation.

The question isn’t as much whether they have the authority to make states allow direct sales as much as whether they have the will to do it.

Featured image: Tesla service center. Photo by Zach Shahan/CleanTechnica.