Kansas auto dealers benefit from anti-competitive law

In Johnson County, a car dealer wants to move its dealership five blocks down the street. Amazingly, this simple act requires regulatory agency approval, and while unlikely in this case, existing auto dealers can block such actions under some circumstances.

In Kansas, as in many states, existing automobile dealers have input as to whether competition will be allowed into their market areas. In Kansas, the statue is 8-2430, captioned “Establishment of additional or relocation of existing new vehicle dealer; procedure; relevant market area.”

Examination of this statute reveals its anti-competitive nature. A person proposing a new dealership must state in writing why the new dealership should be allowed to be formed. The law requires that the applicant provide “a short and plain statement of the evidence the licensee, or proposed licensee, intends to rely upon in meeting the burden of proof for establishing good cause for an additional new vehicle dealer.”

If the director of vehicles holds a hearing and finds that “good cause has not been established,” the director shall deny the application, according to the statute. The burden of proof is on the applicant for the new license, and must be proved “by a preponderance of the evidence presented.”

The statute says that in determining whether there is good cause for a new dealer, the director of vehicles shall consider:

  • “permanency of the investment of both the existing and proposed new vehicle dealers”
  • growth in population
  • “effect on the consuming public in the relevant market area”
  • “whether it is injurious or beneficial to the public welfare for an additional new vehicle dealer to be established”
  • whether dealers of the same make of cars are “providing adequate competition and convenient customer care”
  • whether the proposed new dealer would increase competition and if that increased competition would be “in the public interest”
  • the effect of a new dealer on existing dealer(s)

The decision of the director is not limited to these considerations, says the statute. Some of these factors are so vague and subjective that they give the director reason to deny a new license virtually at his discretion. Will a new dealer have an effect on an existing dealer? Sure. Licensed denied.

We also have to wonder how it could injure “the public welfare” for people to have more choice in automobile dealers. Competition is the customer’s friend. Competition is always in the public interest. New business firms should not have to petition government regulators for permission to enter a market.

These laws that restrain trade and competition are harmful to the consumer. In his recent book The Right to Earn a Living: Economic Freedom and the Law, author Timothy Sandefur discusses the Illinois Motor Vehicle Franchise Act, which has language similar to the Kansas law. He writes:

Although cloaked in the language of public benefit, such laws are really private-interest legislation designed to allow the government to choose each company’s “fair share” of the trade. But the only way of determining what share of the trade is “fair” for any business is its success with consumers who are free to choose. If bureaucrats, rather than consumers, decide what amount of economic success is “fair,” businesses will devote their time not to providing quality products at affordable prices but to wooing government officials to give them special favors. … Consumers, again, are victims of anti-competitive laws of which most of them are not even aware.

Sandefur cites studies that show that states with laws like Kansas’ have fewer new-car dealerships and higher prices for new cars. “This price difference means that consumers are forced to pay more for cars without getting any increased value; the extra money is merely transferred into the pockets of politically influential car dealers.”

This law is bad for all Kansans except for one special interest group: those who own automobile dealerships. It ought to be repealed.


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