April 6, 2012

So you want to open a car dealership in Georgia? Better get permission from your competitors first

By So you want to open a car dealership in Georgia? Better get permission from your competitors first

In January of 2010, Honda Motor Company began the preliminary steps of opening a new dealership in Cummings, Georgia. In the midst of a recession, the opening of any new business should be welcomed with open arms. Instead, the existence of this new dealership has been clouded by litigation for the past two years because Honda “made the mistake” of placing the dealership within eight miles of an offsite service center of a preexisting Honda dealer- WNW Honda.

Shortly after Honda announced its plans to open the new dealership, WNW brought suit under the Georgia Motor Vehicle Franchise Practices Act  to enjoin the establishment of any new dealerships in the area.  Under the Act, any motor vehicle franchisor who wants to establish a new dealership, or to relocate a current dealership, must first get permission to do so from any existing dealerships within an eight-mile radius of the proposed dealership. In short, if you want to open a dealership you have to get your competitors permission first.

Unfortunately, this story is not unique: the 14th Amendment to the Constitution is supposed to protect the rights of all Americans to earn an honest living by working hard or opening a business without having to first be subjected to unreasonable, arbitrary, or protectionist regulations. Yet, nationwide, companies convince cities and states to pass laws in order to block legitimate competition.  For example, before you can acquire a license to start a moving company in Missouri, the Department of Transportation is required to notify existing moving companies and give them the chance to object. When they object, you’re required to go through an expensive, time-consuming hearing process where you must prove that there is a “public need” for a new moving company. Of course, the law doesn’t define what a public need is, and even if it did, it is hard to imagine how you could prove such a thing. After all, who would have thought that there was a “need” for a phone that took pictures, a coffee shop that sells sugary coffee, or any of the other businesses that we’ve seen spring up in the last 25 years?

Similarly, until recently, the state of Louisiana required aspiring florists to pass a subjective floral arrangement exam before being licensed to arrange flowers. The $150 exam consisted of two parts: a one-hour written test and a four-hour practical test. The written exam covered such topics as design principles, color schemes, flower and foliage types, plant care, and the mechanics of flower arranging. The practical exam required applicants to make arrangements that would then be subjectively graded by, you guessed it, existing Louisiana florists. Not surprisingly the pass rates on such exams were incredibly low.

Fortunately, last year the state of Louisiana passed a law repealing the subjective portion of the florist exam. Similarly, in both Georgia and Missouri, the protectionist laws mentioned above are working their way through the courts. Yet, even when challenges to such laws are successful, the aggrieved business owners will have spent multiple years and countless dollars in unnecessary litigation just to open businesses that they should have had the right to open in the first place. And that is truly unfortunate.

You shouldn’t have to ask permission from existing businesses to compete in America.

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