May 18, 2017 — According to an article in The Texas Tribune this week, legislation dubbed the “Buffett Bill” that would allow Berkshire Automotive to keep selling vehicles in Texas is dead.
Fierce opposition from Tea Party activists and environmental groups (yes, politics still can make strange bedfellows) forced Lt. Gov. Dan Patrick to pull the legislation from the Senate agenda last week.
We wrote nearly a month ago about how Berkshire Automotive unwittingly has run up against the tough franchise laws in Texas. (See: Berkshire Automotive Caught in Law of Unintended Consequences). The short story is that Texas franchise laws written decades ago governing which entities can sell new cars in the state include manufacturers of recreational vehicles also.
Texas law considers Berkshire to be a vehicle manufacturer because it also owns the Indiana-based $4 billion a year RV manufacturer Forest River Inc. As a result, Berkshire legally isn’t allowed to sell cars in Texas. Engine maker Cummins,which has nine dealerships in the state, is also affected. (It’s not certain how much impact Berkshire’s investment in Chinese automaker BYD — now at a reported 10% — has on its classification as a vehicle manufacturer).
The franchise laws were created to protect car dealers from having to compete with their manufacturers.
After Berkshire Automotive discovered the problem a couple of months ago, its chairman, Warren Buffett, flew to Austin, TX in April to meet with Texas Governor Greg Abbott, Patrick and Senator Kelly Hancock (R). The next day, senate leaders fast-tracked SB 2279, legislation creating a special exemption for Berkshire, out of committee.
But the bill never reached the senate floor for debate due to a loud outcry from consumer rights organizations, environmental groups and Republican Tea Party members. They resented Buffett, whom they consider to be an out-of-state businessman, getting special treatment. They also saw an opportunity to break the power grip the Texas Automobile Dealers Association by pushing for the elimination of the franchise laws they say limit competition.
The real problem, though, is Tesla, which is using the issue as a way to leverage support to convince politicians to allow it to sell its vehicles in Texas. The electric vehicle automaker has been trying to obtain the right to sell cars in the state since 2013, but none of the bills it has submitted have made it out of committee and into the public hearing phase. If Tesla was not in the picture, it’s likely no one would have pushed back against Berkshire getting a special exemption.
But Tesla is slowly building support in Texas for its case. Although, it has made no headway on the legislative front. This year, Tesla submitted two bills — one for the senate and the other for the house — that would allow it to begin selling its vehicles in the state. The bills also would have cleared Berkshire and Cummins. But those bills have sat in committee, while the legislation creating a specific exemption for Berkshire, was fast-tracked after one day.
If nothing happens in the next 11 days, it will be status quo in Texas until 2019. Texas’ current legislative session ends at midnight May 29 and doesn’t resume until January 2019. Berkshire will continue to sell cars while Tesla sits in the corner scheming and seething.
How it ultimately plays out is anyone’s guess, but it is unfathomable that Texas would force Berkshire to give up selling cars in the state. However, it’s not inconceivable that the Texas dealers association may end up having to agree to a compromise that allows Tesla to get its way. Of course, that might be a moot point by 2019 if Tesla’s Model 3 launch sputters.
(For an analysis of Tesla’s retail strategy and its potential weaknesses, read: Tesla’s Retail Strategy May be its Biggest Weakness).