Breaking Down the Uber and Tesla Bills

Nick Zaiac May 14, 2015

This week Gov. Larry Hogan signed a raft of late-session bills into law. While there are many notable pieces of legislation in the group, a couple of them stood out as victories for good, transparent public policy. Two that especially caught my eye are the so-called “Uber bill,” SB 868, and the so-called “Tesla bill,” HB 235.

First, SB 868, which attempts to accommodate new ride-sharing services like Uber and Lyft by differentiating them legally from traditional taxicab services. The bill is by no means perfect; ideally we would have seen a simple deregulation of the entire for-hire car industry. By the general look of it, the final version of the bill aligns with the regulations on “transportation network services” (TNS) companies that have been adopted in other states. The bill will treat TNS companies as distinct entities from standard for-hire taxi companies, which, while not ideal, is better than treating TNS companies as taxis.

The bill also includes a number of provisions which are relatively uncontroversial, even if they aren’t particularly necessary.

The first of these provisions involve operator insurance. The bill requires a number of categories of insurance, many of which are fairly standard for private auto insurance policies. The details may be found on page 34 of SB 868. They include bodily injury and property damage in case of an accident, but the driver must be insured specifically as a TNS provider. Such insurance does exist, provided by a company called Metromile, which is already partnered with some TNS companies to provide TNS-specific insurance.

There were also provisions about vehicle inspection and driver background checks. Fortunately, neither of these seems particularly onerous; in fact, major TNS companies already require background checks for drivers and have specific standards for vehicles driven.

One notable negative of the law is that it treats TNS companies like “common carriers” (see page 10 of the bill), This opens the door to more stringent regulation in the future.

All told, SB 868 is about as good of a bill as one could have expected to pass in the legislature. It makes few demands beyond simple, common sense requirements that companies already are handling, placing little burden on individual TNS drivers. Most importantly, it avoids regulating such companies as if they were taxicabs, which would have been a far worse outcome. Moreover, the law does not give the Maryland Public Utilities Commission permission to directly regulate the company, a problem I highlighted in past looks at the issue.

Now on to HB 235, the “Tesla bill”. The bill authorizes all-electric car companies to sell cars directly to consumers in the state of Maryland. Why is this bill necessary; can’t they do so already? The answer is no, because of the strange way that car sales are regulated in Maryland and most other states.

In these states, decades ago, legislatures required carmakers to sell their products to consumers through third parties—that is, car dealerships. These legislatures offer many “public welfare” justifications for this requirement, but none of them stand up to careful scrutiny; it’s commonly understood the dealership requirements are intended to give local businessmen lucrative monopolies over the local sales of various brands of automobiles.

As a start-up featuring a radical new technology, electric car maker Tesla Motors wants to circumvent the dealerships, both because Tesla doesn’t want to bear the cost of rapidly creating a dealer network and because Tesla wants to control the quality of the marketing of this technology. States with calcified dealer requirements are fighting back against Tesla; for example, New Jersey clamped down on Tesla sales last year.

In Maryland, which has a long history of embracing anti-consumer regulations like the dealership requirement, it’s astounding that the Tesla bill was enacted. Auto dealers have long been a political force to be reckoned with. As University of Michigan professor Daniel Crane noted in the Summer 2014 issue of Regulation, they successfully fought internet-based auto sales for a long period.

Unfortunately, HB 235 is far from ideal. It would have been better to simply repeal the law mandating dealer-based distribution entirely. In any case, the bill simply allows manufacturers of vehicles that do not use fossil fuels for power to serve as auto dealers in the state. The bill is rather narrowly tailored to fit Tesla Motors’ distribution model, but does leave open the possibility for other all-electric vehicle companies (or vehicle companies in general) to follow a similar business model. Beyond this, HB 235 does little else, being a very brief 5 pages. While it could have been better, the bill’s prompt passage shows that legislators are willing to change old laws to keep up with changing business models in the modern economy.