Loophole for Warren Buffett Pushed in Texas

AUSTIN, Texas (CN) – The Texas Senate used its emergency powers last week to introduce and fast-track a bill that would let billionaire Warren Buffett keep his car dealerships in the Lone Star State.

Senate Bill 2279, sponsored by Sen. Kelly Hancock, R-North Richland Hills, would carve out a deal for Buffett’s Berkshire Hathaway Automotive by amending the protectionist Texas automobile dealer franchise laws that prohibit vehicle manufacturers from owning vehicle dealerships.

The bill was introduced April 18, more than a month after the filing deadline and the day after Buffet met with Lt. Gov. Dan Patrick and Gov. Greg Abbott.

According to Hancock, the bill clarifies that a motor vehicle manufacturer or its parent company are not prohibited from owning an interest in a motor vehicle dealer so long as the vehicles they sell or service are not the same type of car that they manufacture or distribute.

In 2014, Berkshire Hathaway bought the Van Tuyl Group, then the largest privately owned auto dealership group in the United States. Today, Berkshire Hathaway Automotive, headquartered in Irving, Texas, owns 35 new car dealerships in the state.

Current state law, however, could keep Berkshire Hathaway Automotive from selling cars in Texas, because its parent company also owns a recreational vehicle manufacturer called Forest River Inc., based in Indiana.

Berkshire Hathaway Automotive CEO Jeffrey Rachor testified Thursday in favor of SB 2279 at a public hearing of the State Senate Committee on Business and Commerce. He said he was not aware of Forest River’s common ownership until last month.

Rachor said his company is supportive of the automobile dealer franchise laws, which he said are intended to protect consumers, but he believes they were too broadly written by the original drafters who did not anticipate “the ownership structures that exist today as the automotive industry has consolidated.”

Using an apples-to-oranges comparison, Rachor said the laws, which date back to the 1930s, are intended to keep an apple manufacturer from owning an apple dealership.

“However, the dealer franchise laws are written so broadly that they prohibit an apple manufacturer from owning an orange dealership,” Rachor said.

Rachor said his company has worked closely with the Texas Automobile Dealers Association on the issue and they believe that SB 2279 is “limited and narrow in scope and reflects the intent behind the dealer franchise laws.”

The Texas Automobile Dealers Association, a powerful lobby that contributes millions of dollars to state political campaigns, has fiercely opposed other legislation that would let carmakers sell directly to consumers.

Since 2013, Tesla Motors has been lobbying the government to pass legislation that would allow the company to use its direct-to-consumer sales model in the state.

Tesla has showrooms in Texas, but is not allowed to sell its cars in the state or even share specific pricing information. Texans wanting to buy a Tesla have to place an order online or over the phone.

Diarmuid O’Connell, Tesla’s vice president of business development, told the State Senate committee said that SB 2279 was a “step in the right direction” but urged lawmakers to consider “creating real choice and wanted change for car buyers who are asking for the direct sales model in Texas.”

“Direct sales will increase competition, generate jobs, create more choices for consumers, result in savings to Texas car buyers and bring the market into the 21st century,” O’Connell said. “When you have a good product and a good service model, competition isn’t something you fear.”

Texas Tea Party leaders have criticized state lawmakers for fast-tracking SB 2279.

In an open letter to Buffett, which was distributed to legislators Monday, Texas Tea Party leaders urged him to throw his weight behind Senate Bill 2093 and House Bill 4236 instead. These bills, which would allow any auto manufacturer to sell directly to consumers, have not yet been heard by committees.

“While other industries are allowed to innovate and modernize, creating efficiencies, saving consumers money, and improving customer service, the Texas auto industry remains stuck in the past,” the leaders, calling themselves the Texas Free Market Coalition, wrote. “Worst of all, they rely on government protection to maintain their monopoly. Yes, the reality is that most of our Texas politicians who claim to be free market champions are happy to engage in protectionism and to use our tax dollars to pick winners and losers.”

SB 2279 was passed by the committee Thursday with a unanimous yes vote. It is not clear when the full Senate will bring the bill up for debate.

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