“Survival of the fittest” the state policy for car dealerships?

Car lot

How successful does a car dealer have to be to be allowed to stay in business?

Under current South Carolina law, car dealers are issued a certain number of dealer license plates every year. Since these dealer tags allow customers to test-drive vehicles, it would be difficult to stay in business without them.

How many dealer tags a used car dealer is issued depends on how many sales he made in the previous year. Until last year, he had to sell at least 20 cars to be eligible for the minimum number of dealer tags – two.

Last year’s Act 57 lowered the threshold to 15 sales – in other words, to receive the minimum number of dealer tags (and thereby stay in business), dealers only had to sell 15 cars instead of 20.

This year’s H.4618 simply adjusts the rest of the dealer code to the new 15-sale minimum. This type of bill is generally referred to as a “clean-up bill,” as its focus is more technical corrections and consistent language than sweeping changes to existing state policy.

When the bill came up for debate in the House this week, an amendment was proposed that would lift the mandatory minimum number of sales. In other words, any car dealer – regardless of how successful he was the previous year – would be guaranteed two dealer tags.

During the ensuing debate, one lawmaker expressed concern that it would result in non-dealers obtaining dealer tags in order to dodge property taxes for their vehicles.

In fact, dealer license plates can only be issued to licensed car dealers. Here are the requirements for becoming licensed as a car dealer:

  • An annual $50 license fee
  • A $30,000 surety bond
  • A business location (which must include a permanent, enclosed building with at least 96 square feet of floor space)
  • A permanent sign with six-inch letters, which must be readable from the nearest major road
  • A “reasonable” area to display cars
  • Eight hours of pre-licensing education courses

After meeting all of these requirements, the license applicant would estimate how many sales he anticipates making, and the Department of Motor Vehicles would determine how many initial dealer tags to issue.

The likelihood that anyone would go to that much trouble and expense merely to dodge vehicle property taxes is incredibly small. But it also raises an important point: Why, with the existing requirements of setting up a car dealership, does the state also require a certain minimum of business success in order to stay licensed?

Other states seem to agree. North Carolina gives car dealers three dealer tags for 12 sales or less during the preceding year; in Virginia, dealers who sold fewer than 25 cars get two; Georgia gives three tags for sales under 20; and Florida will give a dealer as many as he wants.

This is only one example of the poor business climate in South Carolina – which is ironic given the enormous taxpayer-funded incentives state and local governments routinely use to lure big businesses to our state.

South Carolina law is rife with industry barriers to entry and burdensome taxes, fees and regulations on existing businesses – like the car dealer license plate limit – all of which disproportionally impact small businesses and entrepreneurs. It should also be noted that these small businesses and entrepreneurs are the ones left footing the bill for their larger competitors’ tax credits and incentive packages.

Government’s proper role when it comes to business and industry is to ensure an even playing field, not to run small and poorly-performing businesses off the field entirely.

The bill and amendment are still on the House calendar awaiting a vote.

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