Even in Texas, sometimes the billionaires lose

Sometimes even billionaires don’t get what they want.

That’s the lesson emerging from an apparently failed attempt to craft a “carve-out” from protectionist Texas auto laws for famed investor Warren Buffett, one of the wealthiest men on the planet. Buffett is in a regulatory pickle because Texas is poised to bar him from owning both a vehicle manufacturing company and auto dealerships under byzantine state rules crafted with influence from powerful auto interests.

A bill that would carve out a loophole for Buffett’s chain of auto-dealerships in Texas — put on the fast track last month right after the billionaire’s meetings with Gov. Greg Abbott and Lt. Gov. Dan Patrick — ran into a wall of opposition from prominent Tea Party activists. They burned up the phone lines at the Capitol and publicly criticized what they saw as special treatment for the wealthy and connected.

Not long after those activists spoke out against the carve-out legislation in an open letter to the billionaire, Patrick pulled the “Buffett Bill” off the Texas Senate agenda, effectively killing it for now (though until the legislative session ends at midnight on May 29, any legislation can be theoretically resurrected).

Last week, a top leader of the Tea Party coalition, JoAnn Fleming of Tyler, said she was informed the bill is “dead as a hammer.” She says the battle over the bill pitted wealthy business interests and their lobbyists against ordinary citizen activists armed with little more than cell phones and outrage.

“Sometimes it comes down to, ‘Am I more afraid of the lobby or am I more afraid of the grassroots,’ “ Fleming said. “At any given moment, [lawmakers] are making that kind of calculation — and we won this one.”

Fleming and a coalition of like-minded conservative activists sprang into action late last month upon learning that the GOP-led Senate fast-tracked SB 2279  — one day after Abbott, Patrick and Sen. Kelly Hancock, R-North Richland Hills, met with the “Oracle of Omaha” in Austin.

According to legislative testimony, Buffett’s Texas troubles began when his Berkshire Hathaway Automotive discovered earlier this year that its chain of Texas dealerships appeared to be operating in violation of state laws that prohibit companies from both manufacturing and selling vehicles.

At issue: Berkshire Hathaway also owns an RV manufacturer, Forest River Inc., in Indiana.  

Buffett's appearance in Austin caused a stir, but none of the leaders who met with him has talked publicly about the conversations. After the meetings, Hancock filed the bill, which shot through his Business and Commerce committee like a bolt of lightning.

Berkshire Hathaway Automotive CEO Jeff Rachor told Hancock’s committee last month that state law barring auto manufacturers from selling cars had been written so tightly that, as an “unintended consequence,” it applied even to RV makers. Rachor and other Berkshire Hathaway officials did not respond to a request for comment Tuesday.

The Buffett flap has cast the state’s unusually rigid auto protectionism — promoted by powerful auto dealer interests that have poured money into the coffers of Abbott, Patrick and other top leaders — into the spotlight. While state leaders love to tout Texas as a beacon of liberty and free-market capitalism, laws regulating new car sales strictly regulate who can sell, manufacture and distribute them in the state.

Those laws have prevented electric car maker Tesla from selling its vehicles directly to consumers in Texas, which is now one of only four states where that practice is illegal, according to company figures. Texas laws also ensnared diesel engine maker Cummins, Inc. — which has a handful of dealerships in the state and sought its own carve-out — in addition to Berkshire Hathaway Automotive.

Before the Buffett Bill came along, a strange-bedfellows coalition of enviro-friendly Democrats and free-market conservatives began pushing bills this session — House Bill 4236 and Senate Bill 2093 — that would quickly free both Cummins and Berkshire Hathaway from their regulatory headaches. But it would also let Tesla sell its cars directly to consumers, drawing opposition from the powerful Texas auto dealers.

The bills are so radioactive that neither the House nor the Senate have given them a public hearing. The influential Texas Automobile Dealers Association signed off on a Buffett carve-out, but the group opposed cutting Cummins into the dealership business.

Sen. Kirk Watson, D-Austin, who filed the bill that would help Cummins keep its nine vehicle dealerships in Texas, said the opposition has nothing to do with the substance of the bills and everything to do with politics.

“There’s always talk about how we want to get rid of anti-competitive statutes that hurt business, and here we are missing an opportunity because those who benefit from the current law object to it,” Watson said.

One of Watson’s Senate colleagues who happens to sit on the opposite end of the political spectrum — Tea Party-backed Sen. Bob Hall, R-Edgewood — makes similar arguments. Hall authored the bill that would let vehicle manufacturers, including Tesla, sell cars directly to Texans. He says he did it to let the most forgotten constituency in the state — ordinary consumers — buy the cars they want from the companies they want.

“The most underrepresented group here are the citizens, the consumer,” Hall said outside the Senate last week. “They can’t afford to hire anybody to come in and do their lobbying. So they’re just a voice.’’

Proponents of the current system that requires people to buy new cars only from franchised dealers argue — just as Abbott did last year — that it ensures Texans get service from dealers if their cars break down.

“It’s working quite well the way that it is,” the Republican governor told Bloomberg Radio last year after a bill allowing direct Tesla sales stalled out. “If you’re going to have a breakdown in a car, you need to have a car dealership there to make sure that the vehicle is going to be taken care of. We haven’t seen that from Tesla.”

Hall, whose fierce opposition to the Buffett Bill helped knock it off the agenda, said the protectionist rules on the books are no longer necessary and are inhibiting innovation and consumer choice.

“I believe in free markets, I don’t believe in carve-outs,” Hall said. “I think we have a lot of statute that was put in place years ago and that the dynamics in the marketplace are different today than what they were, and anything we can do to move more toward free markets and let the public decide, the better off we are.”

Read related Tribune coverage: 

• The Texas Senate could soon debate the "Buffett Bill," a special interest carve-out aimed at giving billionaire Warren Buffett a little relief from protectionist state laws. And the bill that would help electric car maker Tesla Motors? Stalled. 
• Conservative activists are pushing back against the so-called “Buffett Bill,” which would let billionaire Warren Buffett hang onto his car dealerships in Texas but keep the market closed to Tesla and other manufacturers.

Disclosure: Tesla Motors Inc. and the Texas Automotive Dealers Association have been financial supporters of The Texas Tribune. A complete list of Tribune donors and sponsors is available here.