Is the auto franchise system a lemon?
If you want to buy a $25,000 television — and they do exist — there are a number of approaches you might take: Find a retail store that carries it, shop online, or even go direct to the manufacturer. But if you want to buy, say, a new $14,000 Ford Fiesta, your options are limited. You can’t get it from the manufacturer, nor can you purchase it online. Conventional retail stores can’t carry it either. You have only one choice: an automobile dealer.
Buying a car is the bane of every consumer’s existence. There’s that cringe-inducing moment as you walk into the showroom and a salesman (and it’s almost always a man) sidles up, suddenly your best friend, offering you a seat and coffee, eager to hear your life story. There’s the opaque pricing and the fake negotiation — “Let me check with my manager” — and the relentless push for more options, extended warranties, dealer add-ons, and dealer-provided financing.
Why is it that we can’t buy cars like every other good? Why is it that even as we sign the papers, we suspect that somehow and in some way we’ve been bilked? The answer: It’s the law.
In my last column I wrote about the all-electric Tesla and the dreams of its founder, Elon Musk, who may well revolutionize the automobile as we know it. Musk is fighting on a second front as well, this one more plebeian: He wants to change the way we buy cars.
Every state requires auto sales be handled by independently owned auto dealers. Manufacturers are prohibited from selling their own products. That alone means that auto prices are about 6 to 9 percent higher than need be, according to a 2009 report by the Department of Justice. Moreover, the lack of competition makes things miserable for car buyers. The DOJ report, for instance, cites a survey showing half of all consumers would buy from manufacturers “even if it didn’t save any money.” Yes, auto dealers, we really don’t like the way you operate.
And online sales? Also prohibited. There are a number of websites that make it seem as if you can buy online, such as Cars.com, AutoTrader.com, and CarMax.com. But those really are just clever ways of helping you conduct research into makes and pricing — and at the end of the process, sending you to an auto dealer.
So why is it so important that cars be sold through a dealer? The National Automobile Dealers Association would tell you that it’s the high price or the complexity of the machine or that dealers protect consumers. All those arguments are specious. The real reason is the same one that underlies all legislation that restricts trade or limits competition: It’s good for the industry. Consumers get hurt, but since most lobbyists work for businesses (and not consumers), those are the folks to whom legislators kowtow.
Tesla is trying to sell its high-end cars directly to the public, opening its own showrooms around the country. It fears, rightly I think, that existing auto dealers would care less about Tesla’s unusual cars and more about sales of more traditional models. But NADA and its state chapters are mounting a fierce counterattack. North Carolina is close to passing a law that would effectively shut down Tesla, prohibiting direct sales. In Massachusetts, the state dealers’ association sued to shut down Tesla’s Natick showroom. Late last year it lost in court — but continues to lobby the Legislature. Last month, a judge in New York similarly ruled against that state’s dealers.
This may be a fight that NADA wishes it didn’t pick. Tesla is small, and the challenge it offers is (at least right now) quite trivial. But the thinking of many is that, if the court battles go onward and upward, the US Supreme Court will likely rule the entire auto franchise system unconstitutional; under the Interstate Commerce Clause, it would be seen as a restraint on trade. If so, the winners would not only be Tesla but all of us. Imagine how great it would be to buy your next car on Amazon — and even better, never have to deal with a car salesman again.