Car Dealers Should Yield to Buyers Now
I had a dream the other night. Shopping for a new car, I logged on to a manufacturer's Web site. I found the model I wanted and clicked on my options. Days later, a deliveryman showed up with the car and the relevant paperwork.
But then I woke up, back in the real world, where the only way to get a new car is to go to a dealer and haggle with a salesman who keeps ducking out to "check with the manager." In the real world, my dream -- ordering straight from the factory -- is illegal. State laws forbid anyone but a licensed local dealer to sell new cars.
I had this dream because Congress is considering the Automobile Dealer Economic Rights Restoration Act. It would reinstate hundreds of dealers terminated by General Motors and Chrysler under the terms of their federally financed bankruptcies.
The Obama administration demanded the cuts because the companies have no chance of being competitive otherwise. Toyota's far less numerous dealers sell more cars than do the Detroit Big Three's dealers. But, just as union rules limit GM and Chrysler's control of production, state-protected dealer prerogatives limit the companies' control of distribution. Only bankruptcy law enabled the firms to trump these state laws.
Independent analysts agree with the administration. And without the bailouts, there would be zero GM and Chrysler dealers, not just fewer. But many dealers are angry anyway, and they have the ear of such Democratic House heavyweights as Majority Leader Steny Hoyer and Chris Van Hollen of Maryland, who are among the bill's 202 co-sponsors, as is Rep. Gerald Connolly (D-Va.). Maryland's Democratic senators, Barbara Mikulski and Ben Cardin, support a similar measure in their chamber.
Echoing the dealer lobby's talking points, the legislation proclaims that dealers "are an asset to automobile manufacturers that make it possible to serve communities and sell automobiles nationally," and that the dealer network costs the manufacturers nothing.
There was a time, long ago, when it might have made sense to chop America into sales "territories," each allocated to a dealer whose protected local market compensated for the risk of investing in a brick-and-mortar building and a large inventory of cars that might or might not sell.
Today modern techniques can take the guesswork out of inventory management, and Internet-savvy consumers don't need grinning salesmen to explain their choices. Actually, the old business model has been obsolete for decades, which is why local dealers turned to their state legislators.
Beween 1969 and 1980, 40 states legislated exclusive auto franchises, according to a 2002 report by the Consumer Federation of America. Statutes typically guarantee dealers a "day in court" to resist termination, forcing manufacturers to buy them out or spend thousands litigating.
In 1999, a GM executive predicted that 80 percent of new-car buyers would be able to custom-order online by 2003; entrepreneurs began exploring the possibilities. The dealers lobbied for state bans on Internet sales by anyone but a dealer, and they won.
If the dealers' bill passes, an essential component of the Obama administration's bailouts of both GM and Chrysler would be in jeopardy -- or at least become more expensive. No doubt some dealers backing the bill are really shooting for a buyout, not reinstatement. It could come only from GM and Chrysler's new owner: the American taxpayer. How much could it cost? GM paid more than $1 billion to buy off Oldsmobile dealers when it eliminated that brand.
Dealers claim to perform all sorts of valuable services -- dealer "prep" and the like -- that no one else could replicate. If so, they should be unafraid of competition. If not, they are exercising political clout at the expense of the car-buying public. In 2002, the Consumer Federation of America estimated that state laws, including those that grant dealers a monopoly on warranty service, add $1,500 to the cost of a $25,000 car.
To be sure, dealers are pillars of communities around the country. They create jobs and spend some of their state-protected profit on Little League sponsorships and other charitable works. For many a small town, the demise of a local dealership is a wrenching event.
But many a small town mourned the village blacksmith. Greater efficiency would destroy some jobs -- and free resources to create new ones. The truth is that cutbacks of GM and Chrysler dealers fall far short of the radical change that the car-buying process needs and the car-buying public deserves. Instead of contemplating putting taxpayers on the hook for the "economic rights" of a long-favored few, Congress should be making car-buying cheaper and simpler for everyone. Instead of "restoring" the past, it should be building the future.