TCS Daily

Break the Car Dealer Monopoly

By James Freeman - May 29, 2000 12:00 AM

Would you like to buy a car directly from Ford, GM or Honda, instead of buying from a car dealer? Would you like to shop on the Internet and cut out the local middleman? Sorry, you can't. In almost every state in this country, you are prohibited by law from buying a new car from anyone but a local, franchised dealer. As host James K. Glassman recently noted on TechCentralStation, dealers are not content with a government-enforced monopoly on new vehicle sales. In states like Arizona and Alabama, the dealers are lobbying to keep competitors out of parts and service, too.

The guys who own car dealerships are so powerful in state politics that not even the automakers themselves can decide how their products are sold. After flirting with the idea of selling directly to customers over the Internet, GM and Ford have now responded to dealer complaints by rejecting the direct sales approach. And just to demonstrate who's in the driver's seat in the car business, the two auto giants recently felt compelled to pledge allegiance to the old-fashioned dealers. Two weeks ago, the firms released letters saying that companies like, which is trying to get around the traditional dealer network, won't be able to serve the customer as well as incumbent car dealers.

It's a funny country we live in, isn't it? The Department of Justice is trying to break up Microsoft because the company convinced millions of consumers to choose Microsoft software. Meanwhile, the DOJ doesn't seem to have a problem with state governments forcing consumers to buy from local car dealers. You might wonder, since GM and Ford actually build the cars and provide the warranties, what exactly is the value added by the dealers to justify their tax on your purchases? The fact that they need a government monopoly tells you the answer.

And the fact that they've convinced state politicians to give them one is just amazing. Can you think of anyone with a less sympathetic claim to government assistance? Personally, I don't think anyone should get special treatment from the government, but car dealers? We kicked unemployed people off the welfare rolls, but we're giving permanent support to car dealers? I can only imagine their lobbying pitch: "Well, it's true that we mark up the cars made by someone else, and yes, our financing plans carry higher interest rates than bank loans, and fair enough our repair services are kind of pricey, but we should get protection from cheaper online competitors because, well...we've talked to our sales managers and we'll throw in the rust-proofing for free!" I'm not saying that every car dealer follows the stereotype. I'm sure there are many of them who offer honest, valuable service, so they should have nothing to fear from a free market. And consumers definitely deserve a free market.

Overcoming the lobbying power of the dealers won't be easy, but it can be done. In just about every state and local election, transportation is a big issue, whether you're talking about building more roads, constructing mass transit systems, or designating carpool lanes. Whenever you get the chance, tell candidates for state or local office that the most important transportation issue to you is a free market in auto sales. If enough of us tell them to axe the middleman tax, the politicians will start listening.

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