Voices for Reason - Dealership Regulations Are Preventing Car Selling from Entering the 21st Century | The Ayn Rand Institute

Dealership Regulations Are Preventing Car Selling from Entering the 21st Century

Imagine a world in which you could buy a customizable car or pickup truck over the Internet, much like a Dell computer. Pick your make, model, and color. Decide whether you want to pay extra for a spoiler or a moon roof. Upgrade the technology on the dashboard. Add extras such as keyless ignition or temperature-adjusting seats. Then get a clearly stated price — without having to haggle with a salesman. And buy it with the click of a button, after which it will be shipped to a nearby pickup location in a few days.

Would this kind of sales model work for automobiles? Would people prefer to purchase vehicles this way?

Your answers don’t really matter because this new approach is illegal under today’s laws.

In almost all states, dealership franchise regulations ban automakers from selling new cars directly to consumers. These controls instead force automakers to sell through independently owned, state-licensed dealerships.

There’s no reason for these regulations to exist, but many dealerships fight to keep them on the books so they don’t have to face competitive pressures.

In practice, these economic controls mean not only that Tesla Motors is battling with various states to operate company-owned stores, but also that automakers like Ford and Toyota cannot think outside the box.

Dealership franchise regulations lock in a government-dictated way of selling vehicles. They force automakers to stick to a brick-and-mortar model in an age when online retail and ecommerce are thriving.

Does an online model make sense for some automakers and their customers? Would it drive down inventory costs and so the price of a new car, as it has done for computers? Would consumers make use of extensive customization options? These are questions that can only be decided on a free market. But we won’t see much innovation in the way new cars are sold until state franchise regulations are abolished.