If dealers actually add a value they don’t need a law to protect them from direct sales. And if they don’t it’s just a lawful money extortion. Why such laws do exist?
1) it's an easy way to do antitrust without breaking up the economics of scale in the manufacturing side
2) dealers would keep money locally / respond to local consumer demand better and
3) dealers were smaller entities that would negotiate better with consumers because they wouldn't have a monopoly on local supply of a manufacturer's vehicles
None of these are regularly true today (and it's questionable how true they were at the time). There are far more viable automakers than when this regulation was originally passed and dealers don't offer better pricing or try to meet local demand more than manufacturers. Dealerships also typically aren't small local businesses anymore, but instead large corporate chains whose owners may live just as far away as the OEM.
To a degree ICEs still do. Check the recommended service intervals in the user manual on a modern car. You basically need to visit the shop at least every year or sometimes every 6 months.
Obviously the sky won't fall if you don't do it as often as they recommend and the car will run just fine, but then you're voiding your warranty in case something breaks.
Old cars needed a ton of work frequently.
Check out this 1950s car owners manual: https://chevy.oldcarmanualproject.com/chevyowner/50om22.htm
If the US consumers having cheap cars was a goal (which, implicitly, is what those 3 dot points support) it would seem that US policies were ineffective. If anything, car prices depend on labour costs and the dealership structure is a sideshow.
Not always true. The value-add could be a positive externality/hard to monetize.
maybe Ford wanted to avoid antitrust lawsuits and promoted a car store to dilute their participation?
I’m curious
That premise is false.
If you want to assess the value of car dealers you’ll have to use evidence rather than ideology.
A perhaps reasonable compromise would be to (1) not "solve the problem right up" until there is some solid evidence of both the problem and that the law would help it. In general that would require waiting for, indeed, evidence, before passing laws. Which would require not passing laws when the issue is still hot. And (2) making these laws temporary so that they might actually require evidence before becoming entrenched. Including preventing rubber-stamping a law into its next 10 years.
Probably none of which makes sense anyway as long as "riders" exist. The current system is ridiculously corrupt and broken.
Also, the mechanism is explicitly outlined (of cause very briefly) in the comment, so no need to resolve to premises. If you do have something concrete to counteract and add for the discussion, that would be awesome!
The premise basically states that those who add value cannot be exploited, marginalized, or excluded from the system.
In real life of course they can, via market power, political power, violence, deception, or many other forces.
It happens daily, probably to you or your family.
> those who add value
There's a concept of "value-add" intermediary, and it pretty much universally means reducing value for the customer. Car dealerships are a typical example.
I'm torn on this. On the one hand, it makes sense in theory that excessive vertical integration is bad for society, and local businesses are good for society. On the other hand, I observe that in practice, competitive markets are subject to Gresham's law[0] - the shitty ones win over the good ones. So it follows, and something I also observed to be good as a heuristic, that the more layers of competing intermediaries you add, the shittier it gets for the customer.
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[0] - https://en.wikipedia.org/wiki/Gresham%27s_law - "Bad money drives out good".
That nonsensical. Dealerships of course add value, they allow you to actually see and test drive the car, they physically deliver the car, and they fix the car.
You could argue that the value is not worth the cost. Maybe so. But middlemen almost always add some value. And that’s independent of the more meta-value, which is providing a check against the market power of manufacturers.
> That premise is false.
"Markets are efficient" is not a law of physics, it's a heuristic. Given the free choice between two alternatives, people will tend to prefer the one which is to their advantage.
There are cases where that isn't true. Market concentration, collusion, regulatory capture, information asymmetries etc. But if you're going to assert that one of these is the case, you should be ready to explain the failure mode and how your proposed solution is the best way to address it.
In particular, most of the failure modes have known solutions. In case of market concentration, break them up. In case of regulatory capture, remove the rules that benefit incumbents. In case of information asymmetry, labeling and consent requirements etc.
"Middlemen are required by law to participate in the transaction" bears a far closer resemblance to something that would cause market inefficiency than prevent it, so if you're going to respond with "markets aren't always efficient" in response to that, let's hear your reasoning for why that would increase efficiency in this case.
This is a non-standard way of describing the concept here.
The actual concept at work is a prohibition against vertical integration.
There are plenty of examples of why this can be a problem dating back to the original Standard Oil trust that’s the archetypal example which spawned the need for antitrust laws.
A very clear example of laws against vertical integration is finance, where it’s just illegal to operate without middlemen. For example one firm can’t be a broker, dealer, and custodian of assets all at once. For very good reasons.
We’re seeing plenty examples of vertical integration being a problem today. One example is Amazon, another is pharmacy PBMs owned by insurers.
Maybe it’s an issue in this example as well, maybe not. But consolidation leads to market power and concentration and market power and consolidation are the main barriers to free markets in the US today.
Which means the original comment I’m responding to is just ideological blindness. The way to answer questions like this is by determining the actual consequences, not assuming a spherical cow.
Vertical integration is when you have two plausibly separable products that the maker requires you to buy both together. A good example in this context would be cars and car repair services. A law that prohibited automakers from locking out independent repair shops would be a completely different thing.
Whereas "cars" and "car sales" aren't really separable markets -- it's just a single product and the act of purchasing it.
> The way to answer questions like this is by determining the actual consequences, not assuming a spherical cow.
The point is that a cow may not be a perfect sphere but it's still kinda roundish and suitable for use as a first approximation. At which point you need to articulate not that the map isn't the territory (which everybody knows) but rather why the differences are relevant in this case.