What prompted this law in the first place? Can someone from the US shed some light on this?
I just don't understand how you can ban selling what you manufacture to whomever you like outside of a planned economy.
I just don't understand how you can ban selling what you manufacture to whomever you like outside of a planned economy.
In reality, these were consumer and economic protection laws. States didn't like how much money was flowing from their economies to Detroit, and by making direct consumer sales illegal they gave a lot of leverage to franchises, which are local businesses. They also justified the laws on consumer protection grounds--local car dealers would be a lot more responsive to customers than a megacorp in Detroit.
As for the "planned economy" aspect--remember that the ideas of what constituted unreasonable interference in the economy were very different back then. The revolution of applying economics principles to government didn't really happen until the 1960's and 1970's. Before that, quite extensive interventions in the economy were routine. For example, prior to the 1970's, the Civil Aeronautics Board set airline ticket prices! That would be amazingly controversial in the U.S. today, on either side of the aisle, but was par for course back in the day.
In reference to local car dealers part. So states were mainly only interested in the money, but then justified it under the guise of consumer protections.
Is that fair to say ? Or did states really care about consumer protections ?
And in the pursuit of truthiness, and not creating a false dichotomy, are both those wrong ?
As for whether these justifications are wrong--it's hard to say. From a jobs point of view, it's probably still not a win for NJ for those dealerships to shut down and have NJ money flow over the internet directly to California. The consumer protection angle is a lot weaker in a day and age where Tesla can monitor your car's stats over the internet.
Consumers will pay less for their cars, and the extra $1000-$2000 dealerships make on each car, will remain in the consumer's pocket. This is better on the whole.
Dealerships are market inefficiencies, as they create no real value or "wealth"[1]. They give nothing to consumers in return for the $1-$2k extra that consumers pay for each car.
[1] As defined by Paul Graham in: http://paulgraham.com/wealth.html
This is very surprising complaint to hear - the whole capitalist economy is filled with inefficiencies! (and Paul Graham is hardly saying something novel here).
But the actions to prevent Tesla from selling direct now, today, have definitely been the result of regulatory capture.
The original interventions created a kind of local businessman, who knew he owed his existence to these local regulations.
And now that these laws have been made unnecessary due to the availability of both information and exposure -- and incontrovertibly unnecessary in the case of for instance a large city or densely populated state, where healthy competition exists -- the reason that they hang on and prevent companies from Tesla from opening shop is absolutely regulatory capture.
There doesn't seem to be much disagreement about the facts, just the definition of "regulatory capture".
The idea which "regulatory capture" describes is when regulations fail to do what they are intended to do, when instead of restricting they empower.
But the regulations have not "failed", they are still restricting manufacturers and empowering dealers, so this isn't "regulatory capture", just bog-standard monopoly-granting.
> Regulatory capture is a form of political corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating
Enforcing barriers to entry is a huge aspect of regulatory capture. A regulation that creates $1 million/year of compliance costs nominally "restricts" all players (and certainly doesn't "empower" them), but that money is often a pittance for large companies while effectively squashing new entrants, greatly to the large companies' benefit.
That seems to make sense. What's different about Palo Alto, CA that they're ok with money flowing directly there? Is it because dealerships have become unnecessary middlemen putting more $ on the cost before it reaches consumer hands?
[1] In fact, I imagine lots of state legislators hate Palo Alto for making middle class jobs in their states obsolete while creating a few high paying jobs in California and diverting the difference to shareholders in New York. We're talking about a state hollowed out by deindustrialization, where the promise of better jobs to replace the ones lost was made decades ago, and still has yet to materialize.
A large economy will have consumers spending millions on google ads and iTunes content, and none of it will end up in the tax coffers of the local country.
This is better off for everyone except for the politicians who want to throw money around.
The eventual result will be make-work schemes like the local dealer franchises. Expect enforced-local entities in some countries where an office is created and people do meaningless work so the tax revenues can be domiciled. In other words, the exact same model as the car dealerships.
It's bad but people hate being exposed to the market, because it systematically punishes laziness. Most people will vote for a politician to make it easier for them to be lazy, even if it ultimately makes them worse off.
But to say that no auto manufacturer can operate direct sales is silly since there are now new car companies being formed.
While I do think market interventions are sometimes justified, in this case it seems we are protecting dealers for their own sake.
i never understand why people are so anti-dealership. yes there are stories about bad ones but to be honest just how would anyone expect these places to be in business if they were consistently bad.
long term, without a dealership model if you have a problem with your tesla your likely up the creek unless they agree with you. there have been some well publicized cases where it took getting media involved to get cars bought back or fixed. dealerships want to preserve their customers as many sell more than one brand, manufactures can easily write off one consumer.
http://www.npr.org/blogs/money/2013/02/12/171814201/episode-...
In the more generic case, states have these laws on the books to protect the local franchise dealers. These people buy cars from a particular manufacturer, usually multiple brands. In order to protect these dealers from the perceived threat that an automaker could come in and sell direct (thus undercutting their business), laws were enacted to require a franchise to sell vehicles. Thus Ford couldn't come in and sell vehicles unless they created their own franchise, which would raise their costs to be on par with the independent franchises. I think the justification for the protection is the local jobs and businesses.
Which is a damn shame. When shopping for a car every manufacturer currently has a 'build your own' tool online where you can build you car to spec and you get a rough estimate. However, in my experience, this estimate is never honored by dealers.
The last car I purchased had an item on the sticker price called 'Dealer improvements' that was $6000, and after talking to the dealer he would "cut me a break and not charge me anything" so I would be getting the car for $6000 less right off the bat. When I inquired as to what exactly did they improve he refused to answer in detail.
I'm sure my experiences are not unique. I would love to just press an Order button at the end of the vehicle builder and have it delivered to my door or somewhere close to my home.
The problem with getting rid of dealers is that most people will still want somewhere to test drive, someone local to handle paperwork, and there would need to be a service network in any case. Tesla will still have dealers. They'll just be owned by the company. And the experience will doubtless be comparable to existing high-end car dealers.
I just don't think this blanket ban is the way forward, but rather some regulation/comparison about what a store (dealer or manufacture owned) actually pays for cars, so you can clearly see if manufacture owned stores are not getting unfair advantage. I suppose that competition between manufacturs would be the driving force in that case. It's certainly possible.
My own experience was something along the lines of this: Figure out what the car cost on Fords webpage, go to a dealer, get a quote, negotiate a little. Repeat with 2 other dealers and see what you get, and let it be known what offer you have so far (they usually demand some proof, so you better be telling the truth). I ended up paying 15% less than the standard quoted price, which could have been better, but I wanted to buy from a dealer with a great reputation.
I don't think that's it... having dealerships does nothing to stop the manufacturer from changing prices to whatever they want.
The "build your car" tools on the websites always represent the "as low as" price. It assumes all possible rebates, many of which you aren't eligible for. If you were a military veteran who recently graduated college with great credit and an account at a credit union with a pre-existing arrangement with that dealership, and are also trading in a same-brand car while trying to purchase a model with flagging sales, then tada, you can easily get the "as advertised" price.
Edit: this is incorrect. See replies.
Wrong. The "build your car" tool is generally the MSRP, since it's on the manufacturers site, which will be substantially higher than price you'll have to pay at the dealer.
I had somehow mentally conflated the "browse our cars on the lot" page that many dealerships have with the "build your car on our site" page.
Thanks for the correction.
So why didn't you go elsewhere?
His living depends on the commission he earns from selling you the car. If you feel the people are dishonest, why do business with them?
See Obamacare, eVerify, FMLA etc.
[1] https://news.google.com/newspapers?nid=1454&dat=20010301&id=...
Sounds cynical but take note, back when cars were first coming out the laws that were passed in response to them were designed to impede the adoption, not promote.
Consider: who would benefit most from the removal of these laws? The obvious answer is the General Motors Corporation. They could own their own dealerships, getting better control of customer experience and a bigger cut of the profits. It's not like they're short on capital such that they would be forced to franchise anyway. As the largest automaker in the world for most of the last century, they would get a significantly outsized benefit compared to any competitor.
Now for a rhetorical question. Who has more political power in the U.S: car dealerships in aggregate or General Motors? Answer: General Motors, of course!
Another rhetorical question: Does Tesla have more political power in New Jersey than GM as well, given that the exception was carved out specifically regarding the type of vehicle they produce?
edit: New Jersey is no stranger to economic protectionism. They actually prohibit self-service auto refueling as a jobs program, which would seem to be more threatened by Tesla than car dealerships. I'm not trying to argue that it doesn't exist, just that it doesn't explain what's going on here.
GM was facing a nearly impossible 50 state battle, spanning thousands of politicians, in trying to do anything about the dealership cartels. Instead, GM was ultimately ok with a truce with them so long as GM could control issuing (or revoking) the dealer licenses.
Also, if it were just a political fight between businesse interests, GM could just go over the states' heads: people frequently buy cars across state lines, so the commerce clause reasoning for a law prohibiting these laws wouldn't even be as tortured as it usually is.
What makes you so sure?
The one interesting thing I did find is that many disabled motorists have a very hard time using self-service pumps – while still being able to drive safely with vehicle modifications. The Americans with Disabilities Act even has a requirement that gas stations provide refueling assistance, with some exceptions. (http://www.ada.gov/gasserve.htm)
That still doesn't mean self-service should be banned. At most, it's argument for requiring gas stations to have >=1 full-service pump.
The other funny thing is that many NJ natives seem to really like using full-service pumps and want to keep the ban. And because they have low gas taxes and import so much fuel, NJ still has some of the cheapest gas in the country. So, there's not much political will to change it – despite the inanity.
Why not ban ATM's to provide bank teller employment? Or ban self-checkout at grocery stores? Let's not forget all of those poor elevator operators out of work.
Maybe we should go around breaking windows to create work for local glaziers? (http://en.wikipedia.org/wiki/Parable_of_the_broken_window)
I appreciate the sentiment of wanting to provide low-skill employment opportunities, but this is not the way to do it. It's provably bad logic.
Mandating it is absurd. That people would go so far as incarcerate people for pumping their own gas goes way beyond resolving an inconvenience and well into normalizing bureaucratic oppression. (Yes, that sounds overstated - but really, jail time for pumping gas? it's not about the pumping, it's about something being very wrong & dangerous about the mindset that thinks jail time for pumping gas is reasonable.)
The idea is that car manufacturers would be able to undercut dealerships on prices and thus bankrupt the dealerships[1].
So it's just classic protectionism. The question why the law should protect entities that everyone hates is the baffling part.
But certainly I don't see why a manufacturer who doesn't have an existing dealer network shouldn't be able to sell in whatever way it chooses.
It's not - it's probably better than your average Dodge dealership, but there's nothing inherently different about BMW dealers - they make their money on services and accessories that you don't need like most other dealerships. They'll overcharge you for an oil change (which is typically cheaper, but not much, at an indie mechanic - but it's irrelevant because changing a BMW's oil is so so simple your grandmother can do it) like any other place, but they might offer you some muffins while you wait in the lobby. BMWNA (BMW's North American operations) will keep the dealerships in line if they start watering down the brand value, but you usually have to go through a long and arduous complaint process to get them listening.
At this point; the dealers know that you know what the invoice price or KBB value of a car is, and what kind of loan rate you can get elsewhere. They might want to sell you a warranty or the like, but at that point you've already negotiated the price of the car, know your loan rate, and can just say no to the extras and move on.
I'm not sure about "everyone hates dealers", but having never purchased a car, I have no idea why a car store is different from a computer store. What's special about dealerships?
http://motherjones.com/politics/2009/02/why-you-cant-buy-new...