3 ms·

>...However, I think the fact is that the manufacturers who set it up like this don't want to deal with customers, and they establish dealerships that agree to

by opo 2y ago

>...However, I think the fact is that the manufacturers who set it up like this don't want to deal with customers, and they establish dealerships that agree to a certain quality of service that the manufacturer wants associated with their name. No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer: >...Economists have characterized these regulations as a form of rent-seeking that extracts rents from manufacturers of cars, increases costs for consumers, and limits entry of new car dealerships while raising profits for incumbent car dealers.[2] Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be.[2] [3] https://en.wikipedia.org/wiki/Car_dealerships_in_the_United_States https://en.wikipedia.org/wiki/Car_dealerships_in_the_United_...

wakawaka28 2y ago
>No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer It might be like that, or it might not. Maybe the car manufacturers take a public view that's different from their private view. Why would a state demand extra hurdles that cost its residents more money? Could it have anything to do with creating barriers to entry for other manufacturers to sell their cars in that state, basically making it difficult to buy a car that isn't part of an established brand? I think manufacturers actually vary their opinions sometimes. If they are new without many resources, they might prefer to sell direct to customer. If they are mature, it could be looked at two ways. On one hand there is a lot of work to do in order to sell and support the vehicles that can't be done in a centralized fashion. They can afford to do the work themselves by setting up a bunch of dealerships all over the country. But it is questionable whether the manufacturer can actually do it cheaper than the individual dealers. As for this: >Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be. There are three points I have for you to consider. For one, is it possible for people to get service from dealerships that provides value that is hard to appreciate? For example, they can fix issues quickly without shipping the car off, develop relationships with customers to help them fill their needs, do trade-ins (how would that work when dealing with a manufacturer directly?), or any number of other things that we know they do for customers. Secondly, how is this research conducted if car dealerships are mandated by law? Finally, if the manufacturer takes on the dealership role, it has to bear basically the same costs as the independent dealer. So where is the actual savings going to come from? Do you think you can negotiate with a factory outlet to get a better price? Here's another thing you might want to consider. I know it's going to sound crazy, but in some cases people are served better by allowing prices to fluctuate. How? Well, the people more willing to buy a particular car (with a supply constraint) are willing to pay more, and that is only feasible if the seller has scope to negotiate. If there is no scope to change prices then the cars just go out with equal priority, possibly depriving someone of their dream car while someone else who appreciates it less is the one who got it first. The individual sellers on the other hand have varying supplies of cars from the manufacturer. There are similar benefits to the individual dealers in having that flexibility, although that doesn't matter in the question of whether or not independent dealers should exist.
- opo 2y ago
  >...Maybe the car manufacturers take a public view that's different from their private view. Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see? >... Why would a state demand extra hurdles that cost its residents more money? As the wikipedia article points out, this is really a textbook case of rent seeking. This is not what I would consider a controversial opinion. Rather than hypothesize reasons why the current system is good, maybe first read through the 2 links referenced in the wikipedia article: https://www.aeaweb.org/articles?id=10.1257/jep.24.3.233 https://www.aeaweb.org/articles?id=10.1257/jep.24.3.233 https://www.justice.gov/atr/economic-effects-state-bans-direct-manufacturer-sales-car-buyers https://www.justice.gov/atr/economic-effects-state-bans-dire... Note that the second paper is written by the anti-trust division of the Dept of Justice.
  - wakawaka28 2y ago
    >Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see? I actually read a pretty good reason not to remove these laws a while ago (and it is tangential to the argument about pricing that I made a while ago): It is impossible for independent resellers to compete with the manufacturer. This actually happened with Teslas: when Tesla dramatically lowered its prices to get more money, it effectively destroyed the used market and took money out of the pockets of anyone else who had used (or even basically new) inventory. This kind of thing happens with other products too. For example, you usually can't buy a book from a publisher for less than the list price, because they don't want to undercut their distributors who are incurring significant costs to stock the books for them. (I think Amazon also requires companies that sell on Amazon to not undercut them by selling for cheaper elsewhere, despite the fact that their fees are high in some cases and they can even sell stuff for a loss.) I think the equivalent courtesy for car dealers would be that the manufacturer would be forced to pick a price and stick to it, at least at the wholesale level. That way, any independent dealer who does buy inventory can be assured that they won't face huge losses if the prices are cut upstream. Finally I guess there is the question: do we really need the independent dealers, if the risk is all about the manufacturer cutting prices? We do, because these dealers make the market more efficient. That competition means you can shop for the best price or time window when buying or selling, without using Craigslist or classified ads. Dramatic decreases in price also affect owners and finance companies (in case of default). If the manufacturer can just decide "Hey we need to pump out a Porsche for everyone in the world" then they won't be worth what the original buyers paid, and they might walk away from the loan to buy a new one for half the price.

by opo 2y ago

wakawaka28 2y ago

>No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer It might be like that, or it might not. Maybe the car manufacturers take a public view that's different from their private view. Why would a state demand extra hurdles that cost its residents more money? Could it have anything to do with creating barriers to entry for other manufacturers to sell their cars in that state, basically making it difficult to buy a car that isn't part of an established brand? I think manufacturers actually vary their opinions sometimes. If they are new without many resources, they might prefer to sell direct to customer. If they are mature, it could be looked at two ways. On one hand there is a lot of work to do in order to sell and support the vehicles that can't be done in a centralized fashion. They can afford to do the work themselves by setting up a bunch of dealerships all over the country. But it is questionable whether the manufacturer can actually do it cheaper than the individual dealers. As for this: >Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be. There are three points I have for you to consider. For one, is it possible for people to get service from dealerships that provides value that is hard to appreciate? For example, they can fix issues quickly without shipping the car off, develop relationships with customers to help them fill their needs, do trade-ins (how would that work when dealing with a manufacturer directly?), or any number of other things that we know they do for customers. Secondly, how is this research conducted if car dealerships are mandated by law? Finally, if the manufacturer takes on the dealership role, it has to bear basically the same costs as the independent dealer. So where is the actual savings going to come from? Do you think you can negotiate with a factory outlet to get a better price? Here's another thing you might want to consider. I know it's going to sound crazy, but in some cases people are served better by allowing prices to fluctuate. How? Well, the people more willing to buy a particular car (with a supply constraint) are willing to pay more, and that is only feasible if the seller has scope to negotiate. If there is no scope to change prices then the cars just go out with equal priority, possibly depriving someone of their dream car while someone else who appreciates it less is the one who got it first. The individual sellers on the other hand have varying supplies of cars from the manufacturer. There are similar benefits to the individual dealers in having that flexibility, although that doesn't matter in the question of whether or not independent dealers should exist.

opo 2y ago
>...Maybe the car manufacturers take a public view that's different from their private view. Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see? >... Why would a state demand extra hurdles that cost its residents more money? As the wikipedia article points out, this is really a textbook case of rent seeking. This is not what I would consider a controversial opinion. Rather than hypothesize reasons why the current system is good, maybe first read through the 2 links referenced in the wikipedia article: https://www.aeaweb.org/articles?id=10.1257/jep.24.3.233 https://www.aeaweb.org/articles?id=10.1257/jep.24.3.233 https://www.justice.gov/atr/economic-effects-state-bans-direct-manufacturer-sales-car-buyers https://www.justice.gov/atr/economic-effects-state-bans-dire... Note that the second paper is written by the anti-trust division of the Dept of Justice.
- wakawaka28 2y ago
  >Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see? I actually read a pretty good reason not to remove these laws a while ago (and it is tangential to the argument about pricing that I made a while ago): It is impossible for independent resellers to compete with the manufacturer. This actually happened with Teslas: when Tesla dramatically lowered its prices to get more money, it effectively destroyed the used market and took money out of the pockets of anyone else who had used (or even basically new) inventory. This kind of thing happens with other products too. For example, you usually can't buy a book from a publisher for less than the list price, because they don't want to undercut their distributors who are incurring significant costs to stock the books for them. (I think Amazon also requires companies that sell on Amazon to not undercut them by selling for cheaper elsewhere, despite the fact that their fees are high in some cases and they can even sell stuff for a loss.) I think the equivalent courtesy for car dealers would be that the manufacturer would be forced to pick a price and stick to it, at least at the wholesale level. That way, any independent dealer who does buy inventory can be assured that they won't face huge losses if the prices are cut upstream. Finally I guess there is the question: do we really need the independent dealers, if the risk is all about the manufacturer cutting prices? We do, because these dealers make the market more efficient. That competition means you can shop for the best price or time window when buying or selling, without using Craigslist or classified ads. Dramatic decreases in price also affect owners and finance companies (in case of default). If the manufacturer can just decide "Hey we need to pump out a Porsche for everyone in the world" then they won't be worth what the original buyers paid, and they might walk away from the loan to buy a new one for half the price.