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Why is there a law the prohibits sales of any product directly from the manufacturer to the customer?
by scragg 14y ago
Why is there a law the prohibits sales of any product directly from the manufacturer to the customer?
- pc86 14y agoBecause every car dealership in the country would immediately go out of business and cars would be a decent percentage cheaper. Not saying that's a good reason, just pointing out there's a lot of money and interest in keeping the status quo, as there always is.
- old-gregg 14y agoActually I believe the law does not prohibit the manufacturers to sell directly to consumers, it requires the seller to be located in Texas. A subtle, but important difference. I believe the original reasoning for this was to prevent sales tax avoidance by purchasing cars out of state. This was pre-Internet.
- vonmoltke 14y agoNo, they do prevent exactly that. In Texas, car manufacturers are not allowed to have company stores, only franchisee-run dealerships.
- bd_at_rivenhill 14y agoStates will typically enforce payment of use tax at the time of vehicle registration for vehicles which were recently bought in another state and for which no sales tax was paid. This happened to me when I moved to Pennsylvania right after I purchased a car. This is one of the few places where use tax laws are not simply a laughable attempt to shame people into paying sales tax on out-of-state purchases. Texas has better tools to prevent sales tax avoidance in this case; the laws exist to protect dealers from having to compete with manufacturers. I suspect that a seller located in Texas may also not be a wholly-owned subsidiary of a company based in another state.
- mcguire 14y agoThere are related reasons. For one thing, cars might be a decent percentage cheaper, but only in large metropolitan areas, while in the other, say, 90% of the country you would not be able to find a dealer at all. From what I have heard, many of these franchise laws date back to the Great Depression, when manufacturers were forcing dealers to buy cars that the dealers could not then sell. (There was a recent NPR Planet Money episode on exactly this issue, but I can't find a complete link. http://www.wbur.org/npr/172402376/why-buying-a-car-never-changes http://www.wbur.org/npr/172402376/why-buying-a-car-never-cha...)
- joezydeco 14y agoNPR's Planet Money podcast did a good story on how the dealership system works in most places, and how that's hampering innovation in some fronts. Sadly, they had a great opportunity to talk about Tesla's problems but didn't cover it. Still worth it for background learning: http://www.npr.org/blogs/money/2013/02/12/171814201/episode-435-why-buying-a-car-is-so-awful http://www.npr.org/blogs/money/2013/02/12/171814201/episode-... The NPR page also references this paper which goes into a lot more detail, but if you can't listen to the podcast it's a good reference. http://faculty.som.yale.edu/FionaScottMorton/documents/StateFranchiseLawsDealerTerminationsandtheAutoCrisis.pdf http://faculty.som.yale.edu/FionaScottMorton/documents/State... TLDR: Automakers and their dealerships have lobbied to get laws into place over the last century to ensure that those laws favor car dealers and their preferred way of operating. It will be extremely hard to change the status quo.
- nairteashop 14y agoI've always wondered this as well. There was even a paper from the DOJ that advocated elimination of these laws: http://www.justice.gov/atr/public/eag/246374.htm http://www.justice.gov/atr/public/eag/246374.htm I think the reason has to be purely political: it stands to reason that state politicians would benefit more by protecting a local franchise vs. a national car company (even though it is ultimately detrimental to their constituency).
- joonix 14y agoWelcome to "capitalism." Do some digging around, you'll find that many, if not most, of the industries and companies and even professions you view as successful only exist due to lobbying for anti-competitive regulations in their favor.
- protomyth 14y agoThe Hollywood studios fought a long battle to directly sell to consumers via their own theaters, so it is not unique to manufacturing of cars.