8 ms·

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 manufactur

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.

wheaties 12y ago
Oh, it's easy. It's through things like regulatory capture, funding campaigns and thus having direct access to congressional workers, having people appointed to regulatory bodies that are partial to your stance and/or other means of influencing non-elected officials. Basically, if you can't beat them through normal market means, pass laws so they can't beat you. 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.
- ptaipale 12y ago
  In more plain language: car dealers (companies and their workers) lobbied for politicians to ban competition. They give campaign funding, and in exchange they get legislation like this ban.
- amalcon 12y ago
  Your explanation doesn't really make sense. 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.
  - adventured 12y ago
    These are state laws. General Motors had less influence at the state and local level than the auto dealerships did. At that level it's about intimate relationships, those dealership owners directly knew and financed their local politicians and GM did not. 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.
    - amalcon 12y ago
      Michigan has auto dealer licensure requirements, which (as far as I can tell, though I am not a lawyer so you shouldn't believe me) are very similar to those in New Jersey. Car dealerships do not have more political influence in Michigan than GM does. 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.
  - peterfirefly 12y ago
    Detroit liked it because it was and is a barrier for foreign car makers.
  - raldi 12y ago
    > Who has more political power in the U.S: car dealerships in aggregate or General Motors? Answer: General Motors, of course! What makes you so sure?
  - GFK_of_xmaspast 12y ago
    I think the ban on self-service fueling is a great idea and I wish more states (beyond Oregon) would do it.
    - ahallock 12y ago
      Why is it a great idea?
Will_Do 12y ago
They're amazingly common in the U.S. 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. [1] http://www.justice.gov/atr/public/eag/246374.htm http://www.justice.gov/atr/public/eag/246374.htm
- ghaff 12y ago
  I'm no fan of car dealerships but a lot of the hate has to do with the fact that it's such a penny-pinching business (for both consumer and dealer) at most mainstream brand dealers. From what I've heard, if you go into a BMW dealer the experience is usually quite good. 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.
  - benihana 12y ago
    >From what I've heard, if you go into a BMW dealer the experience is usually quite good. 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.
    - ghaff 12y ago
      High-end car service, even routine service, is certainly pricey. The general storyline I've heard is that you either 1.) Don't care what it costs, 2.) Lease, 3.) Buy with an extended warranty and plan to get rid of it at the end of the warranty, or 4.) Either have an indie mechanic you like or do it yourself.
caw 12y ago
The ban was created after Tesla started selling, and now it only lifted the ban for zero emission vehicles as far as I can tell (didn't read the whole bill). If Ford or GM wanted to sell direct, they couldn't. 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.
- edvinbesic 12y ago
  "The ban was created after Tesla started selling, and now it only lifted the ban for zero emission vehicles as far as I can tell (didn't read the whole bill). If Ford or GM wanted to sell direct, they couldn't." 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.
  - ghaff 12y ago
    Sounds like you need to go to different dealers. I'm no fan of the dealer experience but I have gotten prices and costs online and certainly never had a dealer try to tack on $6K. Maybe it was some particularly in-demand model. At least one dealer I've bought a car from has been "no haggle"; the price on the sticker was the price. 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.
ghaff 12y ago
Basically, franchises arose because auto [Edit: manufacturers] didn't originally want to establish a broad set of factory stores. States then generally passed laws over time to keep manufacturers from coming in and competing with the franchisees because they'd have various advantages in doing so. (And it probably didn't hurt that the dealers by then were often well-established local businesses.) There's also been something of an anti-trust trend against vertical integration though that's really at the federal level so may not apply here (e.g. studios not owning theaters).
- surge 12y ago
  Right, these laws made sense 50-60 years ago, but now all the dealerships are established and Tesla as a new unproven company that has a comparative low volume of sales can't simply get dealerships to sell their cars plus it may violate agreements with competing car companies that they also sale. In this case there is no established Tesla franchises that would lose, and Tesla can't simply just get dealers to start selling their cars . So basically these laws now serve little purpose except protecting dealers/manufacturers that sell combustion engines from new competition.
  - msandford 12y ago
    It would probably make sense to rewrite the laws to somehow say that car manufacturers can't compete with existing dealer franchises within a certain mile/population radius and can't revoke dealer franchises simply to open up new territory for themselves. But to say that no auto manufacturer can operate direct sales is silly since there are now new car companies being formed.
    - mikkom 12y ago
      Why would you need any kind of such laws in a free market?
      - TheHypnotist 12y ago
        Because they would easily put franchise dealers out of business.
Donzo 12y ago
I'm with Mother Jones in blaming Ronald Reagan: http://motherjones.com/politics/2009/02/why-you-cant-buy-new-car-online http://motherjones.com/politics/2009/02/why-you-cant-buy-new...
rayiner 12y ago
The regulatory capture argument someone made below is hard to square with the history: http://www.americanbar.org/publications/franchise_lawyer/2013/summer_2013/has_traditional_automobile_franchise_system_run_out_gas.html http://www.americanbar.org/publications/franchise_lawyer/201.... At first, cars were sold directly to consumers by manufacturers, and independent dealerships were rare. It's really hard to explain using a regulatory capture or lobbying model how car manufacturers, huge incredibly profitable companies at the time, lost their bid to preserve the status quo. 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.
- MollyR 12y ago
  That was very insightful. 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 ?
  - rayiner 12y ago
    To get legislation like this passed, you build a coalition. So the consumer protection angle isn't just a guise so much as it is an angle to get the support of consumer-minded legislators. 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.
qwerunf 12y ago
The Planet Money podcast did a fantastic episode answering your exact question: 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-...
- scott_s 12y ago
  I was going to post this, too. rayiner's answer in this thread is also excellent, but this episode of Planet Money gives much more historical background.
raldi 12y ago
Lots of lobbying by special interests who stood to make a lot of money by preserving the middleman-filled status quo.

wheaties 12y ago

Oh, it's easy. It's through things like regulatory capture, funding campaigns and thus having direct access to congressional workers, having people appointed to regulatory bodies that are partial to your stance and/or other means of influencing non-elected officials. Basically, if you can't beat them through normal market means, pass laws so they can't beat you. 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.

ptaipale 12y ago
In more plain language: car dealers (companies and their workers) lobbied for politicians to ban competition. They give campaign funding, and in exchange they get legislation like this ban.
amalcon 12y ago
Your explanation doesn't really make sense. 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.
- adventured 12y ago
  These are state laws. General Motors had less influence at the state and local level than the auto dealerships did. At that level it's about intimate relationships, those dealership owners directly knew and financed their local politicians and GM did not. 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.
  - amalcon 12y ago
    Michigan has auto dealer licensure requirements, which (as far as I can tell, though I am not a lawyer so you shouldn't believe me) are very similar to those in New Jersey. Car dealerships do not have more political influence in Michigan than GM does. 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.
- peterfirefly 12y ago
  Detroit liked it because it was and is a barrier for foreign car makers.
- raldi 12y ago
  > Who has more political power in the U.S: car dealerships in aggregate or General Motors? Answer: General Motors, of course! What makes you so sure?
- GFK_of_xmaspast 12y ago
  I think the ban on self-service fueling is a great idea and I wish more states (beyond Oregon) would do it.
  - ahallock 12y ago
    Why is it a great idea?

Will_Do 12y ago

They're amazingly common in the U.S. 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. [1] http://www.justice.gov/atr/public/eag/246374.htm http://www.justice.gov/atr/public/eag/246374.htm

ghaff 12y ago
I'm no fan of car dealerships but a lot of the hate has to do with the fact that it's such a penny-pinching business (for both consumer and dealer) at most mainstream brand dealers. From what I've heard, if you go into a BMW dealer the experience is usually quite good. 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.
- benihana 12y ago
  >From what I've heard, if you go into a BMW dealer the experience is usually quite good. 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.
  - ghaff 12y ago
    High-end car service, even routine service, is certainly pricey. The general storyline I've heard is that you either 1.) Don't care what it costs, 2.) Lease, 3.) Buy with an extended warranty and plan to get rid of it at the end of the warranty, or 4.) Either have an indie mechanic you like or do it yourself.

caw 12y ago

The ban was created after Tesla started selling, and now it only lifted the ban for zero emission vehicles as far as I can tell (didn't read the whole bill). If Ford or GM wanted to sell direct, they couldn't. 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.

edvinbesic 12y ago
"The ban was created after Tesla started selling, and now it only lifted the ban for zero emission vehicles as far as I can tell (didn't read the whole bill). If Ford or GM wanted to sell direct, they couldn't." 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.
- ghaff 12y ago
  Sounds like you need to go to different dealers. I'm no fan of the dealer experience but I have gotten prices and costs online and certainly never had a dealer try to tack on $6K. Maybe it was some particularly in-demand model. At least one dealer I've bought a car from has been "no haggle"; the price on the sticker was the price. 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.

ghaff 12y ago

Basically, franchises arose because auto [Edit: manufacturers] didn't originally want to establish a broad set of factory stores. States then generally passed laws over time to keep manufacturers from coming in and competing with the franchisees because they'd have various advantages in doing so. (And it probably didn't hurt that the dealers by then were often well-established local businesses.) There's also been something of an anti-trust trend against vertical integration though that's really at the federal level so may not apply here (e.g. studios not owning theaters).

surge 12y ago
Right, these laws made sense 50-60 years ago, but now all the dealerships are established and Tesla as a new unproven company that has a comparative low volume of sales can't simply get dealerships to sell their cars plus it may violate agreements with competing car companies that they also sale. In this case there is no established Tesla franchises that would lose, and Tesla can't simply just get dealers to start selling their cars . So basically these laws now serve little purpose except protecting dealers/manufacturers that sell combustion engines from new competition.
- msandford 12y ago
  It would probably make sense to rewrite the laws to somehow say that car manufacturers can't compete with existing dealer franchises within a certain mile/population radius and can't revoke dealer franchises simply to open up new territory for themselves. But to say that no auto manufacturer can operate direct sales is silly since there are now new car companies being formed.
  - mikkom 12y ago
    Why would you need any kind of such laws in a free market?
    - TheHypnotist 12y ago
      Because they would easily put franchise dealers out of business.

Donzo 12y ago

I'm with Mother Jones in blaming Ronald Reagan: http://motherjones.com/politics/2009/02/why-you-cant-buy-new-car-online http://motherjones.com/politics/2009/02/why-you-cant-buy-new...

rayiner 12y ago

The regulatory capture argument someone made below is hard to square with the history: http://www.americanbar.org/publications/franchise_lawyer/2013/summer_2013/has_traditional_automobile_franchise_system_run_out_gas.html http://www.americanbar.org/publications/franchise_lawyer/201.... At first, cars were sold directly to consumers by manufacturers, and independent dealerships were rare. It's really hard to explain using a regulatory capture or lobbying model how car manufacturers, huge incredibly profitable companies at the time, lost their bid to preserve the status quo. 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.

MollyR 12y ago
That was very insightful. 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 ?
- rayiner 12y ago
  To get legislation like this passed, you build a coalition. So the consumer protection angle isn't just a guise so much as it is an angle to get the support of consumer-minded legislators. 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.

qwerunf 12y ago

The Planet Money podcast did a fantastic episode answering your exact question: 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-...

scott_s 12y ago
I was going to post this, too. rayiner's answer in this thread is also excellent, but this episode of Planet Money gives much more historical background.

raldi 12y ago

Lots of lobbying by special interests who stood to make a lot of money by preserving the middleman-filled status quo.