Why Do States Protect Car Dealers?
The New York Times recently described a forthcoming election for the Wisconsin Supreme Court and the role of Elon Musk as the leading contributor to one of the candidates. His interest stems from the role of the court in adjudicating the fate of a Wisconsin law that mandates that cars be sold through franchised dealers. Tesla’s business model uses direct sales rather than dealers.
The Wisconsin law and those in other states date from the 1930–1950 period when there were few manufacturers and many dealers, and the dealers felt the terms of their relationship were one-sided: dealers were not guaranteed any inventory, manufacturers could terminate dealers without cause, and dealers could be forced to accept cars regardless of whether they could sell them. Dealers also worried about manufacturers distributing cars directly and competing with franchised dealers.
An article in Regulation examines the history of auto dealer franchise laws and recent attempts to reform them. Even if the dealers needed a thumb on the scale when the laws were adopted, in today’s highly competitive auto market such laws stifle competition. They protect existing dealers and hurt consumers.
