Pub. 4 2014 Issue 3

18 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com AREN’T DEALERS “MIDDLEMEN” WHO CREATE EXTRA COSTS FOR CONSUMERS? Q GET THE FACTS ARE THE LAWS NECESSARY? Q C onsumers have bought automobiles from local franchised new-car dealers for decades. Why don’t factories sell directly to consumers, or online through websites like Amazon? Why is the buying and selling of automobiles regulated at all? State policymakers deal with this question from time to time—often when a new trend hits the automotive market, in an economic downturn like the recession of 2008-2009 or when new technologies change other industries. In the end, automobiles are sold through franchised dealers because that business model is a good deal for everyone. Consumers are given extra protection in the marketplace, local communities benefit when local businesses compete to sell and service great products, and manufacturers get to invest their capital into designing, engineering and marketing great products in lieu of low- margin retailing. For these and other reasons, state legislatures have passed laws that promote the buying, selling and servicing of cars through local franchised dealers. Somewho are approaching the issue for the first time in a policy context have questioned the need for dealer franchise laws at all, while others have even questioned whether states have the constitutional right to regulate the buying and selling of cars. Here, it is critical to remember that cars are different from other products bought online, like books, clothing or computers. Cars are durable goods that are highly regulated at nearly every step of manufacturing, buying, operating, servicing and repairing—unlike virtually any other product in the marketplace. Consider how different cars are from other products: ▶ To operate a car, a consumer must have a license issued by a state government agency. ▶ Before driving a car off a lot, a customer must have insurance that is regulated by a state government agency. ▶ Some 85 percent of car sales require financing, which is regulated by state and federal government agencies to help ensure that credit is given fairly. ▶ A full 60 percent of car sales involve trade-ins, and some of these are highly complex transactions that require lenders to pay off liens on other automobiles—sometimes out-of-state liens. ▶ Cars are expensive goods that require maintenance by technicians, who are often licensed by state government agencies because of the safety implications of their work. ▶ Cars contain hazardous materials—from gasoline to batteries to other fluids—that must be properly handled by technicians. ▶ Unlike virtually any other product, if a car is operated incorrectly, people can be hurt or killed. Given the unique safety, financing and environmental issueswith automobiles, states arewell within their right to regulate the buying and selling of cars. And federal courts have repeatedly upheld the validity of states to regulate the buying and selling of cars through dealer franchise laws. In fact, the U.S. Supreme Court ruled eight to one to uphold a state dealer franchise law in California, stating that the legislature was “constitutionally empowered” to enact regulations in that area. A WHY STATES PROMOTE THE BUYING AND SELLING OF CARS THROUGH LOCAL DEALERSHIPS WHY DEALER F R ANCH I S E LAWS?