Car Dealers Have a Lease on Congress

Auto dealers' congressional clout protects costly and inefficient national franchise laws.
Here you go, America. Love, Congress.

Like everyone else, I wish I could just order a car off the Internet the way I order a laptop. And as a libertarian, I oppose incumbent protection laws. So it's not surprising that I enjoyed Matt Yglesias's latest broadside against the absurd franchise laws that protect car dealerships.

However, Matt and I part company when he suggests that the time might be ripe to get rid of those laws:

One reason dealers are so effective in lobbying state legislatures is that typically a car dealership company is local while the manufacturer is out of state. What's more, citizens simply don't pay much attention to state politics, making it even more of a plaything for special interest lobbies. It's striking that dealer-coddling protectionist measures are just as likely to be supported by theoretically market-loving Republicans like Michigan Governor Rick Snyder as anyone else.

At the national level, a coalition for reform could be built on legislators from car-manufacturing regions, principled free marketeers, and reform-oriented liberals. The fact that the Obama administration's economic team has already weighed-in against direct sale bans gestures toward the possibility of bipartisan cooperation.

Why don't I think this will work? Because car dealerships aren't just major players in state politics; they are also often one of the biggest businesses, and the biggest political fundraisers, in House districts.

The Obama administration has already tried to take on car dealers, during the post-bailout restructuring of General Motors. They were supposed to go from more than 6,000 dealers to about 3,800. Actual number of current GM dealers? About 4,350. To be fair, that's a substantial decrease. But it's only about three-quarters of what the administration was planning on. And this is with: 1) full Democratic control of Congress and the executive branch; and 2) a bankruptcy court empowered to abrogate any contracts it felt harmed the company's ability to survive.

Under ideal conditions, then, the administration managed to trim back dealership numbers by almost a third. That's a far cry from getting rid of the franchise laws that protect every dealer in America -- which might not even be possible if you could build the national political coalition, since there are federalism issues.

I'd love to see cars built at a set price and on demand. I'm not counting on that happening any time soon.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

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