To numerous people visiting the DMV is their idea of Hell, but to countless others, the terror begins before they’ve even driven their car off of the lot. You would assume that buying a car would be a happy and somewhat exciting occasion, but that isn’t always the case. Buying a car is a task that almost everyone will undertake at some time in their life, and for some people, it is a task that they will undertake numerous times over their lifetime. When asked, customers say that visiting a car dealership makes them feel stupid, weak, powerless, and manipulated. They find that the process of buying a car is extremely stressful, and the process seems to take forever. Ultimately, they leave the car lot after spending a large amount of money feeling as if they have been taken advantage of.
Critics believe that the local legislature has been changed to ensure that your car buying experience remains an unpleasant one. A paper by economist Fiona Scott Morton published in the Journal of Economic Perspectives states that “There is a system of state franchise laws that protect the profits of new car dealers.” States earn approximately 20 percent of all state’s sales taxes from auto dealers, and these car dealerships account for up to 8 percent of all retail employment. The majority of these taxes that are generated by car dealerships account for 89 percent of tax revenue that states earn. Because of this, local and state car dealership associations have gained considerable power over local legislatures. The result of this influence has resulted in a set of state laws that basically guarantee car dealership survival and profitability. Evidence shows that the result of these laws have caused distribution costs and retail prices to climb higher than they should be. This means that the excess costs are transferred to consumers, making it harder for them to find an actual “good deal” on their vehicle purchase.
Although consumers take a big hit, this legislature affects car manufacturers as well. Manufacturers deal with car dealerships directly, and the current legislation that is in place comes at the expense of their profits as well. For instance, a manufacturer can’t simply close a dealership that is causing it to lose money, even if the dealership’s contract with the manufacturer has expired. In order for the dealership to be closed, the motion must first pass through the car dealership review board. The problem with this is that the review board is made up of car dealers, so the manufacturers don’t really stand a chance. For example, in 2008, Chrysler and GM were facing bankruptcy. The government stepped in, and both manufacturers began the process of restructuring. Both manufacturers planned to close approximately 2,200 dealerships, but all of the designated dealerships weren’t closed. The manufacturers were forced to reinstate almost 700 of the dealerships, and countless others were referred to arbitrary hearings to become reinstated against the manufacturer’s wishes. In the end, it’s not hard to see that car dealerships are causing grief for both their customers and the manufacturers that help to keep them in business.