Car Dealerships Need To Go, They’re Only Still Around Because Of “Dumb Laws”

The seeming incongruity between the stories that much of the American public seems to tell itself about the value of competition / the free market and the realities of endemic protectionist rackets like those currently held in place by the car dealership associations is something that probably doesn’t get discussed enough.

How can someone profess to value the free market while turning a blind eye to the blatant and harmful distortions of the ideal that are so common today?

In a rather thoughtful new piece on the subject, Matthew Yglesias over at Vox explored the current situation rather throughly, so those with the time may want to head over there and check the piece out. If not, here are a few points that he made that I think are worth reprinting here:

Cars are the most expensive consumer product that the typical consumer buys. And while it may seem obvious that cars are expensive due to the material and labor required to build them, the logistics of distributing cars is actually a very expensive part of the process. Research by Eric Marti, Garth Saloner, and Michael Spence has concluded that as much as 30% of the cost of a car is the cost of distribution.

…But as Gerald Bodish wrote in a 2009 analysis from the US Department of Justice, the most expensive part of the whole process is hiding in plain sight — it’s the stockpiles of unsold vehicles sitting around on dealers’ lots. He observes that in late 2008, there was a staggering $100 billion worth of unsold dealer inventory, with an annual carrying cost of $890 million.

In other words, it’s a huge pile of waste. At any given time there is a vast quantity of newly built cars sitting around unsold, and the price of the cars that are sold needs to be high enough to cover the costs of building and storing the unsold ones. Bodish cites a Goldman Sachs analysis indicating that replacing the current inventory-heavy method with a more efficient build-to-order method could reduce costs by 8.6%. Real-world experience from Brazil, where Chevrolet sells Celtas direct to consumers, shows a somewhat more modest savings of 6% relative to what’s paid at traditional dealerships.

…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 Gov. Rick Snyder as anyone else.

As noted above, there’s more in the full article, of course. And it’s a pretty good read for those so inclined.

(h/t to “mspohr” on the Tesla Motors Club forum for this.)