>...However, I think the fact is that the manufacturers who set it up like this don't want to deal with customers, and they establish dealerships that agree to a certain quality of service that the manufacturer wants associated with their name.
No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer:
>...Economists have characterized these regulations as a form of rent-seeking that extracts rents from manufacturers of cars, increases costs for consumers, and limits entry of new car dealerships while raising profits for incumbent car dealers.[2] Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be.[2] [3]
>No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer
It might be like that, or it might not. Maybe the car manufacturers take a public view that's different from their private view. Why would a state demand extra hurdles that cost its residents more money? Could it have anything to do with creating barriers to entry for other manufacturers to sell their cars in that state, basically making it difficult to buy a car that isn't part of an established brand?
I think manufacturers actually vary their opinions sometimes. If they are new without many resources, they might prefer to sell direct to customer. If they are mature, it could be looked at two ways. On one hand there is a lot of work to do in order to sell and support the vehicles that can't be done in a centralized fashion. They can afford to do the work themselves by setting up a bunch of dealerships all over the country. But it is questionable whether the manufacturer can actually do it cheaper than the individual dealers. As for this:
>Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be.
There are three points I have for you to consider. For one, is it possible for people to get service from dealerships that provides value that is hard to appreciate? For example, they can fix issues quickly without shipping the car off, develop relationships with customers to help them fill their needs, do trade-ins (how would that work when dealing with a manufacturer directly?), or any number of other things that we know they do for customers. Secondly, how is this research conducted if car dealerships are mandated by law? Finally, if the manufacturer takes on the dealership role, it has to bear basically the same costs as the independent dealer. So where is the actual savings going to come from? Do you think you can negotiate with a factory outlet to get a better price?
Here's another thing you might want to consider. I know it's going to sound crazy, but in some cases people are served better by allowing prices to fluctuate. How? Well, the people more willing to buy a particular car (with a supply constraint) are willing to pay more, and that is only feasible if the seller has scope to negotiate. If there is no scope to change prices then the cars just go out with equal priority, possibly depriving someone of their dream car while someone else who appreciates it less is the one who got it first. The individual sellers on the other hand have varying supplies of cars from the manufacturer. There are similar benefits to the individual dealers in having that flexibility, although that doesn't matter in the question of whether or not independent dealers should exist.
>...Maybe the car manufacturers take a public view that's different from their private view.
Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see?
>... Why would a state demand extra hurdles that cost its residents more money?
As the wikipedia article points out, this is really a textbook case of rent seeking. This is not what I would consider a controversial opinion.
Rather than hypothesize reasons why the current system is good, maybe first read through the 2 links referenced in the wikipedia article:
>Maybe without the government forcing the manufacturers to go through 3rd party dealerships, they would still use them, but how about removing the laws and see?
I actually read a pretty good reason not to remove these laws a while ago (and it is tangential to the argument about pricing that I made a while ago): It is impossible for independent resellers to compete with the manufacturer. This actually happened with Teslas: when Tesla dramatically lowered its prices to get more money, it effectively destroyed the used market and took money out of the pockets of anyone else who had used (or even basically new) inventory.
This kind of thing happens with other products too. For example, you usually can't buy a book from a publisher for less than the list price, because they don't want to undercut their distributors who are incurring significant costs to stock the books for them. (I think Amazon also requires companies that sell on Amazon to not undercut them by selling for cheaper elsewhere, despite the fact that their fees are high in some cases and they can even sell stuff for a loss.) I think the equivalent courtesy for car dealers would be that the manufacturer would be forced to pick a price and stick to it, at least at the wholesale level. That way, any independent dealer who does buy inventory can be assured that they won't face huge losses if the prices are cut upstream.
Finally I guess there is the question: do we really need the independent dealers, if the risk is all about the manufacturer cutting prices? We do, because these dealers make the market more efficient. That competition means you can shop for the best price or time window when buying or selling, without using Craigslist or classified ads. Dramatic decreases in price also affect owners and finance companies (in case of default). If the manufacturer can just decide "Hey we need to pump out a Porsche for everyone in the world" then they won't be worth what the original buyers paid, and they might walk away from the loan to buy a new one for half the price.
>... It is impossible for independent resellers to compete with the manufacturer.
Yes, those who manipulate the legislature to do rent seeking, might lose those profits when the law is removed. That is actually a feature, not a problem.
>...We do, because these dealers make the market more efficient.
Again, independent economists and the Dept of Justice don't agree with you.
>Yes, those who manipulate the legislature to do rent seeking, might lose those profits when the law is removed. That is actually a feature, not a problem.
As I said, independent dealers provide liquidity to the auto market. When there is only one buyer or seller in any other case, we call it price gouging or price fixing. Additionally, the "extra profits" or savings (in some cases) actually do contribute to maximum satisfaction of consumers. For example, if the only dealers were run by manufacturers then they could unilaterally decide that cars over 5 years old will never be repurchased, dooming those deals to private transactions with zero warranty, or else second-tier used-only retailers.
>Again, independent economists and the Dept of Justice don't agree with you.
Again, appeals to authority do nothing for me. You can probably find at least someone in the DOJ to adopt any opinion you like in any case.
>...When there is only one buyer or seller in any other case, we call it price gouging or price fixing.
Having one buyer or seller of a product or service is neither called "price gouging" or "price fixing".
>...Additionally, the "extra profits" or savings (in some cases) actually do contribute to maximum satisfaction of consumers.
There is really no evidence of that. (The basic concept of rent seeking is covered in any econ101 micro textbook.)
>...For example, if the only dealers were run by manufacturers then they could unilaterally decide that cars over 5 years old will never be repurchased, dooming those deals to private transactions with zero warranty, or else second-tier used-only retailers.
What a strange idea.
>...Again, appeals to authority do nothing for me.
>Having one buyer or seller of a product or service is neither called "price gouging" or "price fixing".
If you want to be technical, yes. But the two go hand in hand. We have laws to promote competition and the law requiring manufacturers to not sell directly to consumers is one of them. Even if this is technically rent-seeking, it isn't very bad.
>What a strange idea.
It may sound strange but manufacturers have a tendency toward planned obsolescence. They make things to wear out in obnoxious and expensive ways, and restrict access to parts, so far as the law will allow. Nevertheless resale value is important for cars, independent dealers improve market efficiency and the liquidity of cars, etc. I believe manufacturers would abuse their position as exclusive dealers of their products. Tesla sure has.
No, this was not what the manufacturers wanted. States set up franchise laws to prevent car makers from directly selling their cars and they generally are not viewed as benefiting the producer or consumer:
>...Economists have characterized these regulations as a form of rent-seeking that extracts rents from manufacturers of cars, increases costs for consumers, and limits entry of new car dealerships while raising profits for incumbent car dealers.[2] Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be.[2] [3]
https://en.wikipedia.org/wiki/Car_dealerships_in_the_United_...