Tested time and again, system survives and thrives
The last significant test from Washington came in 2002. The Federal Trade Commission held hearings on whether state franchise laws improperly stifle competition from Internet businesses.
Would the public benefit, the FTC asked, if online companies or automakers using the Internet could sell cars and trucks directly to consumers?
The commission wound down its review without issuing a report.
Phil Brady, president of the National Automobile Dealers Association, interprets the FTC's silence as an endorsement of franchised dealerships as part of a consumer-friendly system.
"It's an extraordinarily competitive system, both intrabrand and interbrand," Brady says. "The dealers are perhaps the purest form of entrepreneur that there is. They adjust to meet the challenges."
Dealerships have embraced electronic commerce in response to the competitive threat posed by the Internet. They use Web sites to communicate with consumers, offer services and compete with each other.
NADA took the FTC review seriously. Its argument: Even though vehicles can be sold online, most consumers want to see and test drive a car or truck before they complete such a large transaction. Many want someone to take trade-ins. Brick-and-mortar stores still are needed for vehicle preparation, delivery and service.
So, the promised "pie in the sky" savings from online sales would quickly evaporate, NADA said.
On the other side, the Consumer Federation of America told the FTC that distribution inefficiencies fostered by franchises add at least $1,500 to the price of every new vehicle.
In the middle, the Alliance of Automobile Manufacturers conceded that franchise laws have some anti-competitive effects. But car companies accept those laws for the foreseeable future, the alliance said.
Embers of concern
Despite the lack of FTC action, the commission remains interested in examining impediments to online sales of vehicles, FTC spokesman Mitch Katz says.
Katz notes that FTC staff took part this year in a review of franchise laws by the Mercatus Center of George Mason University in Fairfax, Va. The center is a research organization that favors unimpeded free markets.
Also participating was John Delacourt, a former FTC staff attorney who is now in private practice. He recommended that states scale back the scope of their franchise laws dramatically. Delacourt argued that such laws should serve their original purpose - protecting dealers - without limiting consumer options.
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