Dealers, Legislators Conspire to Make Cars Expensive?

Neil Irwin considers Tesla quest to end the current status quo of independent dealership control over the retail sale of automobiles.

Published: 17-May-2013

You can buy almost anything on the Internet: uranium ore, wolf urine, a levitating hover scooter. But you can’t buy a car straight from the factory. Go to the Web site of Ford or Honda or any other major automaker, and they will send you to your local dealer to conduct anything resembling an actual transaction.

It isn’t an accident. Rather, it is the result of hard-fought efforts by auto dealers to maintain, through state laws, their exclusive role as the place where one can buy a new automobile. Direct sale of autos by manufacturers is against the law in nearly every state, and there’s a range of related state laws governing auto dealers’ ability to enter or exit a market. In other words, the model that Dell developed for selling personal computers — enter your exact specifications online, and the computer will be built to order and delivered to your door — is illegal in most states for automobiles. (For a rundown on the structure of the auto industry, check out this paper from Justice Department antitrust economist Gerald R. Bodisch).

Enter Tesla. The maker of innovative electric cars is hoping to be equally innovative in how it sells them. It wants something that closely resembles the Dell model to apply to its popular “Model S” sedan. The company is pushing the Texas legislature to change its own law to make it legal to sell Teslas there directly.

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