regulation

State Automobile Franchise Laws: Public or Private Interests?

Nearly every aspect of automobile manufacturing, distribution, and use are regulated by laws which govern environmental concerns, safety features, licensing, lemon laws, and many other aspects of the auto business. First, this piece addresses the claim that state auto franchise laws are protectionist and thus serve primarily private rather than public interests by comparing the evidence presented to support this view to the theoretical predications from economic theory and what we know about car markets. Second, it evaluates the competing claim that the independent dealer serves an important role for consumers. Without dispute, the automobile market is one in which all levels of government have a keen interest. Federal and state laws address a wide range of issues covering the manufacturing, distribution, and use of the automobile. Many of these laws and regulations serve plausible public interest concerns, but the Federal Trade Commission is taking a close look at state laws requiring new cars be sold by independent franchised dealers. Such laws have been labeled by some analysts as anti-consumer, serving only to protect dealers from competition and raise prices.

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