What Do Car Dealers Do?

120px-Blue_Tesla_Roadster_frontNew Jersey recently barred Tesla from selling cars through its own stores.  Car dealers are not fond of Tesla’s distribution model, since Elon Musk does not want to have dealers.  And since many states require cars to be sold by dealers, this poses a significant problem for Tesla’s future.

Here’s my question.  What is the public purpose behind a statute or regulation that says that you can only buy new cars through a dealer?  I’ll grant that the dealership model has been around for a long time, and dealers are a powerful lobby, but is there anything else to this regulation?  For example, can you say that car dealers do a better job at protecting consumer safety or welfare than a store owned by the manufacturer?  I find that hard to believe.  I’m not sure these dealership statutes are constitutionally irrational, but they are ridiculous.

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4 Responses

  1. David Lang says:

    The only justification that I have been able to understand is that they defend the consumer against monopolistic behavior by the car companies.

    To be fair, this probably was significant back in the heyday of the Model T (when it was half of the cars on the road), so this could be a case of something that is needed to restrain GM/Ford/etc is having unintended results when applied to a small company.

  2. brad says:

    How does a dealer network prevent monopoly pricing by a manufacturer (assuming a product monopoly exists)? I’d think their statutory rent would be on top of the monopoly pricing.

  3. Aaron Gott says:

    Texas also warned Tesla this summer. The law doesn’t really have a public purpose, much like any other piece of anticompetitive regulation passed at the behest of industry trade groups. It certainly survives constitutional scrutiny under the 14th Amendment because the rational basis test does not actually require rationality; instead it requires resort to naive fictions about our political institutions and unquestioning deference to the political branches. Similar special interest protectionism has been upheld under the dormant commerce clause as well, including a challenge to Texas’ dealer laws by Ford. See Ford Motor Co. v. Texas Dep’t of Transp., 264 F.3d 493 (5th Cir. 2001). One rationale argued and accepted in the case was that the state may have been seeking to prevent vertical integration in the vehicle sales market, which strikes me as an inadequate justification to cartelize an industry to the complete exclusion of out-of-state actors and in a way that burdens interstate commerce to the tune of $1500 per vehicle. At any rate, it’s unlikely this hypothetical, post hoc rationalization had anything to do with the law. Dealers simply have more influence in their respective states than the manufacturers.

  4. David Lang says:


    The theory (not that I agree with it) is that even if Ford were to try and set uniform policies, the francised dealers would still differ from each other in all the areas that Ford did not dictate, whereas if the dealerships were all owned directly by Ford, they would all have exactly the same policies