Traffic Jam - franchise laws restrict online car sales in many states

Reason, July, 2000 by Diane Katz, Henry Payne

NADA, meanwhile, is preparing to launch a Web site in June featuring price data and dealer links. Sales referrals will be offered free of charge--in direct competition with the online services that typically collect brokerage fees from either the dealer or customer. (NADA evidently embraces some forms of competition.)

But the group adamantly refuses to cede control of sales, insisting that all online orders be delivered through a dealership. And its members are furiously lobbying for even tighter restrictions in state legislatures.

Texas, for example, recently outlawed brokering altogether, instituting a fine of $10,000 per violation. The state also ordered Austin-based CarsDirect.com to cease offering services in its home state. Regulators even denied a dealer's license to GM, and prohibited Ford from selling used cars online--a move the number two automaker has challenged in court.

A bill pending in Washington state would flatly prohibit manufacturers from owning dealerships. Arizona is considering legislation to prohibit automakers from selling directly or even owning part of a dealership. A pending bill in Nebraska, meanwhile, would require that all car purchases be delivered through a dealer.

While clearly irrational from a consumer perspective, the legislative backlash is hardly a mystery. "Our dealers have a lot of influence," said Mark Hogan, president of e-GM, General Motors' Internet Commerce Division. "They are among the most important businesses in the community. They have a lot of influence in the political process, and the outgrowth of franchise laws is certainly part of that whole tapestry."

States also find it a whole lot easier to collect taxes from local dealers than dot.coms. But history won't stand still. Just as fundamental changes in the electric and telecommunications marketplace are forcing utility monopolies--even with their legislative clout--to adapt to a new economic order, so will dealer monopolies have to adapt to the fast-changing digital landscape.

At a new $550 million facility in Brazil, GM is testing operation "Blue Macaw." That's the code name for a new manufacturing system that houses parts suppliers adjacent to the vehicle assembly line. The concept anticipates the quick production so vital to GM's e-commerce plans. Inside the factory, 15 suppliers feed the line complete "modular" component systems, rather than hundreds of individual parts, as the chassis moves by. The result? The time required to install an instrument panel, for example, drops from 22.5 minutes to just 3.3 minutes.

And in a huge expansion of electronic commerce, the major automakers last month announced they are moving the entire automotive supply chain online-- some $250 billion worth of parts and supplies for Ford, GM, and DaimlerChrysler. Because orders for parts can be relayed in real time, the new system will reduce the wait for a custom-ordered vehicle to just days. Like Blue Macaw, it is a critical step toward factory-direct purchase. When it's fully operational, consumers won't have to settle for inflexible option packages.