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

Reason, July, 2000 by Diane Katz, Henry Payne

There also are important efficiencies for dealers. More customized purchases would eliminate the large inventories that weigh heavy on a dealers' bottom line. No longer would dealers and manufacturers be guessing what models and options customers most want and left to cross their collective fingers that a mistaken forecast will not leave thousands or even millions of cars sitting unsold on lots nationwide.

While acknowledging that the Internet can accelerate customization and improve efficiency, Mike Savoy, president of the Detroit Auto Dealers Association, insists that the franchise-dealer system remains necessary. "There are 50 different state laws. How's GM going to address 50 different franchise laws, 50 different title laws, 50 different sales taxes, and a litany of other things that need to be signed?" he asks.

And if there were no franchise laws?

Dealer Savoy refuses to speculate. Franchise laws are necessary, he says, to protect dealers' investment. But in a veiled warning to such entrenched attitudes, GM's Hogan notes that no business can long ignore consumer demands and survive. "The efficiency of the Internet is driving people to behave differently as consumers," he says. "The customer will ultimately decide, and we have to be prepared to adapt to meet what the new model ends up being."

State legislatures would do well to heed the call.

Diane Katz (dikatz@hotmail.com) is an editorial writer for The Detroit News. Henry Payne (hpayne@detnews.com) is a cartoonist for The Detroit News and REASON.