It’s hard to turn on the television these days without seeing a commercial for a car or truck. The holiday shopping season always offers up a flurry of ads and great deals on automobiles. But are big holiday discounts enough to offset the huge markup that we’re forced to pay as a result of anti-consumer state laws?
These laws force auto manufacturers to sell their products to middlemen — better known as car dealers — before the vehicles can be sold to consumers. In an attempt to shield the dealerships from competitors, state governments are also shielding consumers from low prices. In fact, these policies inflate car prices by as much as 30 percent, according to some economists.
According to Kelley Blue Book, the average price of a new car in 2017 is $33,560, so we are talking about thousands and thousands of additional costs that are passed along to consumers. In most cases, that’s probably far more than dealers are currently offering potential car buyers in the form of holiday discounts.
Higher costs aren’t the only problem. These same state laws have blocked pro-consumer innovations that have improved the buying experience for so many other products. Think of computers: the use of direct-to-consumer sales, largely driven by companies like Dell, have cut out the middleman and provided a better overall consumer experience. When you purchase a laptop, you can customize your computer and determine your exact hard drive capacity, screen size, processor speed, and pretty much every other specification.
When purchasing a car, by contrast, you might have to upgrade to a more expensive trim line just to get a feature you want, like heated seats, and be forced to pay for another feature you don’t want, like a navigation system.
When buying a computer you can choose to perform the entire transaction online or opt to visit a brick-and-mortar retailer, most of which will offer a host of laptops from a variety of brands. There you might test out competing products from Apple, Samsung, HP, and other brands in a single visit. Unnecessary state laws and regulations stand between new car buyers and a similar experience.
Some companies have found ways around a few of these anti-consumer obstacles, but this typically comes at an extremely high cost. To provide additional consumer choice, BMW offers a “European Delivery” option, in which customers can customize their automobile, fly to the factory in Germany, and watch as it’s shipped back to the United States. Of course, even this experience legally requires the involvement of a U.S.-based dealer — although they provide virtually no added value to the process. BMWs are already expensive cars that cater to the affluent, and this option only makes them even more so.
Tesla, a newer automobile company, has run into difficulties in their attempts to shake up the status quo and sell directly to consumers. Tesla makes expensive electric cars that stand at the cutting edge of the automobile industry. Unfortunately, their business is being held back by anachronistic state laws that stymie innovation at the consumer level. They have attempted to disrupt the distribution model by selling their cars directly to consumers, but have run into a firestorm of criticism from the beneficiaries of the current system of government-created obstacles.
There’s no question that the car buying experience is stuck in a 20th-century model that doesn’t cater to today’s consumers. Anti-competitive laws are creating fewer consumer options, forcing buyers to visit multiple dealerships to test drive different brands, and making it difficult to avoid the high-pressure, high-stress sales tactics employed at many dealerships. All of these problems are worsened by higher sticker prices that are a direct result of these same laws. New car owners should be able to drive off a lot feeling great about their purchase — not wondering if they were just snookered by an unscrupulous salesman.
Disruptive innovation has provided tremendous consumer benefits in a host of industries. The aforementioned Dell has helped revolutionize the computer buying experience. Uber and Lyft have changed the way get around. Airbnb has injected more competition in the hotel and property rental businesses. All of these disruptions have resulted in better experiences, more options, and lower costs for consumers. But they all have raised the ire of incumbent companies who have used their dominant market position to try to resist change.
The same is true of the car buying experience. Auto dealers benefit from the status quo laws that allow them to make huge profits and hold off new entrepreneurs who are offering both innovative products and marketing concepts. It’s time to scrap outdated laws and move the car buying experience into the 21st century.
Brandon Arnold (@BrandonNTU) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is the executive vice president at the National Taxpayers Union.
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