Car Dealers Declare War on the New Economy


US auto dealers are waging war against the American consumer. And so far, the car dealers are winning. In virtually every state in this country, car dealers have successfully lobbied to prevent new cars from being sold by anyone but licensed, franchised dealers. Now the dealers want more. In South Carolina, they're pushing a bill in the state legislature that would prohibit auto manufacturers from owning dealerships and explicitly restrict Internet sales unless a local dealer gets a piece of the action.

Responding to this bill, South Carolina Attorney General Charlie Condon summed up the problem with all such laws: "This legislation is anti-competitive, anti-free market and anti-consumer. When we build walls to block free trade or shut off the free market, we threaten free enterprise. When we force consumers to pass through a 'toll collecting middle man' to buy goods, we raise prices artificially high."

In states such as Arizona and Alabama, the incumbent dealers are pushing to extend their monopolies into parts and service. In Texas, one stout-hearted capitalist trying to sell cars over the web had to shut down in the face of multi-million-dollar fines.

Do most consumers want to buy cars over the Internet? Do they want to buy directly from the manufacturer, as they now can in the computer industry? Who knows, but consumers should have the right to do business with whomever they choose, in whatever manner.

Instead of adapting to new technology, local car dealers are demanding successfully in many cases that they be given a government-protected monopoly. That is not acceptable to American consumers. And it will not stand, because this political fix by car dealers can not withstand the sunshine of public scrutiny. Imagine trying to explain with a straight face why your company alone should be immune from competition.

I understand that Detroit's great auto manufacturers have decided, for good or ill, that they must ally themselves with the incumbent local dealers. I urge auto executives to reconsider and reject that position. And I'd like to send the car makers a simple message: Tying your future to an inefficient, government-enforced monopoly, which refuses to serve the customer, will not serve your long-term interests. Because it leaves you with only two alternatives. Either you lobby to get your own monopolies, so that a customer-unfriendly distribution system is irrelevant, or you eventually get crushed by new competitors who use technology to serve the customer and lower costs. There is a point when consumers will say to heck with Ford and Chevy and Chrylser, simply because your dealers are mistreating them. It may be a long way off. It may be hard to tell just where that line is drawn, but I think we all know it's there.

We as consumers do not owe our business to the incumbent car dealers. If they can't evolve and figure out how to earn our business in a wired world, if they can't attract us to their showrooms, to their service and repair shops, without a government edict, then they do not have an economic right to exist. Remember, these are the same guys who will sing the praises of a free capitalist marketplace when someone criticizes their sales practices. They've talked the talk, now it's time to walk the walk.

I'd like to address the political issues at play. No doubt local car dealers are formidable competitors in a lobbying battle. Like auto manufacturers, they're well-funded and organized to fight legislative contests. But they do not enjoy the reservoir of goodwill that other opponents might have. This is not like attacking the local PBS station or the Red Cross. There are lots of voters out there who have realized, sometime after driving off the lot, that they didn't get exactly what they wanted. Not all cliches invent themselves and if this debate can be moved from the dimly-lit backrooms of state legislatures to the light of an informed citizenry, make no mistake, the car dealers will lose.

These restrictions represent a blatantly UnConstitutional attempt by states to regulate interstate commerce, and I'm certain the courts will ultimately rule that way, but consumers shouldn't have to wait that long. And consumers can win this battle.

Of course, nobody really wants a battle. People get hurt in battles, and resources are wasted. Instead of victory, I would prefer to see persuasion win the day. The truth is, in fact the story of the last year in retailing, is that e-commerce can not completely replace the traditional shopping experience. People still like to kick the tires. They like to deal with real-live humans. Car dealers will say that you can't allow a free market because people will test drive at dealerships and then buy on the Net.

Maybe they will, but that's not what's happening in the rest of the retail world. Big traditional chains like Macy's and Wal-Mart are reporting record earnings. And even if people really want to go online and buy a thirty-thousand-dollar automobile they've never seen from a person they've never met, that doesn't mean traditional dealers will go out of business. Maybe they sell cars plus services or accessories online. Maybe they evolve into service and repair companies. Maybe they have a high-margin business selling test drives. Maybe, at the end of the day, most people still want to look a person in the eye and shake hands on a car deal.

In a free society, it's up to the dealers to figure out how they add value. It's not up to consumers to figure out how to keep car dealers in business. And I think there's every reason to believe the dealers can stay in business, if they're willing to embrace the future, instead of lobbying against it.

One of the stars of the new economy is discount brokerage Charles Schwab, whose President David Pottruck coined the term "clicks-and-mortar." "Clicks-and-mortar" describes the successful companies who are winning in the marketplace by offering outstanding service both online and around the corner. There is a terrific marriage of online and offline marketing and service, and it's working for many companies. If car dealers are willing to show some creativity and grit, instead of running to government and forcing consumers to pay a middleman tax, America's auto dealers may have a larger opportunity than they realize.