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Why Are Car Dealerships Still a Thing?

There are few retail experiences worse than buying a car. Before setting foot in a dealership, I spend weeks researching makes and models, printing out price sheets and psyching myself up like I’m headed into an MMA bout.

“What if he tries to sell me the extended warranty? I’ll say no! Rustproof undercoating? No way! That lease looks like a pretty good opti… NO!

Despite constant promises of zero haggling and low-pressure sales, I always leave a dealership with a pronounced limp and wondering where my watch went.

In a world of one-click ordering from Amazon and iTunes, why can’t I just purchase the exact car I want on my terms? The answer is simple: Most state governments have made it illegal.

Automobile dealerships are some of the best-connected businesses in local politics. They contribute a large chunk of sales revenue and campaign cash so politicians reward them with sweetheart legislation.

In nearly every state, manufacturers are not allowed to directly sell cars to customers. Instead, those vehicles need to pass through the middleman of a local dealership. And there’s a list of laws to protect dealerships from any upstart that might compete in this lucrative market.

This crony capitalism helped scuttle the plans of a successful entrepreneur named Scott Painter. Using the “Dell model” of built-to-order computers, customers would select the exact options desired and Painter would deliver a sparkling new car to their doors. The tangle of protectionist policies stole that opportunity — and significant cost savings — from you and me.

The latest company to drive headlong into the growing wall of red tape is Tesla Motors. The luxury electric car manufacturer sees no reason to create an expensive network of dealerships when they could sell directly to the customer. Not only do the various state laws make that difficult, some states are actively trying to keep Tesla out.

The Austin American-Statesman reveals that Texas isn’t always open for business: "You can visit one of the two galleries Tesla Motors operates in the state — one in Austin, the other in Houston — but employees can't tell you how much the car costs. They can't offer you a test drive. They can't even give you their website address. And if you buy one, the car is delivered by a third party — in a truck that's not allowed to have Tesla markings."

The legislatures in North Carolina, New York and Colorado also have pushed measures intended to keep Teslas out of the hands of their residents.

Tesla is no angel when it comes to government intervention in the free market. The politically connected “green” business has benefited mightily from federal largesse and targeted tax credits. But two wrongs don’t make a right. 

State and federal governments must stop choosing winners and losers in the marketplace since the only real loser is the customer. And politicians should step out of the way when innovative entrepreneurs try to radically improve the buying process for you and me.

Follow Jon on Twitter at @ExJon.

Craig S. Bell

Of course, I forgot to mention one important fact -- the good dealership was in the next state over. They work hard to take business away, including waiving their sales tax.

Craig S. Bell

So true, Jon. My last car-buying experience corroborates your opinion about the insanity of the currently accepted dealership model. Many of them don't know how to handle knowledgeable buyers at all.

In short, my neighborhood dealer threw away a golden opportunity to sell me the exact car I wanted, and their more-distant competitor picked up the slack and got the sale.

On the other hand, manufacturers' service centers matter, too -- so dealers aren't entirely vestigial, so long as they can run a halfway decent service facility. I've had good luck with this manufacturer, at more than one location.

A year ago, we were in the market for a new car. Nerd that I am, I did tons of research and new exactly what I wanted, right down to the manufacturer's option code numbers.

The problem is that what I wanted was somewhat unusual -- and a limited run, to boot. I would have to be proactive to get it, and negotiate well to not pay through the nose for it.

There's a dealership for this manufacturer just a mile down the road from me. It's a small branch of a large (and not particularly highly regarded) regional franchise. They offer many makes, but this joint was just for the make I wanted.

I contacted their "internet sales" person first. He said they might be getting a copy of what I want, but he didn't want to actually have to call me back -- he kinda blew me off, in retrospect.

I contacted all of the other local dealerships, too. Some were very responsive. I kept an eye on their inventories (this maker is pretty transparent about which unit is going where, so you can get a preview of what's on the truck).

So after some weeks, the exact thing I want starts to trickle in. There are maybe four or five copies slated to come to town, so I'll need to jump on it to get one. To my pleasant surprise, the nearby place was getting one. So I called them again.

No response. A sure thing, on the hook, and they blew me off. The next day, I got a call from another dealership -- a local franchise, much more highly regarded -- 20 miles away. This was a surprise, since they didn't have a copy of my car on the schedule.

They were friendly, proactive, and would fit me in anytime. This was helpful, as it was a bit of a drive. We went and got it that same day. I had to work on the price, but they were above-board, by dealership standards.

It turns out, they got their copy from my local dealership. Those folks received it, and then immediately swapped it with this other place. The first lot had no memory of my efforts to set it aside. Oh well, their loss. I knew what I wanted, and I got it.

In a sense, it's better that I ended up at the far-flung dealer, they are much better for service. It turns out we can get much of our service done at their other lots, which are closer to us.

But it all just seemed so silly... to straight give up a certain-to-happen sale because I was too picky, ,or they anticipated that I would negotiate. Or maybe they just didn't care. It's too bad that marginal operations can just hold onto their franchise, year after year.

Craig S. Bell

Hmm, sorry about the whitespace. I did use paragraphs, but I gather this system uses HTML, or something.