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Ever Wonder Why You Can't Buy a New Car Online

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  • Ever Wonder Why You Can't Buy a New Car Online

    I wondered about this when I wanted to buy that Civic Si when it 1st came out and all the price gouging the dealers were doing. I was suprised to find this today that its illegal While I can respect the Jobs for the people that dealers employee, IMO it seems stupid to tell the mfg of cars that they cannot sell there own cars, and if so why dont they do this will all types of commerce.

    Since the late 1990s, car dealers have used their considerable political clout to pass or better enforce state franchise laws that in many cases make it a criminal offense for an auto manufacturer to sell a new car to anyone but a state-licensed car dealer.
    http://www.motherjones.com/politics/...new-car-online
    Americans can buy virtually anything over the Internet these days—sex, booze, houses—everything, that is, but a new car. If you want to buy a new Ford Fusion, you have to go down to your local dealership and haggle with the car salesmen, an unpleasant and daunting task. The process usually subjects consumers to hours in the dealership hotbox and can add hundreds, if not thousands, of dollars to the price of the car. Wouldn't it be nice if you could cut out the middleman and just order your Prius straight from Toyota?

    But you can't. And there's one reason why: the car-dealer lobby, which has worked hard to ensure that this will never happen. Since the late 1990s, car dealers have used their considerable political clout to pass or better enforce state franchise laws that in many cases make it a criminal offense for an auto manufacturer to sell a new car to anyone but a state-licensed car dealer. The laws governing who can sell new cars are among the most anti-competitive of any domestic industry. By creating local monopolies for dealerships and prohibiting online sales for new cars, they constitute a major restraint on interstate commerce; in 2001, the Consumer Federation of America estimated [pdf] that the laws added at least $1,500 to the price of every new car.

    These parochial state laws also make the distribution system for new cars incredibly inefficient and expensive, one factor in the financial problems facing the Big Three in Detroit. Online sales would help companies like GM and Chrysler align production to sales better by allowing more people to buy their cars built-to-order from the factory, rather than having Detroit send out truckloads of vehicles to sit around on dealer lots for months in the hopes that a rebate offer will finally entice someone to buy them.

    Now that the federal government is bailing out GM and Chrysler to the tune of $13.4 billion, and Congress is demanding major changes in the way they're run, consumer advocates think the time is ripe for Congress to clear the way for online sales as part of its effort to move Detroit out of the Stone Age. You'd think they would find a sympathetic ear among deregulatory Republicans who take great umbrage over any state interference with the free market, but you'd be wrong. Most free-market Republicans have no interest in taking on the car dealers, who are among their strongest local supporters. Since 1990, American car dealers have given more than $66 million to federal candidates, with more than three-quarters going to Republicans.

    For decades, Republican governors have been some of the dealers' biggest champions and have signed much of the legislation creating their bulwark against real competition. California legislator Mark Leno discovered just how entrenched these roadblocks are in 2005, when he introduced legislation to let consumers buy hybrid and other low-emission vehicles directly from manufacturers online. The bill came in response to evidence that local dealerships were price-gouging consumers seeking hybrids, which were then in short supply. Environmentalists believed the savings consumers were likely to get by purchasing online would spur more sales for the cleaner cars and encourage automakers to produce more of them.

    The bill would have allowed people to order their Priuses online and have the manufacturer deliver them to their doors—or, alternately, they could pick them up at Costco or the local dealership. The bill would have even allowed people to buy the cars on eBay or Amazon. Leno's office estimated that the bill would have little impact on the dealerships, because hybrids accounted for less than 1 percent of all new car sales. But he underestimated the power of the dealers, who were the reason legislation was needed in the first place.

    Back in 1973, then-California governor Ronald Reagan signed a law that effectively prohibited any new car dealerships from opening within a 10-mile radius of another existing dealership selling the same make of car. The law was a gift to one of Reagan's "kitchen cabinet" members, Holmes P. Tuttle, and decades later would have made it difficult for hybrid manufacturers to create pickup facilities (which required dealer licenses) for cars ordered online.

    Tuttle had famously sold a car to Reagan when he was an out-of-work actor. Tuttle went on to create one of the nation's largest car dealerships and helped fund Reagan's first run for governor. Reagan repaid him by signing the dealer franchise law. "A statutorily created monopoly was signed into law by Reagan to help his friend Mr. Tuttle," says Leno. He says Tuttle had been pushing for a law that prohibited the establishment of any new dealership without the majority support of the dealerships in that part of the state. Instead, he got the 10-mile exclusionary zone. Leno notes that the law was vigorously opposed by California state senator George Moscone, who was later assassinated, along with Harvey Milk, when he was mayor of San Francisco. Moscone labeled the bill "the turkey of the year," and issued a prescient statement observing that the bill would "freeze, for all time, the ability of new car dealers to make money without worrying about competition…How in the name of free enterprise could the governor even consider signing a bill that shuts off any future competition?"

    Moscone's objections fell on deaf ears. Today, Tuttle's son Robert, who still owns the family auto chain, is the outgoiong US ambassador to the UK, an indication of just how strong the political clout of the car dealers—and the Tuttle clan—remains. Needless to say, Leno's bill to amend the franchise law never even made it out of a Democrat-controlled policy committee.

    His experience isn't unusual. In the late 1990s and early 2000, the auto manufacturers themselves, sensing the potential of the Internet, attempted to challenge state franchise laws that restricted their ability to sell over the Internet. They got clobbered, and in no small part because of Republican governors, who, like Reagan, counted local car dealers as political supporters.

    In 1999, as governor of Texas, George W. Bush signed what was then the nation's toughest law in the country banning new car sales online. Egged on by local car dealerships, state regulators invoked the law to help shut down Ford's fledgling attempt to sell used cars online. Ford had started letting people buy used cars on its website; local dealerships delivered them. But Texas regulators cracked down, threatening Ford with $10,000 daily fines for allegedly violating a state law banning manufacturers from selling their products directly to the public. Ford tried to fight back in court, arguing that the state franchise law was a restraint on interstate commerce, but the court was no more sympathetic than the governor. The federal judge hearing the case wrote that if Ford were allowed to sell cars online, "all state regulatory schemes would be nullified" as they "fall before the mighty altar of the Internet." Texas regulators, never known for regulating much of anything, also forced GM to abandon its foray into e-commerce. The automaker had bought a handful of dealerships in the state to use as distributors for cars bought online, but regulators refused to give GM a dealer license. GM gave up and sold off the dealerships.

    Texas inspired car dealers in other states to seek similar protections from competition. Arizona, for instance, passed a law that not only blocked manufacturers from selling cars online but also restricted manufacturers from offering other services online, such as financing. Other states followed suit, as car dealers feared predictions that only half of them would survive the next seven years thanks to competition from the Internet. Since then, the manufacturers have largely given up the fight.

    "We have a very good relationship with our dealerships," says Charles Territo, a spokesman for the Alliance of Automobile Manufacturers, which represents 11 manufacturers, including the Big Three. "The dealers are the faces of the manufacturer." Territo says that after their experience trying to change state laws in the 1990s, the manufacturers have no interest in picking a battle with the dealerships over online sales, which he considers unworkable anyway.

    "What about sales tax?" he demands, suggesting that if people start buying cars over the Web, local governments would be deprived of revenue that supports their communities. He says that in California, fully 25 percent of state tax revenue comes from vehicle sales. Even if people could buy new cars online, he says, the nature of the sales means that the "dealer would still need to be part of the equation," either because they would need to service the cars or arrange delivery of them.

    Territo says that the lack of Internet sales is the least of the problems for the automakers right now, when the credit markets have made it virtually impossible for many consumers to buy new cars. "It doesn't matter whether you buy it on the Internet or on a street corner—if you can't get credit, you're not going to be able to buy that car," he says.

    Territo's argument mirrors that of the car dealers. Jack Fitzgerald, the owner of a chain of dealerships in Maryland who's known as an honest broker among consumer advocates, calls online new car sales "a pipe dream." From his perspective, the state franchise laws that prevent manufacturers from selling their own products "are what little protection dealers have against the abuses of the manufacturers," which have a long history of beating up on both their own employees and their dealerships, which the companies force to assume much of the risk of the sales business, he says.

    Fitzgerald suspects that if the manufacturers could sell new cars directly over the Internet, consumers would actually pay more for them than they do now. Right now, he says, dealerships actually pay about $2,500 more for a car from the manufacturer than they sell it for. Dealerships make their money elsewhere—on repairs and servicing, financing, and other products. Fitzgerald says that the manufacturers haven't sold cars directly to the public in 75 years, since the days when you could buy a car at Sears. Those sales didn't work out, he insists, because someone still has to service the car, and that's usually the dealership.

    Jack Gillis, the Consumer Federation's executive director, says allowing online new car sales wouldn't necessarily remove dealerships from the equation. It would just introduce more competition into the marketplace and reduce some of the inefficiencies in the distribution system. If Ford or GM could sell cars through Amazon or eBay, for instance, the dealerships could still handle the deliveries and warranty work. Indeed, Fitzgerald concedes that under such an arrangement, he might actually make more money than he does now.

    "It's unfortunate that the car companies have capitulated to the desires of the dealers," says Gillis, noting that allowing online buying might actually stimulate sales. "The loser there, first and foremost, is the consumer, but ironically, so is the industry," he says. "People would flock to the Internet."



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  • #2
    You can cut out a middleman in terms of the salesman but you still have to have someone / some place to prep the car after delivery and make sure it's ready to go. So, you can reduce cost but you can't cut it out completely.

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    • #3
      I heard about this on NPR. With the recession closing down numerous auto dealerships, I don't see the statute getting repealed anytime soon in the name of saving jobs...


      '65 Honda S600
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      • #4
        Originally posted by Slambo View Post
        Fitzgerald suspects that if the manufacturers could sell new cars directly over the Internet, consumers would actually pay more for them than they do now. Right now, he says, dealerships actually pay about $2,500 more for a car from the manufacturer than they sell it for. Dealerships make their money elsewhere—on repairs and servicing, financing, and other products. Fitzgerald says that the manufacturers haven't sold cars directly to the public in 75 years, since the days when you could buy a car at Sears. Those sales didn't work out, he insists, because someone still has to service the car, and that's usually the dealership.
        I find this part hard to believe. I know for a fact that a true employee (my dad worked for Ford at a stamping plant) discount, where the employee got the manufactures sticker, would show just what the dealer paid and what the employee paid, most times it's about 3% less than what the dealer paid, Ford wold make it up to the dealer.
        My dad once purchased a new car and the dealer over charged him, the Ford people caught it and he got a refund from the dealer. Cammie & I purchased a Capri one time and after my dad's cost, the rebate and other stuff Ford offered, we got the car for $3000.00 less than the dealer paid and about $5000.00 less than what Ford was trying to clear out the car for.

        Even with the so call "employee pricing", my niece got a new car 2 years ago, for around $1000.00 less by using her grandmas GM employee cost.
        Coop
        Life Member 57
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        • #5
          Originally posted by JonBoy View Post
          You can cut out a middleman in terms of the salesman but you still have to have someone / some place to prep the car after delivery and make sure it's ready to go. So, you can reduce cost but you can't cut it out completely.
          true and the dealers could still make money on warranty work and such.
          Coop
          Life Member 57
          Friends do things for friends because they matter, thanks Sean, Jeff, David & Curt. Camping time
          It's Five O' Clock Somewhere
          Become an S2KCA member, tell them Coop sent you

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          • #6
            I see this day coming, but there are still reasons dealers will hang around for a while.

            What about your trade? Do you expect Honda OEM to resell your Nissan?

            Say goodbye to discounts. If you're used to getting something off MSRP, you can forget it if the OEM's sell directly to consumers. If you think 3% Markup is a lot now, wait until the day the OEM sells to the public.

            There's so many other things that Dealers do for the benefit of the OEM's that it's to the manufacturers to keep dealerships around.

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            • #7
              Originally posted by rioyellows2k View Post
              There's so many other things that Dealers do for the benefit of the OEM's that it's to the manufacturers to keep dealerships around.
              like charge some of the cost of Warranty repairs to the customer?

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              • #8
                Carl - thats illegal.
                warrranty fraud.
                they could get audited and debted the amount of alooooot of money....

                every dealer has an audit every so often.
                mine had 1 about 7 years ago right before i came on board, they got debitted some 80k for reasons i dont know...

                like Scott said, OEM can and will screw with alot of things...
                '00 Civic Si supercharged (stolen)
                '95 Civic hb turbocharged (sold)
                '03 Acura CL-S supercharged (sold
                )
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                • #9
                  Originally posted by JonBoy View Post
                  You can cut out a middleman in terms of the salesman but you still have to have someone / some place to prep the car after delivery and make sure it's ready to go. So, you can reduce cost but you can't cut it out completely.
                  I actually did purchase a used Sable LS wagon from some pilot program Ford was running -- maybe back in 2000 or 2001. You could view inventory, pricing etc and purchase from a Ford web site. I don't recall what hoops they jumped through to try to make it fly bit the program was quickly shut down -- I'm sure for reasons already mentioned in this thread. You still had to pick a dealership for delivery, prep, signing, etc though. The dealer was amazingly quick in slapping their badges and plate frames on the car.

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                  • #10
                    Originally posted by rioyellows2k View Post
                    Say goodbye to discounts. If you're used to getting something off MSRP, you can forget it if the OEM's sell directly to consumers. If you think 3% Markup is a lot now, wait until the day the OEM sells to the public.
                    I'm not seeing that this would happen (disclaimer: not that we will ever see dealerships relinquish their livelihood). Right now, we still see a bit of competition between dealerships of the same brand of car in the same locale vying for a customer's business. It may not be much. It might only be free floor mats or a free stereo upgrade or it can be hundreds or thousands of dollars, but it's still something. If dealerships as we know it were to disappear, we would then begin to see more competition between brands and if national car brands want to sway a customer away from another brand and to their own, the dollar talks. If I needed a domestic full size truck and I don't have any brand loyalty, which one do you think I'm going to buy if all 3 have a truck equipped the same way? The cheapest one.
                    You would still need a place to do the PDI and the warranty work. These don't have to be "dealers". They can be authorized PDI/warranty service centers. Of course, you'd still need "dealers" for test drives, so the successful ones can stay dealers and perhaps become a PDI center as well. The less successful ones? Maybe they shouldn't be in business anyway.
                    The public perception of the car selling business (in particular, the car dealership), has never been a steller one in general. How else have we developed terms like "stealership" into our vocabulary? What about "car salesman", spoken in that tone? Perhaps being able to buy direct from the distributor might improve the car selling business image.

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                    • #11
                      Agreed. The car business and dealerships are it's own worst enemy. And dealerships have tried to change the perception by changing the way they do Business. Some anyway. In the information age it's getting harder and harder to be competitive solely on service. Consumers care more about the bottom line. With dealerships relying more on volume and market share vs. profit to maintain their business it gets very difficult to give customers a great overall experience.

                      But I still think dealerships will be around for a while. These tough times will reward the dealerships doing business the right way, and the ones doing it the wrong way will get weeded out.

                      As I said, there are many aspects to car Selling that the Manufacturer just probably wants no part of.

                      At the end of the day, when a Car leaves the Manufacturer, they've already made their money. They want to crank out cars a efficiently as possible. Once it hits the Lot, they've already sold a car. The dealerships help the OEM's keep a steady stream of production. Instead of having one transaction at a time to one consumer at a time, they're selling 120+ cars a month to a dealership.

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                      • #12
                        Originally posted by bimdub View Post
                        like charge some of the cost of Warranty repairs to the customer?
                        Again, your experience should not reflect on a NORMAL warranty transaction. For every one bad warranty experience there are probably thousands of normal or good ones.

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                        • #13
                          effectiveness of direct to consumer sales has already been proven so many times... middlemen always cause more problems than they're worth. however, when politics gets into the picture, the free market can't push them out. look at alcohol sales. ever tried to get a yuengling in ohio? there's a good reason you can't.

                          look at how you bought computers not even 10 years ago.
                          go to Best buy or other electronics store. look at a whole bunch of overpriced crap, get talked down to by a minimum wage high school drop out who sells you a bunch of bs and tries to get you to buy a worthless extended warranty. overpay for a poor quality product
                          Dell comes along, and others, with direct sales. pick what you want, order online, get it in a week or so. not saying they're perfect...but they're a hell of a lot better than going to bestbuy/circuit city/whatever.

                          there's a reason dell became so successful so quickly. this forced places like best buy to compete with things like geek squad, marketing the ability to support your product and help you with installation. did online sales of computers kill off brick-and-mortar computer sales or service? hell no. they're still around, they just had to adapt to be competitive.

                          i'm of the opinion that without legislation inhibiting real competition, car sales would look very different from how they look today... and i think it would be a huge change for the better.

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                          • #14
                            Originally posted by Coop View Post
                            true and the dealers could still make money on warranty work and such.
                            The big money makers for any dealership are the service department and the used car lot. Not much is made on the sale of the new car. Car dealerships can be evil, but they are convenient. If I buy my new car over the Internet I still either need to sell my old car myself, which I absolutely hate doing, or sell it to a used car lot, which means I'm still involved with a dealer of some sort. Plus I'm sorry but I absolutely refuse to buy a car over the Internet. I want to drive it, touch it, see it, experience it. And not just any copy of that car, I want to drive and touch the actual car I'm going to buy.

                            Sorry, but I think buying cars direct from the manufacturer a bad idea. It really needs to be thought through and ask yourself if its worth the money you think you're going to save.

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