Tesla started selling its cars online more than 10 years ago. Up until then, cars were sold through franchise dealers, which has been the case since 1898, when automakers were delighted to have middlemen sell their cars for them and take care of warranty and repair issues. Car dealers quickly became pioneers of influence, concocting new and astonishing breakthroughs in the very American alchemy of converting money into political power, according to a recent article in Slate.
As the automobile industry flourished, so did the dealership mode. When America entered World War I, a group of 30 Chicago dealers went to Washington, DC, to argue that cars shouldn’t be classified as luxuries by the tax code. The luxury distinction would have allowed car manufacturing facilities to be converted to wartime production.
That would have been fine for manufacturers, which could continue making money by building vehicles for the war effort, but it would be disastrous for car dealers. The dealers won the argument and Congress approved a 40% cut in the luxury tax on cars. That was the beginning of the National Automobile Dealers Association. Since then, the dealers have become the tail that wags the dog, exerting more power over manufacturers than the other way around.
In the 1930s when another war threatened their businesses, dealers went state by state. “At that time, there was lots of attention being paid to small business as having inherent virtue and the need to protect mom and pop shops,” Daniel Crane, a professor at the University of Michigan Law School, told Slate. “They embraced that story and were extremely successful at getting legislatures in all 50 states to strictly regulate how cars were sold.” In 17 states, it is outright illegal for automakers to sell cars at all.
Since then, the NADA has become one of the most influential lobbying entities in Washington. In 2022, it spent a record $7 million on federal lobbying — far more than the National Rifle Association. In 2020, it spent $25 million on federal elections, with 5 out of every 6 dollars going to Republican candidates. If car dealers have learned how to exert power at the federal level, they have succeeded beyond their wildest dreams at the state level. In Florida, where Republicans enjoy a super majority in the legislature, car dealers have flexed their political muscle to fend off a perceived threat from legacy automakers.
Ford Gets Feisty
General Motors started it 3 years ago when Cadillac offered to buy out its franchise dealers who did not want to sell electric cars. Last year, Buick did the same with its dealers. GM wants its dealers to invest a fair amount of money to transition to electric car sales — things like adding EV chargers at their dealerships. Some dealers balk at spending the money, even though as a group, they are some of the wealthiest Americans. One suspects it has more to do with not believing in the coming age of electric cars and being worried they won’t sell enough of them to make their investment back.
Ford has also noticed the success of Tesla’s online sales model and would like to claw back some of the power the dealers have, especially when it comes to electric cars. Last fall, CEO Jim Farley announced quite unexpectedly that Ford dealers would need to commit to selling electric cars or risk losing their franchise status. It was a two-tier process that allowed dealers to elect to be full or partial participants in the EV revolution and each included a provision that required the dealers to forego the usual haggling. 65% of its dealers said yes to the offer, but later some changed their minds and backed out.
The agreement to sell electric cars at MSRP eliminated one of the industry’s favorite tools — the dealer markups that get applied to popular models. Those “market adjustments” let dealers tack on a hefty surcharge to cars that are in short supply or high demand. The dealers love them; customers hate them. That seems to be motivating factor behind the new law in Florida. It explicitly preserves the right of dealers to add on any increased fees they can get away with, which appears to be a reaction to Ford’s “no haggle” policy.
How this affects the relationship between Florida Ford dealers and Ford is unclear. On the one hand, the manufacturer is requiring those who choose to sell its electric cars to agree not to add market adjustment fees. If they do, they’re out and risk losing all their allocation for new cars from Ford, including the conventional F-150 pickup truck that is perennially the bestselling vehicle on the lot. On the other hand, the state now says legacy manufacturers are prohibited from forcing that requirement on the dealers, which means they can tell Ford to go pound sand while maintaining their access to Ford products. One suspects there are lawsuits over the new legislation in the offing.
The new law does not pertain to manufacturers who have not traditionally sold their cars through licensed dealers, which includes Tesla, Rivian, and Lucid, among others. It doesn’t take an active imagination to foresee the legacy automakers creating new subsidiaries to try to get around the new law. And what happens if BYD suddenly decides to sell its electric cars in Florida? Would it get to sell direct to customers, while Ford and GM customers are forced to go through established dealers? No one knows.
In researching this article, the Google gods led me to a website called Reason, whose tagline is “Free Minds And Free Markets.” My kind of place. It reports that the Florida Automobile Dealers Association was heavily involved in drafting the new legislation.
In a memo to legislators in February, FADA wrote, “As new EV companies have entered the marketplace, some legacy manufacturers have begun to mirror their programs.” While noting that Florida dealers do not oppose newcomers that sell directly to consumers, “legislation should make it clear that a legacy manufacturer (a manufacturer that has an independent dealer network) may not own, directly or through a commercial entity, a dealership nor sell direct-to-consumer.”
FADA insisted the bill is necessary to “protect the competitive nature of the franchise system.” It further claimed, “The franchise system has always driven prices down for the consumer,” and dealers “offer every advantage of the direct sellers” while remaining local. FADA lobbyist Dave Ramba told Florida Politics, “The attempt by auto manufacturers to cut out the dealer would only result in higher prices and less customer service to the public.”
Auto Dealers, Equal Protection, & Restraint Of Trade
Creating two classes of automobile manufacturers — traditional and upstart — seems patently unfair (and illegal) on its face. If you happen to live in DeSantistan (the state formerly known as Florida), you have seen the signs erected everywhere by supporters of the governor that say “Keep Florida Free.” But one person’s freedom is another person’s tyranny. It is hard to imagine how this new Florida law cannot create a restraint of trade situation that is patently illegal.
What is especially galling is that so many of these dealers who thump their chest and loudly proclaim how valuable they are to the community are deliberately standing in the way of the EV revolution. In its 2023 Rev Up electric car report, the Sierra Club revealed that, “Some car dealerships refuse or are still not ready to sell EVs to consumers. Of the 66% of car dealerships that did not have an EV for sale, 45% of those dealers reported they would not offer an electric car for sale regardless of automaker allocations and supply chain constraints.”
In other words, they want legal protection to always be able to do business the way they have always done business. Nokia and Kodak would have liked that deal, too.
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