A new economic analysis from the Phoenix Center for Advanced Legal and Economic Public Policy Studies, has found that retail prices for new cars are lower for consumers because of state franchise laws. The report, entitled “State Automobile Franchise Laws: Public or Private Interests,” found that state franchise laws create intense competition among franchised new car dealers on vehicle price. Dealers have been making this case for years, as the franchise system has come under attack.
Critics of the franchise system claim it adds an unnecessary layer of cost for consumers, but this study proves that is simply not the case. Franchise laws do not limit competition or lead to higher prices. In fact, the competition they foster leads to very low margins on new car sales.
The inter and intra-brand competition among the vast network of franchised auto retailers provides consumers with the opportunity to shop based on what is most important to them—price, service, customer care or convenience.
The Phoenix Center study came in response to recent scrutiny of state franchise laws by the Federal Trade Commission (FTC) and others, and the suggestion that these laws are outdated. The study concluded, however, that state franchise laws are still very beneficial to consumers.
The study found that franchised auto dealers, who are important contributors to the communities in which they operate, have a better perspective on what consumers want than their manufacturers. This is why state legislatures across the country have chosen to support the franchise model through laws that benefit consumers and protect dealers from manufacturer overreach. The franchise system has served local consumers well for decades and will continue to do so well into the future. You can find the full study at the Phoenix Center’s website: http://www.phoenix-center.org/perspectives/Perspective16-06Final.pdf.