Opinion: direct-to-consumer car sales would help Big Three, save consumers money

Here in Washington DC, it is not uncommon to find two, three or more dealers of the same brand within several miles of one another and the same can be said for just about every major metropolitan region in the U.S. While this increases competition and gives consumers the power of choice when purchasing a vehicle, it also creates a cumbersome, inefficient distribution network which struggles when sales are low. We also cannot ignore the automobile sales process, which is built heavily on intense, face-to-face pressuring of consumers into purchases that they often don’t want or cannot afford.  

James cites the NADA  which claims that 900 dealerships will fold by year’s end and another 3,800 (one-fifth of the nationwide dealer network) will close shop by this time next year. One idea explored in James article is to revolutionize the automobile sales process by opening markets for online vehicle sales, direct to the consumer. This idea is a novel one, but it also sheds additional light on the outdated commercial protective and regulatory practices that may be handicapping not only the automobile industry, but our entire economy.  

According to James, ownership of dealers and direct selling to the public by automakers is prohibited by state law. This necessitates a middle man (the dealer) who in turn adds more cost to the product for consumers in order to make their profit. Peter Morici, a business professor at the University of Maryland is quoted in the article, stating that the automakers “can’t take an order over the Internet for a made-to-order car like Dell because the states have made it illegal. According to Morici, “[they could] lop something like $1,000 off the cost of making one of their cars” by selling over the internet.

Imagine the ability to test drive a car in your local dealership, execute the selection, financing and purchasing of the car online, complete with options, warranties and other desired add-ons, then pick your car up at the dealership or one of several local new car clearing houses. Or better yet, have the car delivered directly to you.  Ebay Motors has already captured the essence of this process for used vehicles and has begun to help dealers move existing new vehicle inventory as well. I've bought several used vehicles through eBay , so the idea of selecting a new car online, customized to my specs is absolute heaven, in my opinion.

So why hasn’t this happened? Like many antiquated practices tied to the automobile industry and manufacturing and commerce in general, the legal and regulatory rat’s nest that surrounds it is preventing needed progress. And the dealers? They’ve worked hard to keep it that way. In James’ article, Morici claims that automobile dealers are a powerful local lobby and have heavily influenced laws in their states which favor them.

I can think of a few other highly regulated industries with powerful lobbies that are now experiencing tough times: banking and pharmaceuticals. While the banking system was supposedly layered with regulatory control, the recent meltdown has exposed that those controls were heavily influenced and set in place by those in that industry that would benefit the most by them. A colleague of mine is involved in pharmaceutical litigation. He recently told me that limits may soon be set on suits against pharmaceutical companies if potential side effects and injury are properly disclosed. Again, this is an example of another regulation which benefits the manufacturer but offers nothing to benefit consumers.

It is clear that the traditional dealer network which supports the Big Three is about to undergo some serious contraction. While that contraction is in the works, perhaps the sales process inherent in it should be addressed as well.