Innovation Files: Where Tech Meets Public Policy
The Future of Buying Cars, With Daniel Crane
Apr 18, 2022
Daniel Crane, the Frederick Paul Firth Senior Professor of Law at University of Michigan, discusses how decades-old dealer-distribution laws hinder innovation and consumer choice in the electric vehicle market. Topics include challenges with car dealerships, asymmetric information in car buying, power dynamics of car dealerships, and competitiveness in the automotive industry.
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Quick takeaways
- Electric vehicle companies like Tesla and Rivian depend on direct-to-consumer sales due to the lack of incentive for car dealers to sell EVs under the traditional dealer distribution model.
- Dealer protection laws that restrict direct sales by EV companies have negative implications for consumer welfare, restricting choices, reducing market access for EV startups, and hindering technological innovation in the EV industry.
Deep dives
The history of dealer protection laws
In the 20th century, almost every state passed dealer protection laws to safeguard dealers from competition from their franchising manufacturers. These laws, which prohibited manufacturers from opening their own retail stores, were put in place when there were only three large car manufacturers and dealerships were mostly small, family-owned businesses. However, with the rise of electric vehicle (EV) companies like Tesla, the question arose whether these laws applied to companies that wanted to sell directly to consumers. Since 2014, there have been political battles between car dealers and EV companies over direct sales, with a coalition of EV companies, environmental groups, and pro-consumer groups advocating for direct sales.
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