Car Dealership Scam Adds 5-10% to Car Prices

Car dealership scams can add thousands of dollars to the price tag on your car… 

However, the sales process isn’t as sleazy as it used to be. Thanks to the internet, you can now compare car prices easier than before. And this helps to make sure you’re not getting ripped off. But the system is still rigged. The government protects the dealerships… at your expense. 

There have been improvements over the past few years – thanks to Tesla and other innovators – but there’s still a long way to go. 

Last year, car dealer lobbying almost reached $6 million. That’s not a lot compared to other corporate lobbying but those are just the reported numbers. Car dealers have much more sway over local lawmakers. 

On the state level, for example, Florida’s auto sector accounts for close to 20% of total state taxes. With that much money on the line, governments and car dealerships have worked hand-in-hand to control car sales. As a result, the current system is broken with uncompetitive laws that date back to 1937… but there’s hope on the horizon. 

Before we look at changes underway, let’s take a closer look at why car dealerships are a scam… 

Car Dealership Scam with Franchise Laws 

Since 1937 dealership associations have pushed states to pass “franchise laws.” Initially, Ford and GM adopted the dealership model with open arms. They hoped the individual owners of dealerships would work harder. It could also give the manufacturers more flexibility. 

Although, this backfired. Over the years the dealership owners pushed for more laws to monopolize in certain areas. And these laws prevent healthy competition, thus adding to the price tag on your new car. One Goldman Sachs analyst projected that allowing direct manufacturer sales would save consumers an average of over $2,000 on a $26,000 car. 

The anti-competitive laws are one big reason we see dealerships passed down in families for generations. 

For more evidence, in the 1990s Ford and GM started trying to buy up dealerships. But the dealers pushed back, along with state regulators. So, the car makers gave up. 

Also, in the 90s, a few companies tried selling cars online. But once again, dealerships pushed back, along with regulators. And this led some states, like Texas, to make it illegal to sell cars online. And today, most online car sellers have to go through the dealerships. So, it’s just more middlemen looking for a cut of the sales price. 

In most states today, it’s still illegal to sell new cars unless you’re a dealership and it gets worse… It can be illegal to open a dealership in another dealer’s territory with the same brand. 

The barriers to selling new cars are high. But innovators are chipping away at them. In some areas, you can now buy cars directly from manufacturers, like Tesla. 

What States Can Tesla Sell Cars Directly? 

Tesla is helping to break the mold. Elon Musk is an amazing disruptor and he’s drawing blood from car dealer networks. This is one of his many revolutionary feats. 

Many people overlook this change that Elon Musk is pushing for… but you now know the corruption in car dealership networks. Reversing the anti-competitive laws can end up saving big money for millions of Americans. 

Over the last decade, 12 states that have shifted to mostly unrestricted direct sales for Tesla… 

  • New Hampshire (2013 law change) 
  • Minnesota (2013 law interpretation) 
  • Washington (2014 law) 
  • Massachusetts (2014 court ruling) 
  • Missouri (2017 court ruling) 
  • Wyoming (2017 law change) 
  • Arizona (2017 court ruling) 
  • Indiana (2017 law change) 
  • Rhode Island (2017) 
  • Utah (2018 law change) 
  • Michigan (2020 legal settlement) 
  • Colorado (2020 law change) 

There’s still a long way to go. Most car dealerships are still partial monopolies. They pushed for laws in the 1930s to protect consumers… but a lot has changed since. 

Politicians have accepted big money to keep the laws in place. But, thanks to innovators like Elon Musk, changes are happening. 

Third party dealerships won’t disappear… but you’ll hopefully soon have options that are more competitive. 

Invest mindfully, 

Brian Kehm 

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