One Big Reason Car Dealerships are the Worst

Car dealerships are expensive and protected by old laws

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

The sales process isn’t as sleazy as it used to be (thanks to the internet) but the system is still rigged. The government protects the dealerships… at your expense.

Politician payoffs have led to less competitive car sales…

Car dealer lobbying totaled $5.7 million in 2017 and this year, the National Auto Dealers Association alone has already spent over $2 million in lobbying.

This amount is small compared to some corporate lobbying… but these are just the reported figures. Car dealers have much more sway over local lawmakers.

A large portion of total state sales tax comes from auto dealers…

“States earn about 20% of all state sales taxes from auto dealers… The bulk of these taxes (89 percent) are generated by new car dealerships…” – Journal of Economic Perspectives, Yale.edu.

The history of car sales is uncompetitive and the current system is broken… but there’s hope on the horizon.

Before we look at the coming changes, let’s take a closer look at why car dealerships are the worst…

Customers Taken on a Joy Ride

Customers are ill equipped when it comes to buying a car and repairs.

It’s easy to charge them more when they don’t know much about the product or service. You see this issue in many industries. Investment advisors, for example, have pushed billions of dollars of low return annuities on clients.

The knowledge gap allows car dealers to charge customers more. But with a smartphone in hand and answers at your fingertips, it’s a little easier to shop for better deals.

The big problem with buying new cars is where you can buy them. Dealership associations since 1937 have pushed states to pass “franchise laws” that create a virtual monopoly.

Car makers can’t sell directly to buyers. Manufacturers also don’t own the dealers. Laws protect the dealers and prevent healthier competition.

It’s 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.

Anti-competitive laws are one reason dealerships pass down in families. The barriers to entry are big but innovators are chipping away at them. In the near future, you might be able to buy cars directly from manufacturers.

Solving the Car Dealership Model

Tesla is helping to break the mold. Elon Musk is an amazing disruptor and he’s drawing blood from car dealer networks. This might be one of his most 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 millions of Americans big money.

Businesses in the past have tried to cut out dealers… but no success. CarsDirect and other sites are just another layer with fees. You still end up buying from the dealerships.

Tesla is fighting for the right to sell its cars directly in eight states. It’s already won approval in New York for five dealerships. This has set a great legal precedent and Tesla is pushing for more locations.

The worst car dealerships will start to crumble. It’s a slow process but forward thinkers can profit on the trend.

The Future of Car Sales

Let’s jump a few decades into the future…

Imagine online car shopping in 2040. You open up a few car manufacturer websites and select your dream car (you can test it out at the maker’s showrooms). From there, you enter a buy order. You don’t have to wait or haggle with a salesperson (who doesn’t have your best interest in mind).

Next, your order is processed. Once verified, the car drives itself straight to your driveway. No protected middle man adding costs along the way.

Autonomous cars are still a ways out but I’m looking forward to this future. It’s a likely outcome with the new legal precedent and technological progress.

Final Thoughts

Car dealerships are 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, changes are finally coming thanks to innovators like Elon Musk.

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

Invest mindfully,

Brian Kehm

P.S. If you’re interested in investing, dividend stocks are an amazing way to start. It’s a time tested strategy that rewards shareholders.

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