State Automobile Dealer Franchise Laws: Have They Become the Proverbial Snake in the Grass?

Jessica Higashiyama

No 628, Working paper from Regulation2point0

Abstract: This paper discusses the history of the relationship between the auto manufacturers and their dealers and the reason why franchise laws now exist in every state. After examining a few of the state franchise laws and their impact on the auto industry, this paper focuses on current state legislation that is particularly overreaching and questions whether it is irresponsible for the dealers to continue to push for these laws - and for state legislatures to continue to pass these laws - in light of the economic crisis and failing auto industry. Finally, this paper concludes that state regulation is necessary to the extent it neutralizes the disparity in bargaining power between the automakers and the dealers, but that current legislation no longer achieves this and only benefits the auto dealers. Based upon these conclusions, this paper proposes that the dealers focus their resources and efforts on lobbying for laws that will benefit the entire auto industry, not just a select few.

Date: 2009-04
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