Tenure for auto dealers

by Walter Olson on October 5, 2006

Worsening Detroit’s agonies: special laws at both state and federal levels expose automakers to lawsuits from dealerships that they try to cut loose as superfluous. Does GM want to reduce the number of Chevy dealerships in, say, Buffalo, to reflect its declining market share there or falling population? Then it’ll have to come up with millions to induce dealers to accept buyouts. The laws don’t inflict a comparable burden on automakers whose fortunes are on the upswing, such as Toyota and Honda. (Joann Muller, “Dealer Surplus”, Forbes, Oct. 16).

{ 2 trackbacks }

Auto Bailout Would Kill Jobs, Impoverish Taxpayers | OpenMarket.org
12.17.08 at 11:01 am
Billions More for Failed Bailouts | OpenMarket.org
03.30.09 at 5:47 pm

{ 3 comments }

1 Paul Brophy 10.04.06 at 11:22 pm

Why do you think that car dealers who invest money in a dealership are receiving “tenure”? It is true that the Big Three are in a difficult position as the result of declining sales and the tendency for the industry to go to ever larger dealerships and would prefer to reduce the number of dealers without having to compensate the ones who made significant investments in good faith.

Why does this count as “overlawyering”?

2 coyote 10.05.06 at 12:23 am

This may be more appropriate to a site we might call rentseeking.com (hey, I like that) but here is my shot at the issue.

Many people have agreements of one sort or another with suppliers. They may be exclusive or not, territorial or not. I don’t know how dealer’s contracts are written with the auto makers, but my sense is that this legislation is granting dealers “rights” or putting obligations on their suppliers that were not written in their contracts (else, why the need for the legislation)

In other words, the dealers either forgot to pursue certain protections, or else the automaker-suppliers in the course of negotiation refused to give them certain protections, and now legislatures are bailing dealers out by essentially re-writing their contracts with the auto makers ex post facto.

Most medium to large sized towns have a power structure dominated by three types of business people: The owners of the auto dealers, the owner of the TV stations, and the owners of the beer distributors. All three have a lot of power in most towns and cities, and, not surprisingly, all three have gotten the government to write laws to give them a stronger position vis a vis their suppliers than they were able to negotiate for themselves (TV stations with must-carry rules and prohibitions on sattelite providers giving users network feeds from alternate sources, and beer and alchohol distributors with prohibitions on internet sales. Auto dealers have also been good at getting the government to prevent competition from the Internet).

These are all supplier protections they failed to negotiate for themselves and that the government does not give to any other industry that does not have similar political power

3 Deoxy 10.09.06 at 1:13 pm

Paul – I think coyote nails it here. If there were existing contractual obligations, then why in the world would “special laws” be needed? If there were existing contractual obligations, then I think every reader at this site would support the dealers, not the manufacturers.

Comments on this entry are closed.