…but Alex Tabarrok offers some corrective regarding the structure of the auto dealership business, including the rent-seeking dealership protection laws that have snagged the startup automaker [Marginal Revolution, drawing on Francine Lafontaine and Fiona Scott Morton, “State Franchise Laws, Dealer Terminations, and the Auto Crisis”, Journal of Economic Perspectives, 2010).
“The House approved legislation on Thursday that would grant Chrysler and General Motors dealerships the right to challenge the companies’ decisions to close them in third-party arbitration.” The measure apparently has the support not only of Democratic leaders but of House Minority Leader John Boehner (R-Ohio). [NYT]
The New York Times’s editorialists are making sense.
The supposed “bankruptcy” process that winds up sparing politically influential constituencies keeps rolling along: let’s hope the Senate can say “no”. [Detroit News via Salmon, Drum, Manzi ("seems only fair, as the dealers paid good money for these politicians")]
State laws providing a kind of tenure protection for no-longer-needed car dealers are among the reasons it can be extremely expensive to close down a failing marque. General Motors, which closed Oldsmobile eight years ago, “spent more than five years battling dealer lawsuits” despite having set aside almost $1 billion to handle the transition, and Ford may face similar challenges if it tries to shutter its ailing Mercury line. (Martin Zimmerman, “Mercury may be coming to the end of the road”, Los Angeles Times, May 10). Earlier: Oct. 5, 2006. For more see this 2001 speech by FTC commissioner Thomas Leary, and this article by Missouri lawyer Gene Brockland on the federal Auto Dealers’ Day in Court Act, which is exceeded in stringency by some of its counterpart laws at the state level.
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).