Chicago Automobile Trade Association

Analysis: State franchise laws lower prices, benefit customers

July 15, 2016
Retail prices for new cars are lower for consumers because of state franchise laws, according to a new economic analysis from the Phoenix Center for Advanced Legal and Economic Public Policy Studies.
The analysis, "State Automobile Franchise Laws: Public or Private Interests?" found that state franchise laws serve to foster intense competition among franchised new-car dealers, which "demonstrably lowers prices for consumers" and "alter[s] the way consumers buy cars and service in a positive way."
"Franchise laws do not limit competition or lead to higher prices," said study co-author and Phoenix Center Senior Fellow Professor T. Randolph Beard. "In fact, all the evidence suggests that there is intense competition leading to very low margins on new car sales."
The Phoenix Center study came in response to recent scrutiny of state franchise laws by the Federal Trade Commission and others, and the suggestion that these laws are outdated. The study concluded, however, that state franchise laws are indeed still very beneficial to consumers.
"When selling an automobile-service bundle, our analysis indicates that franchised auto dealers have a better incentive with respect to consumer desires than car manufacturers," said another study co-author and Phoenix Center Chief Economist Dr. George S. Ford. "As such, it is not unreasonable for state legislatures to choose a market design that best serves their constituents in the form of local auto franchise laws."


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