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State Franchise Laws Benefit Consumers, Economic Analysis Concludes

July 12, 2016

WASHINGTON, D.C. — The question of whether state franchise laws protect dealerships at the expense of consumers was addressed in a new economic analysis released today by an independent and nonpartisan think tank. The conclusion: state franchise laws are not protectionist, and they produce lower prices for consumers.

Conducted by the Phoenix Center for Advanced Legal and Economic Public Policy Studies, the analysis sought to answer the question of whether these decades-old laws, which have come under attack in recent years by regulators such as the Federal Trade Commission, still benefit consumers. According to Phoenix Center Senior Fellow Professor T. Randolph Bear and Chief Economist Dr. George S. Ford, the answer remains “Yes.”

“First, the Phoenix Center’s economists demonstrate that state auto franchise laws do not limit competition,” the center stated in its release. “By most expert accounts, there are more than enough dealerships to ensure competition on pricing and servicing, especially for traditionally domestically branded cars. It is also readily acknowledged that new automobiles are sold at scant profit margins, which belies claims of market power.”

The authors said the laws also alter the way consumers buy cars and service their vehicles. “Instead of consumer engaging in one-off transactions with powerful manufacturers, dealerships are in a continual relationship with manufacturers and choose to bundle sales and service in a manner preferred by consumers — but not by manufacturers,” the center noted in its press release. “As a result of this intermediary function played by independent auto dealers, retail car prices are lower for consumers under state auto franchising laws.”

To read the Phoenix Center’s full analysis, click here.

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