Bill to Ban Direct Vehicle Sales Is Anti-Consumer Choice

By Matthew Nicaud
February 24, 2022

A key free-market principle is that economic freedom and consumer choice should be the basis for economic policies. Mississippi’s House Bill 833 is a bill that goes against these principles by creating a regulation that vehicle manufacturers must use a third-party franchise dealership to sell their cars. The bill recently passed the House and has been referred to the Senate finance committee.  

In the wake of innovative technologies, innovative business models have emerged with them. The car industry is no exception. As electric cars are being developed, manufacturers have sought alternative ways to lower costs for consumers. One way that manufacturers accomplish this is by selling their vehicles directly to consumers instead of using the traditional dealership franchise model.

Why has the government gotten involved in auto dealerships in the first place? To better understand the root of this debate, it is helpful to consider the historical background. Instead of selling their cars directly to consumers, manufacturers have historically sold their cars through third-party franchises.

 By the middle of the 20th century, the car market had consolidated to only a few manufacturers. Since there were only a few manufacturers, dealers were concerned that manufacturers would leverage their market dominance as a way to force dealers into one-sided franchise contracts. To push back against this, the dealers successfully lobbied for franchise laws that set minimum standards for the contracts between manufacturers and dealers.

Under current law, a car manufacturing subsidiary is not prohibited from obtaining a license to operate a dealership. Some have argued that this violates the franchise laws that govern agreements between manufacturers and franchisees.

However, the original purpose of the franchise laws was to regulate contracts between manufacturers and actual third-party dealers, not to require that all car manufacturers use the franchise model. Suppose a company does not use the franchise model. In that case, it should not be pushed out of the market by laws that are intended for franchise contract regulation.

Should the government decide that because cars have historically been purchased through franchises, that this must be the case indefinitely? Ultimately, the issue boils down to consumer choice. If a consumer decides that they do not want to have a dealership involved in their vehicle purchase, government policy should not force them to.

Some consumers may prefer the dealer franchise experience over purchasing a vehicle straight from the manufacturer. Yet, it is anti-free market policy for the government to force all citizens everywhere in the state to only purchase a vehicle exclusively from franchisees.

Comparable to the issue of mandating car dealership franchises is a consideration of other goods in the market. For instance, imagine if Mississippi required all restaurant chains to operate as a franchise. Chick-Fil-A, Subway, and other franchise restaurants chains would still be options on the table for consumers. Meanwhile, Mississippians could not enjoy a meal from Cracker Barrel, Chipotle, Panda Express, or other non-franchise restaurants.

Thankfully government overreach has not gone that far yet, but House Bill 833 would impose such a rule on car choices. Mississippians could take the car by the drive-through at as many non-franchise restaurants as they pleased. But buy that new electric car from a non-franchise dealer? No indeed not.

Personal preferences and choices are the lifeblood of a free economy, not a system where individuals are forced to comply with heavy-handed government regulations. House Bill 833 is bad for consumers, the free market, and the state of Mississippi. Free people should have the ability to make free choices without a nanny state forcing them to buy certain items in their state through a third party.

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