Franchise dealer groups are perhaps the second most powerful political force in America, second only to MAGA deniers. According Bloomberg, Lucid Group filed a lawsuit in the U.S. District Court for the Western District of Texas (Austin Division) claiming that the state’s auto dealership rules are a form of “economic protectionism.” Monique Johnston, director of the motor vehicle division of the Texas Department of Motor Vehicles, is named as a defendant in the lawsuit
As with many other electric vehicle startups, the Newark, Calif.-based company markets its vehicles online and through a network of stores it owns. According Inside electric vehiclesLucid argues that its direct sales and internal and after-sales services are so intertwined that relying on an independent franchised dealer would not be economically viable and would hurt the business.
“This tight and fast feedback loop, and the benefits it brings to Lucid’s customers, would be impossible with third-party resellers interposed between Lucid and consumers,” according to the plaintiff’s statement seen by Bloomberg.
Tesla has been embroiled in similar legal skirmishes in multiple states. After more than three years of litigation against the state of Michigan, the parties have reached an agreement that allows Tesla vehicles to be sold and serviced in that state. Yet despite choosing Texas as Tesla’s new headquarters, it still hasn’t been granted approval to sell its vehicles directly to consumers in the Lone Star State.
Lucid, 60% owned by the Saudi Sovereign Fund, is struggling to establish itself on the market. While it says it booked orders for 37,000 cars in the second quarter, it only built 2,282 cars and delivered just 1,398 in the third quarter of this year. Its Lucid Air sells for over $100,000, but the upcoming Pure Air is “only” $87,400 and is expected to launch next week. To meet its 2022 targets, it must produce at least 2,300 vehicles in the fourth quarter, which is rapidly approaching the halfway point.
Dealer franchise laws came into effect more than 70 years ago in response to gross abuses by manufacturers, who could withhold dealer inventory that pestered corporate headquarters. In some cases, a manufacturer would franchise another dealership nearby or across the street. The original dealer would often be driven out of business.
But like all good ideas, it has become a monster that bites its own tail. Dealer groups now have enormous power over manufacturers and have cemented their position by donating generously and often to local and state politicians. It’s checkbook democracy and it leaves many customers holding the end of the stick. The loser in all of this is the buying public, who get slapped all the time by dealers with little recourse.
The ultimate factor in all of this should be the federal constitution’s interstate commerce clause, which makes federal law prevail over state law, but there’s little appetite to enforce its provisions in federal courts these days. these days in order to avoid the revolts of States. .
Nevertheless, state franchise dealer laws increase dealer profits while providing very little benefit to consumers. United Airlines does not buy 787 Dreamliners through aircraft dealers. They deal directly with manufacturers. Amazon sells over a million items online every day without using resellers. Online sales have taken off this century with no apparent negative impact on consumers. In fact, customer feedback drives sellers to maintain a high satisfaction rating. This is where the competition between sellers comes in.
Dealer franchise laws are an anachronism from an earlier era. Today, their main objective is to fatten the bottom line of resellers. It is time they were put down. Perhaps Lucid will deliver the blow that will destroy this archaic, anti-competitive business model. And not a moment too soon. Power to consumers. Right on!
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