Before Amazon.com existed, you had to buy books — and any number of other things — at physical stores. If you wanted a new washer or refrigerator, you had to go to a Sears store.
Now imagine if, even worse, there were different stores for different manufacturers of refrigerators: one store for Whirlpool, another for LG, yet another for Bosch, and so on.
That’s just how most of us are forced to buy cars in the United States. Twenty-eight states, including Georgia, prohibit car manufacturers from selling directly to consumers with only narrow exceptions.
Georgia’s Motor Vehicle Franchise Practices Act (MVFPA) generally prohibits manufacturers from owning or operating car dealerships, and a few years ago legislators carved out a special exception for Tesla. New car companies, like Lucid Motors, that want to sell directly to consumers? They’re out of luck.
These protectionist policies are a relic of a bygone era, and they hurt not just carmakers like Lucid, but every consumer who wants more choice, better prices, and a modern buying experience. That’s why we at AIER filed an amicus curiae brief in support of Lucid’s legal challenge before the Georgia Supreme Court.
We took this step because Georgia’s law is an economically harmful, constitutionally suspect violation of freedom of contract, equal protection, and the principle of legal uniformity.
Georgia’s MVFPA is a straightforward restriction on competition in the automobile retail industry. It protects dealerships from facing competition in the form of direct-to-consumer sales. As such, the law harms not only manufacturers, but consumers as well.
None of the traditional economic justifications for enacting state regulations in the automotive context apply to direct-to-consumer (“DTC”) business models. The primary justification advanced in support of such laws, like the MVFPA, is that, without them, manufacturers will abuse and undercut auto dealerships. In particular, the expressed concern is that manufacturers will be able to use the services dealers provide without paying for them and then sell cars directly to consumers, cutting out the independent dealers altogether. While this argument might provide some justification for banning direct auto sales for manufacturers who also have franchised dealerships, it has no application to manufacturers (like Lucid) whose entire business model is premised on DTC sales. In this context, these laws serve only to stifle competition, drive up the cost of cars, and disadvantage consumers.
In fact, the argument doesn’t really provide a justification for banning direct auto sales even for existing manufacturers. After all, manufacturers aren’t going to want to undercut their own dealerships. If they did that, their dealerships would quickly switch to selling other brands. Manufacturers have to compete for dealerships too. At most, if the law allowed, manufacturers would be able to use the option of direct sales to make sure that their dealerships treat customers fairly and set prices competitively.
And again, the law makes no sense whatsoever when applied to manufacturers that do not have dealerships.
To understand better the effects of DTC sales bans on consumers, we investigated the empirical evidence on state restrictive franchise regulations, which limit manufacturers from ending contractual relationships with dealerships and/or establish by law exclusive dealership territories. (Because all states banned DTC sales until very recently, there is no evidence yet specifically on how legalizing DTC sales affects consumers, but the effects should be similar to other pro-dealership regulations.)
We found no credible, independent studies that found consumer benefits of limits on dealer competition. In fact, several credible studies have found that these regulations raise prices and reduce sales, just what you would expect from an uncompetitive market.
The losses are big. The most comprehensive study of anticompetitive franchise regulations found that these laws transferred more than $30 billion annually nationwide from consumers to dealers. They also created about $2 billion of deadweight loss to the American economy — value that has been completely destroyed.
Dealerships can provide value; that’s why the auto manufacturers adopted the franchise model in the first place. Manufacturers couldn’t feasibly build nationwide retail networks, so they outsourced sales to local dealerships, who bore the cost and risk of showcasing cars, arranging test drives, and offering repairs.
That model made sense — in 1925. But in case the Georgia legislature hasn’t noticed, it’s 2025. We want to buy stuff online!
When was the last time you went to a car dealer’s lot, and they had the exact model you wanted with all the features you wanted and none of the ones you didn’t? Never, right?
Well, if online sales were legal, you could go online and customize your car just the way you want it. In fact, GM pioneered its economy Celta as a build-to-order model in 2008 — in Brazil, where this wasn’t illegal. The Celta quickly became one of the top-selling cars in Brazil.
If these laws are so harmful, why do they exist? The short answer is the political power of dealerships. Auto dealerships are highly organized, deeply entrenched, and politically influential in every state. They fund campaigns, lobby legislators, and fiercely protect their privileged position. They have a strong incentive to lobby because these laws make a vital difference to their profits, and politicians have an incentive to pay attention, because there are car dealerships in every district. Manufacturers, by contrast, are fewer in number and geographically concentrated with global revenues, so they have less incentive to lobby state legislatures. Consumers largely aren’t even aware of how these laws affect them, and even if they were aware, have little incentive to get politically active about something that affects them only once in a while.
The Georgia state legislature isn’t likely to solve this problem on its own, given the political power of dealerships. That’s why it’s important for the courts to step in to rule against a law that limits competition, harms consumers, and provides a narrow exemption for one single company.