Opinion: Daily Journal

Yet Another “Special” Case

RALEIGH – Just about every industry or profession you can name is populated by people who are convinced they are the exception to the rule.

The rule that free enterprise should prevail in their sector, I mean. Sure, they say, in theory the market process should be allowed to work without coercive restraints on buyers and sellers. Competition is a fine thing, driving profit-seeking producers inexorably to provide consumers with more choices of higher-quality goods at lower prices. And government shouldn’t attempt to second-guess this process or play favorites in the marketplace.

Except, of course, in their own, entirely unique situation.

I’ve heard this argument from doctors, lawyers, hospital executives, cosmetologists, massage therapists, and manufacturers of a variety of products. My new colleague Daren Bakst, a JLF policy analyst in the area of law and regulation, has just released his first Spotlight briefing paper chronicling yet another example of this phenomenon: the clearly exceptional case of automobile dealers.

It only appears that car retailing is a competitive and profitable industry. It only seems that high levels of advertising and other promotions help consumers find what they are looking forward among a seemingly inexhaustible selection of new and used options. In reality, according to many of its practitioners, auto dealerships are only one deregulatory step removed from oblivion. So when Bakst recommended that North Carolina end its “relevant market area” law, which allows an incumbent dealer to protest the entry of another into its sales territory, he just didn’t understand the extraordinary nature of the business, naturally.

No, Bakst understood it quite well. Tracing the history of these RMA laws back decades, to a time when the Big Three automakers dominated the American car market, he showed how lobbyists for the dealers convinced state lawmakers that special assistance was needed to keep the retailers from being taken advantage of by manufacturers. By guarding each dealer’s economic turf, blocking automakers from arranging for competing dealerships in the same brands, these laws were supposed rectify an imbalance of power between suppliers and retailers.

That was the cover story. Even if close to the truth at the time, it cannot seriously be argued that auto manufacturing is a cartel today. There are many more competing makes and models, including Asian and European imports. What North Carolina’s RMA rules really do is protect dealers from competition – and, in the process, harm consumers through higher prices and poorer service than would be available in a more competitive market.

As evidence, Bakst pointed to a Federal Trade Commission study that concluded that average car prices were about 6 percent higher in states with RMA laws. In fast-growing areas such as North Carolina, prices were nearly 8 percent higher.

The issue came to light this year only because of a bill during the 2005 legislative session to amend the dealer-protection law, reportedly to benefit a single Wake County dealership. While some viewed the episode as an example of special-interest legislation, it would be more accurate to call it special-interest relief from special-interest legislation.

It is a special case, you see.

Hood is president of the John Locke Foundation.