Arlington, VA—A new report, by the American Consumer Institute (ACI), argues that America’s dealer franchise laws which were created in the 1930s to protect small retailers from coercive automakers are now outdated, anti‑competitive, and costly for consumers. Today’s auto market is larger, digital, and technologically advanced, yet franchise laws still impose a rigid, 20th‑century retail structure.
Key findings include:
- Territorial exclusivity rules inflate prices, costing consumers $61.7 billion annually and reducing sales by 1.8 million vehicles.
- The mandated dealer model adds a “middleman tax” of $4,000–$5,000 per vehicle, nearly 10 percent of the purchase price.
- Dealers impose hidden fees, inflated warranty labor rates, and maintain costly inventories and physical networks that raise prices.
- FTC enforcement shows widespread deceptive pricing practices across dealerships.
- Franchise laws block direct-to-consumer sales, preventing seamless online purchasing and hindering innovation such as over‑the‑air software updates.
- Tesla, Rivian, and Lucid demonstrate that direct sales are viable and popular but face legal barriers in many states.
- Sophisticated digital tools, wireless capabilities, and population shifts have left legacy dealership footprints misaligned with modern markets, yet franchise laws make changes nearly impossible.
Franchise laws now protect dealers rather than consumers and should be modernized to allow direct sales, agency models, or hybrids. Updating these laws would reduce costs, increase competition, support innovation, and align vehicle retailing with 21st‑century consumer expectations.
Read the full report below.
Kristen Walker is Senior Policy Analyst and Manager for Energy and Transportation with the American Consumer Institute, a nonprofit education and research organization. Follow ACI on X @ConsumerPal.