From The Journal of Economic Perspectives: State Franchise Laws, Dealer Terminations, and the Auto Crisis

This popped and I thought it was a good example of the importance of  political connections. Car dealerships survive - in many ways - due to their political skills, which are based on their connections to auto manufacturing.

- Click here for the article.  

The regulation of auto franchises arose as a response to car manufacturer opportunism early in the twentieth century. According to Surowiecki (2006), in 1920, Henry Ford took advantage of its established dealer network by forcing dealers to buy inventories of new cars that they were unlikely to sell. The reason that the company could “force” dealers to take the cars was that they had all made important investments in their facilities and reputation. Thus they had sunk costs that could be expropriated. Ford and General Motors used the same strategy again during the Great Depression. These episodes demonstrated to policymakers that the franchisor, with its greater information and financial resources, might exploit investments made by the franchisees. Federal regulation followed these periods, likely driven partially by the experiences of the dealers and their requests for protection.

The starting point for auto franchise regulation is the 1956 federal act generally known as the Automobile Dealer’s Day in Court Act (ADDICA), which provides that a car dealer may recover damages if its manufacturer fails to act in complying with the terms of the franchise agreement, including on issues of allocation of vehicles to dealers, or matters of termination, cancellation, or transfer of the franchise.

However, by the time the ADDICA was enacted, 20 states had already passed auto franchise laws. Today, every state has a law governing car manufacturer/dealer relationships. These state laws tend to be more dealer-friendly than the federal law. 

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So now it think about it this way: If you want to be a car dealer when you grow up, how do you do it? 

- How to Be a Texas Car Dealer.

- 7 STEPS TO A TEXAS DEALERS LICENSE.

- Texas Administrative Code: Motor Vehicle Distribution.