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Another View: Ensuring a free market for auto dealers is a state duty

May 06. 2013 7:29PM

A piece of legislation regarding auto dealers is driving a debate about the role of government in the free market. While it's always welcome to remind people about the superiority of a free market economy, some of the suggestions about this bill and the impact on the marketplace have steered the discussion off course.

The legislation before the House Commerce Committee, Senate Bill 126, seeks to ensure a functioning free market among auto and heavy equipment manufacturers. Unlike most retail businesses, these dealers have enormous capital costs and typically have just one supplier (i.e. you rarely see a Chevrolet dealer that also sells Nissans or a John Deere dealer that also sells Case New Holland tractors). This leads to an environment that is ripe for coercion, as dealers often have little recourse but to meet the demands of manufacturers or risk consequences that can put them out of business.

As an example, one dealer was told he was going to have to merge with a nearby dealer or buy them out. In another instance, an owner, planning to sell his dealership, was told that he could only sell to a contiguous dealer, which drastically limited the pool of potential buyers, and thus the amount he could make on the sale. Another dealer, after purchasing the franchise for a line of equipment, was told that he would have to drop another line of products in another dealership he owned. When he sued to protect his property rights, the franchise line he had purchased refused to warranty any of the existing inventory he owned.

These are just some of the coercive tactics that have been employed in this industry. Manufacturers understand that they have the upper hand, and they can use that leverage to demand concessions outside of their franchise agreements (contracts). Manufacturers know dealers are fearful of going to court to protect their rights because it often means suing their often sole supplier, who typically holds the key to the dealers' business in their hands.

Senate Bill 126 would put legal protections in place to protect the property rights of dealers.

Some opponents of the legislation have asserted that government involvement in a marketplace undermines a free market. While that can be true, it misses the equally important point that government is responsible for creating a free market. Thus, the role of government should be to protect a free market by safeguarding property rights and eliminating coercion, as is clearly needed in the examples cited previously.

Without this, coercion easily sets foot into the marketplace, resulting in prices and supply and demand becoming distorted. The property rights of both sides are likely to be abused, which leads to an environment where both merchant and customer are less likely to do business effectively, and where customers will be much more likely to pay higher prices for products.

It's important to remember that these free market problems that SB 126 seeks to resolve ultimately hurt consumers. Empowering local auto dealers by freeing them from some of the overly burdensome restraints and requirements that the manufacturers seek to impose upon them will give the auto dealers greater flexibility and freedom to work to meet the demands of their consumers.

Not having a market that's as competitive as possible means higher prices and fewer choices for the public. For these reasons, this bill makes a great deal of sense for both our citizens and local businesses.

Greg Moore of Manchester is state director of Americans for Prosperity-New Hampshire.

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