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End of the Road for U.S. Car Dealerships? A Legal Battle Is Inching Closer

They say, "Let the snake grow long, and it'll eventually bite its tail." Well, as it turns out, American auto dealerships don't enjoy capitalism when it's not in their favor. Franchised dealer groups and associations across ten states in the United States are preparing for a legal battle against direct client sales by automakers. According to the dealerships, the prospect of direct sales by car manufacturers in the U.S. will cut them out of automotive sales.
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United States automotive dealerships have long enjoyed the 'middleman' role in the territory's automotive industry. The first car dealership was established in the United States by William E. Metzger in 1898. More precisely, the business has enjoyed these privileges for one and a quarter centuries (125 years).

While dealerships offer convenience and variety through their services, some unscrupulous businesses have taken this precious opportunity to screw over their clients. Last year, a Chevrolet Dealer was exposed for charging $90,000 over MRSP for a 2023 C8 Corvette Z06.

Sadly, this was not an isolated incident. Earlier in the same month, another dealership was trying to sell a similar unit for $100K over MRSP, which, in simple terms, can be best described as highway robbery.

Last year, Ford and GM warned dealerships against selling their units over MSRP (threatening to hold deliveries), but the industry-wide supply shortage made the markups pervasive.

But it now seems car manufacturers are pushing back as the industry shifts to electric vehicles.

The legal storm between auto manufacturers and dealerships is brewing across the country in California, Colorado, Mississippi, and Florida and parts of the East Coast.

It is important to note that while car dealerships offer the convenience of location to clients, they only exist because of State Franchise Laws. Americans don't fancy buying cars from dealerships.

These laws prevent auto manufacturers from directly selling car units to consumers in the market. The last thing these franchises and businesses want is their privileges revoked or spun.

In April last year, a lawsuit was filed by Illinois auto dealers aiming to stop new EV entrants Rivian and Lucid from directly selling their units to clients in the state. Unfortunately, Rivian and Lucid won the legal battle.

While consumers love to hate dealerships for playing middleman and consequently exploiting them over markups, they've become unlikely allies when pushing back against a more formidable enemy – subscription services.

Still, it's important to note that dealerships only hate subscription services because they don't get to share a piece of the recurring monthly payments. When on a full scale, the new subscription-based services will rack up billions from consumers, a more worrisome eventuality for some dealers compared to direct EV sales.

Most consumers will agree that dealerships offer some sort of convenience. Having to ship your car across states due to a simple fix is strenuous in itself. But they'd rather have that, than deal with high markups.

As one commenter on Reddit put it, "The dealership model should die. They make the vast majority of their money on service and financing. The automakers should just do that themselves."

According to the Associated Press, several American states also proposed laws to make selling electric vehicles more complex for industry newcomers, such as Austin-based Tesla, Rivian, and Lucid.
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Editor's note: Images in the gallery have been used for illustration purposes.

About the author: Humphrey Bwayo
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Humphrey is a car enthusiast whose love and passion for automobiles extended into collecting, writing, driving, and working on cars. He got his passion for cars from his Dad, who spent thousands of hours working on his old junky 1970 E20 Toyota Corolla. Years later, he would end up doing the same with a series of lemons he’s owned throughout his adult life.
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