Why You Can't Buy a New Car Online

Americans can buy virtually anything over the Internet these days -- sex, booze, houses -- everything, that is, but a new car. If you want to buy a new Ford Fusion, you have to go down to your local dealership and haggle with the car salesmen, an unpleasant and daunting task. The process usually subjects consumers to hours in the dealership hotbox and can add hundreds, if not thousands, of dollars to the price of the car. Wouldn't it be nice if you could cut out the middleman and just order your Prius straight from Toyota?

But you can't. And there's one reason why: the car-dealer lobby, which has worked hard to ensure that this will never happen. Since the late 1990s, car dealers have used their considerable political clout to pass or better enforce state franchise laws that in many cases make it a criminal offense for an auto manufacturer to sell a new car to anyone but a state-licensed car dealer. The laws governing who can sell new cars are among the most anti-competitive of any domestic industry. By creating local monopolies for dealerships and prohibiting online sales for new cars, they constitute a major restraint on interstate commerce; in 2001, the Consumer Federation of America estimated [pdf] that the laws added at least $1,500 to the price of every new car.

These parochial state laws also make the distribution system for new cars incredibly inefficient and expensive, one factor in the financial problems facing the Big Three in Detroit. Online sales would help companies like GM and Chrysler align production to sales better by allowing more people to buy their cars built-to-order from the factory, rather than having Detroit send out truckloads of vehicles to sit around on dealer lots for months in the hopes that a rebate offer will finally entice someone to buy them.

Now that the federal government is bailing out GM and Chrysler to the tune of $13.4 billion, and Congress is demanding major changes in the way they're run, consumer advocates think the time is ripe for Congress to clear the way for online sales as part of its effort to move Detroit out of the Stone Age. You'd think they would find a sympathetic ear among deregulatory Republicans who take great umbrage over any state interference with the free market, but you'd be wrong. Most free-market Republicans have no interest in taking on the car dealers, who are among their strongest local supporters. Since 1990, American car dealers have given more than $66 million to federal candidates, with more than three-quarters going to Republicans.

For decades, Republican governors have been some of the dealers' biggest champions and have signed much of the legislation creating their bulwark against real competition. California legislator Mark Leno discovered just how entrenched these roadblocks are in 2005, when he introduced legislation to let consumers buy hybrid and other low-emission vehicles directly from manufacturers online. The bill came in response to evidence that local dealerships were price-gouging consumers seeking hybrids, which were then in short supply. Environmentalists believed the savings consumers were likely to get by purchasing online would spur more sales for the cleaner cars and encourage automakers to produce more of them.

The bill would have allowed people to order their Priuses online and have the manufacturer deliver them to their doors -- or, alternately, they could pick them up at Costco or the local dealership. The bill would have even allowed people to buy the cars on eBay or Amazon. Leno's office estimated that the bill would have little impact on the dealerships, because hybrids accounted for less than 1 percent of all new car sales. But he underestimated the power of the dealers, who were the reason legislation was needed in the first place.