Proposed Michigan Auto Franchise Bill 'Legalized Plunder' Study Argues Block The Bill, Repeal Existing Law, Hillsdale Policy Group Tells Lawmakers

15 May 1997

    LANSING, Mich., May 14 -- Proposed legislation to increase
monopoly territories for auto dealers amounts to "legalized plunder,"
according to a study of the legislation, and will cost Michigan consumers
hundreds of millions annually in higher car payments -- all of which will go
to auto dealers.
    The paper by the Hillsdale Policy Group, written by former Michigan State
Representative H. Lynn Jondahl and Gary Wolfram, an economics professor at
Hillsdale College and former deputy state treasurer, was released today during
testimony on House Bill 4740 before the House Commerce Committee.  Jondahl and
Wolfram recommend repeal of existing auto franchise legislation, arguing that
it costs consumers $830 million annually and does little or nothing to benefit
dealers over the long run.
    Jondahl was considered one of the most liberal members of the Legislature
during his 22 years in the House; Wolfram's conservative views on economic
legislation are well known in Lansing.
    The study says that House Bill 4740, championed by Michigan auto dealer
associations, will reduce automobile sales in Michigan, with resulting loss in
auto employment.
    The legislation would increase the monopoly territory currently enjoyed by
auto dealers from a six mile radius around a dealership to 12 miles in urban
counties, and from 10 miles to 15 miles in rural counties.
    The bill also would make it impossible for auto manufacturers to insist
that dealers have all tools on hand to repair automobiles, prevent
manufacturers from requiring dealers participate in rebate programs, and raise
the price of special programs used to discount cars to auto workers, forcing
manufacturers to review the viability of those programs.  As a result,
according to testimony before the committee, the bill will raise the price of
cars and hurt service quality.
    Joining Wolfram and Jondahl in opposing the legislation were Rick Gamber,
executive director of the Michigan Consumer Federation, the Michigan
Manufacturers Association, and officials from Ford, General Motors and
Chrysler.
    The Hillsdale Policy Group paper notes that the legislation "Uses the
government to take rights away from one person and give them to another, when
the proper role of government is to protect the rights of property and
contract.  But even if one allows for this injustice, the gain to the auto
dealers comes primarily at the expense of consumers, who have little organized
power within the political process.   It is not obvious that it is equitable
to take from consumers so that auto dealers have more profit."
    The paper says that lower sales will result from the higher prices,
reducing employment in the auto industry.  For that reason, the paper says,
lawmakers should urge other states to repeal their existing franchise laws.
    The cost of dealer franchise regulation in Michigan today is more than
$830 million annually.  Regulation also reduces auto sales by more than 61,000
vehicles a year, the study says.
    The paper notes that the current law, while flawed, at least allows for
considered legal appeals of the monopoly territories and allows the court to
consider allowing a dealer into a monopoly area if it would benefit the
public.  The new bill, however, requires a judge only to consider the
financial impact of the protecting dealer.
    During testimony on Wednesday, the Consumer Federation's Gamber asked why
the Legislature should be involved in a business-to-business issue in a way
that will raise costs for consumers.  "Why should government force consumers
to pay higher prices to protect auto dealer," Gamber asked.  "Where does it
end?  Fried chicken franchises?  Copy centers?  Muffler shops?"
    Chrysler Senior Staff Counsel James S. Kozik noted that the 10 mile
monopoly territories in the proposed law would prevent Chrysler from locating
any of its dealerships in the City of Detroit.  "We have a strong commitment
to the city.  When it turns around, we will be stopped from putting a dealer
in the City of Detroit (by HB 4740)."

SOURCE  Hillsdale Policy Group