August 1, 2006

The Car Dealer-State Government Racket

Why do cars cost so much?

Max Borders at TCS Daily says that a big part of the answer is an outmoded distribution network protected by state franchising laws. He is correct:

What if I said you could save $1000-$2500 the next time you buy a car? What if I told you that you didn’t have to haggle with a lot lizard in the process? In fact, you could use the Internet to shop around for a new car instead of driving from dealership to dealership, and then buy at your leisure.

Well, you can’t. Know why?

What stands between you and these benefits is your state government. According to a panel recently hosted by the Mercatus Center in Arlington, Virginia, the primary reason for these regulations is collusion between “licensed” car dealers and state legislatures who mandate dealer licenses. Such is the case in all fifty states. Legal and economic scholars are trying to figure out how this happened and how to change it, for the sake of both economic freedom and benefit to customers.

Regulatory barriers to buying a car online are a textbook example of “rent-seeking” — when an interest group hollers, stomps and lobbies the state until politicians cave. Car companies that might offer cars at a lower price — with a better shopping experience — are blocked from doing so.

….. What dealers know full well is that entrepreneurs will find all sorts of ways to make the services dealerships offer redundant — which will benefit you and me. Consider the question of how people will test drive cars in an Internet purchasing environment. We can imagine automakers offering smaller test-drive centers. And we can also imagine delivery and logistics networks for cars so that people can pick up their cars quickly once they buy them — or have them delivered to their driveways.

We just happen to be living in a time when major US auto manufacturers are hamstrung by cannibalistic unions, stiff competition, and federal regulators. Obstacles to direct-to-consumer sales represent another hard hit against an ailing industry. But even if the US auto industry was doing swimmingly, why should states get in between you and your new car to the tune of a couple of thousand dollars?

What Borders did not mention is that the current situation hurts the longtime players in the car business more than it does the more recent arrivals. The longtimers built up dealer networks that are probably 3-4 times as large as they currently need to be, while the newer arrivals have been able to achieve the market penetration they’ve looked for with fewer locations. An example: The Greater Cincinnati Automobile Dealers Association membership directory (link is to first page of directory, which goes on for 4 pages) lists 14 Chevrolet dealers and 12 Ford dealers — but only 4 for Toyotas, 3 for Hondas, and 3 for Nissans. Does anyone believe that these three relative newcomers have hurt themselves by having so many fewer locations?

Auto dealerships and the state franchising laws that protect them are Model T relics of a different world that pass on billions of dollars of unneeded costs to cay buyers every year.

Editorial of the Day: Wall Street Journal on Manufacturing’s Continued Expansion (UPDATED for National PMI Report)

Filed under: Economy,MSM Biz/Other Bias,Quotes, Etc. of the Day — Tom @ 11:13 am

One thing about Journal editorials, especially about the economy, is how many times you’ll see news in them that you would have expected to see elsewhere and didn’t.

In yet another example, it’s a good thing The Journal noticed this, because the business press virtually ignored it yesterday (subscriber-only editorial; link to AP story, which did not appear at the “My Way” links I check almost daily, was added by me):

The imminent death of the current economic expansion has been predicted with regularity, most recently after Friday’s news that second-quarter growth slipped to an annual rate of 2.5% from 5.6% in the first. But then yesterday, like a rebuttal, came the Chicago purchasing managers’ index for July showing robust growth in Midwest manufacturing. Will the real economy please stand up?

The PMI index blew away the economic consensus by climbing to 57.9 in July from 56.5 in June. That’s 39 months — three years and three months — in a row above 50, the level that signals expansion. New orders hit 60, up from 57.2, despite contracting inventories, and even the employment component inched up to 50.5. The index is a sign that the economy entered the third quarter with more momentum than front-page reports have been claiming. And it’s especially hopeful as a sign that business spending and exports can help to offset some of the declines in housing caused by rising interest rates.

The WORM (Worn-Out Reactionary Media) meme that the economy is “slowing down” is now officially suspect.

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UPDATE: The Journal’s editorial addressed the report out of the Chicago region. This morning, the Institute for Supply Management released their national report for July 2006. Note that the overall PMI went up from 53.8 to 54.7, further refuting the “slowing down” meme noted earlier:

UPDATE 2: Aw, this AP report on today’s national PMI release is ridiculous (bold is mine):

ISM: Manufacturing Sector Expands More Quickly, Even as Prices Rise
Tuesday , August 01, 2006

NEW YORK — The nation’s manufacturing sector expanded in July at a faster clip than in June, while companies paid significantly more for raw materials, a trade group said Tuesday.

The Institute for Supply Management, based in Tempe, Ariz., said its manufacturing index registered 54.7 in July, above the 53.8 June reading and stronger than analysts’ estimates of 53.5 to 53.8.

A reading of 50 or more indicates expansion, while below 50 indicates contraction. The July figure represented the 38th consecutive month of growth.

The prices paid index jumped 2 percentage points to 78.5 in July from 76.5 in the previous month, signaling that rising prices for everything from fuel to paper could begin to eat into manufacturers’ profits.

Sorry, AP — The report DID NOT say that “companies paid significantly more for raw materials”:

In July, the ISM Prices Index was 78.5 percent, indicating manufacturers are paying higher prices on average when compared to June. While 39 percent of supply executives reported paying the same prices and 2 percent reported paying lower prices, the majority of respondents (59 percent) reported that prices were higher than the preceding month.

All we can say is that most companies were paying more; nothing credible can be said about whether those amounts were “significantly more.” I guess that’s another meme the WORMs are working on/rooting for — “accelerating inflation.”

The UN Also Serves as Paymaster to Journalists

Filed under: Business Moves,MSM Biz/Other Bias,Taxes & Government — Tom @ 9:51 am

It’s not pervasive or as systematic as the Arab-states’ “arrangement” with AP Television News.

But what the UN does (HT Atlas Shrugs) is insidious and should be stopped.
Yes, the link is to an 18-month old report that predates this blog. I have seen no evidence that anyone besides AIM cared about this, or that the UN isn’t still practicing checkbook journalism.

Bizzy’s AM Coffee Biz-Econ-Life Links (080106)

Free Links:

  • A good idea from Monday’s USA Today — There’s a good chance you’ll get the best credit card deal from the primary bank you do business with, as many banks are doing more to retain existing customers. Not mentioned directly in the article is the idea that a bank you have multiple accounts with is more likely to be forgiving if you make a mistake and are late with a payment or go over the limit. If they aren’t at first, you need to remind them that you might close all of your accounts if they aren’t more lenient. The article notes that the card industry has become very concentrated (the top 5 issuers have over 70% of card volume), so you need all the leverage you can get.
  • Thanks to gas prices, inflating tires with pure nitrogen, which appears to improve gas mileage by over 5%, is gaining, uh, steam.
  • The Washington Post noted last week that the number of investor class-actions suits has dropped. Though it mentions that the indictment of “leading” class action firm Milberg Weiss may be among the factors, it doesn’t mention that the reason why the firm was indicted, illegally paying plaintiffs to be lead class action litigants, may also be a factor. If you can’t find a lead plaintiff, you don’t have a suit.
  • Northwest’s flight attendants are threatening random work stoppages if their contract impasse isn’t resolved. They don’t seem to realize, or at least appreciate the increased probability, that they are therefore also threatening a non-random liquidation of the company if large numbers of travelers defect to other airlines.
  • Speaking of airlines, a lot of them are actually reporting profits, including just-out-of-bankruptcy United and US Airways. That’s impressive considering fuel prices.

Positivity: 5-Year-Old Saves Grandfather From Drowning

Filed under: Positivity — Tom @ 6:02 am

Talk about timing — the child just started learning life-saving techniques two weeks earlier:

Boy Pushed Grandfather to Safety

July 24, 2006 — – Five-year-old C.J. Murphy has to wear a bubble flotation device when he swims, so his mother says.

He didn’t think twice about springing into action — bubble-free — when his grandfather fell into the family pool and began to drown, though.

“I called out and took my bubble off, and jumped in and then I pushed him up,” C.J. said on “Good Morning America.”

On July 14, his grandfather, Louis Carreiro, 73, was holding an inner tube at the bottom of the water slide for C.J. when the boy accidentally knocked him into the 8-foot-deep pool at the family’s home in Fairhaven, Mass.

Carreiro sunk to the bottom of the pool.

C.J. initially called for help but realized that no one was around. He jumped into the pool and pulled his 160-pound grandfather to safety.

“I was just so surprised that a little 5-year-old could think so quick,” Carreiro said. “I didn’t expect him to go so quick, and I lost my balance. I felt this hand on my back, and he pushed me.”

“As soon as I fell in, I could hear his voice,” Carreiro said. “I was shocked myself. I thought I was going to die.”

Versed in Lifesaving Techniques

C.J.’s mother said that she had never thought that her son would be capable of thinking so quickly and behaving so bravely.

“I got a frantic phone call from my daughter stating that grandpa fell in the pool and C.J. saved his life,” Carrie Murphy said.

“Wasn’t quite sure what to make of that, so I came home to check and see exactly what happened. And I didn’t think it was as extensive as it was — as important — but apparently it was because C.J.’s story matched the same story my dad told me, that he dove in and pushed him out of the pool and saved him from drowning,” she said.

C.J. has been taking swimming lessons since November. Two weeks before the incident, C.J. learned the lifesaving techniques, which his father said might be the reason he was able help his grandfather.

“He didn’t think twice about what he did and was commended by the Fairhaven police for his actions and bravery and also thinking under pressure,” Charlie Murphy said.

No medical or emergency personnel was needed for treatment at the scene or after the incident, and Carreiro felt well enough to leave the next morning for a weeklong cruise.

C.J. says he would like to be a lifeguard or a police officer when he grows up.