Abstract
The automotive industry plays a pivotal role in both the American economy and American daily life. This means that the laws that govern the automotive industry and structure power dynamics between central players in the market also play a pivotal role in both the American economy and American daily life. One such area of law has room for improvement: laws governing the manufacturer-dealer relationship in car sales.
Although the law currently structures automotive industry power dynamics to the detriment of consumer welfare, it does not have to be this way. This Article proposes legal reforms aimed at improving consumer welfare in the automotive industry. Specifically, because regulation of warranty reimbursement in the manufacturer-dealer relationship skews the automotive industry’s power balance and adversely affects consumers, this Article argues in favor of abandoning mandated warranty reimbursement laws and restoring the primacy of contract law in this domain.
The current state of affairs is not how things have always been; the dealer-franchise relationship was initially governed by contract law. However, protectionist state legislation aimed at sheltering small-time franchisees from extractive franchisors emerged throughout the twentieth century and supplanted contract law in governing dealer-manufacturer relationships. This Article critiques the U.S. state laws governing franchised automotive dealers and argues that these protectionist laws represent heavy sectoral economic legislation that unnecessarily intervenes in what should be a contractual relationship between manufacturers and dealers.
This Article’s in-depth review of these laws reveals that there is more to this dealer-friendly, protectionist legislation than initially meets the eye. Contrary to many other issues that divide Americans nowadays, both blue (e.g., California) and red (e.g., Florida and Texas) large state economies share a commitment to a high degree of pro-dealer regulatory intervention. Courts are also relatively pro-dealer, as they are generally reluctant to subject dealer-friendly legislation to judicial review under constitutional doctrines such as the Commerce Clause or the Contracts Clause. The unfortunate result of this legal landscape is that franchised dealers derive substantial inefficient and unfair benefits from their positions as exclusive sellers of vehicles and sole providers of warranty services. Against these drawbacks and failures, this Article proposes that abolishing statutorily-mandated warranty reimbursement could yield benefits—not only for consumers, but also for manufacturers and the best-performing dealers. It suggests that history has come full circle: the relative strength of dealers as franchisees of manufacturers justifies once again subjecting those relationships to contract law and to the federal Automobile Dealers’ Day in Court Act (ADDICA). Reflecting on recent market changes and Tesla’s challenge to legacy manufacturers, this Article argues that re-envisioning franchised dealers as modern service centers will spark competition. The broader implications of such a shift could redefine consumer expectations and dealer responsibilities, setting a new standard for consumer protection while also sparking industry innovation in the automotive sector.
Recommended Citation
Piotr Tereszkiewicz,
Cruising Beyond Car Dealer Dominance,
58
U. Mich. J. L. Reform
812
(2025).
Available at:
https://repository.law.umich.edu/mjlr/vol58/iss4/3