Restrictions on Internet Sales of Autos

The CATO Institute has published an analysis by Solveig Singleton of the effects of restrictions by states on the sales of autos online: Will the Net Turn Car Dealers into Dinosaurs?" There are important implications from the study for banks and finance companies that finance automobile sales. Many states have laws that restrict online sales of autos from "virtual car lots" or from the manufacturer. Allegedly, these laws exist to "protect" consumers, but such laws generally do more harm than good. Two private studies and one by the Federal Trade Commission "found that automobile franchise laws that allow dealers to object to the location of a new dealer in their area … mean higher prices for consumers." In addition, many state laws that have the effect of restricting online sales appear to violate the Commerce Clause of the Constitution. Singleton concludes that in the long run, "government support for restricting online auto sales to local dealers seems unlikely -except, oddly from the state regulators and legislators enjoying the closest relationship with the automobile dealers' associations."

Consequently, it appears that online sales of autos will ultimately grow as restrictive state laws are struck down. How will this development affect firms that finance automobiles? First, local banks, finance companies and credit unions that finance the sales of dealers will probably find their auto loan portfolios shrinking, or at least growing at a slower rate. Firms selling online are likely to offer financial services as well as new and used autos. Second, what if predictions that the auto manufacturers will open their own dealerships come true? This change could occur either de novo or as manufacturers buy their existing dealers. We can expect them to provide financing through their own finance companies rather than relying on local sources. In the long run, the markets for the purchase and financing of motor vehicles will become even more competitive—all to the benefit of consumers.