Thursday, February 16, 2012

Once Again Class – (A) Whose Side Are Regulators Supposed to be On and (B) Whose Side Are They Actually On

Class Hint:  The Two Answers are Not the Same

Buying a car, new or used, is just not a pleasant experience.  In almost every other business the price is what is on the price tag.  In the auto industry the price is not what is on the price tag, and in the case of many used cars there is no price tag.  Instead consumers are left to bargain with car sales people, a terrible waste of time.

A web based business is trying to alter the methods of buying a car.

Still, the auto industry has not embraced the digital age in the way other businesses, like real estate or travel, have. In part, that is because the auto dealers’ business practices are protected by state franchise laws.

But then, a company called came onto the scene and tried to shake things up. It started running television commercials late last year, which attracted a lot of attention, and the industry immediately pushed back — hard. Here’s why: Besides showing what other car buyers paid for a particular car, TrueCar also gave an estimate of the dealer’s true cost. But what really alarmed the industry was TrueCar’s promise to deliver a guaranteed price from several dealers, essentially eliminating the need for any haggling.

Tim Boyle/Bloomberg News

Carmakers say TrueCar's efforts will squeeze
 their already thin profit margins on new cars.

Now this would seem to be clearly in the mainstream of American business, you know, that free market competition thing everyone is always talking about.  But then there is this.

The auto industry worried, perhaps rightly, that all this would squeeze their already thin profit margins on new cars. So, after several dealers’ associations complained that TrueCar was violating various laws, regulators from several states told TrueCar that they questioned the site’s business practices. 

Apparently these are regulators who skipped Regulations 101 at school.  That’s the course that says government regulators are supposed to protect the public, not protect the industry they are regulating.    But then, if you look at most regulators and what they do, it seems they all skipped that course.

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