WILL FRANCHISE LAWS LAST FOREVER?

A LONG TIME AGO IN A GALAXY NOT TOO FAR AWAY... in fact it was here on Earth...automakers represented an evil empire and lorded over its dealers like Darth Vader.

State governments used the "Force" of franchise laws to protect dealerships, which mostly were entrepreneurial, family owned businesses that contributed nicely to the campaign war chests of their legislators.

Dealers now are calling in favors as automakers attempt to colonize cyberspace with direct Internet marketing and control the retail market itself by owning dealerships.

Dealers are hoping that state franchise laws will keep the evil empire at bay. So far, it's working.

"They're trying to fall back on the franchise laws," says Bruce M. Belzowski, senior research associate at the University of Michigan's Office for the Study of Automotive Transportation (OSAT). "They do have a very strong network with NADA and within their local states to help them in slowing down this freight train that's coming at them. And it will help them up to a point."

He and other industry observers aren't sure how long retailers can count on these local politicians to fly in like Luke Skywalker and Han Solo to save the day, if not the universe.

The changes in the retail industry that we've witnessed over the last few years could alter the political landscape as well.

Mr. Belzowski says consumers could get the idea that they can save a lot of money on new vehicles if the current delivery system changes. If that happens, the politicians and dealers will be outnumbered. And in a democratic system, that could spell trouble for retailers.

"There are only so many dealers in a given state," says Mr. Melzowski, "but there are enough consumers that if they all get behind a groundswell that says 'Hey, let's change the way this system works,' that may not work out well for the dealers and their organizations."

Several factors work against franchise laws, says Michael S. Flynn, OSAT's associate director.

One is Ford Motor Co.'s advertising of vehicles in Arizona on its web site at prices below MSRP. It's a tactic good for generating consumer support.

Another factor is Ford using the Internet to generate consumer support to change that state's franchise laws.

"The Internet offers manufacturers ways they didn't have before to attack those franchise laws," says Mr. Flynn.

Consolidation is the third trend working against franchise laws, says Mr. Flynn. The large consolidators, by taking control of the local dealerships, are slowly eroding the political clout of the local dealer.

"The AutoNations of the world are going to kill the franchise laws," he says. "Right now, dealers are a powerful lobby. A lot of dealers are in state legislators' districts. But when that dealership is simply a point owned in Florida, believe me, its going to be more difficult for a state legislature to listen that closely.

"When it was (legendary Chicago Chevy dealer) Z Frank - a local guy made good - that was a different story," says Mr. Flynn. "As they consolidate, it's not Joe down the block anymore.

"All three of these things could in fact, over the next decade, seriously erode the enthusiastic support in state legislatures for franchise laws," Mr. Flynn continues. "Those were put in to protect small local businessmen from the evil GM. When it's GM versus AutoNation, or an automaker versus a state-wide retail group, who'll have more clout?"

Will it be a point or group owned in another state? Will it be a large dealership group with a corporate structure? Or will it be GM, Ford or Chrysler which own plants in the state with hundreds of employees and pay large tax bills?

The writing appears to be on the wall. If franchise laws aren't eventually killed off, they may be in for significant changes in the future.

Forward-thinking dealers, dealer groups and associations will use the cushion afforded by the current laws to prepare for a time when the political, economic and technological climate makes franchise laws as endangered as a Wookie without a light saber.

Tim Keenan is senior editor of Ward's Dealer Business. He can be reached at [email protected]