The dumb laws that keep lousy car dealers in business

Shopping for furniture or appliances or other consumer durables is pretty straightforward. You look up what items are for sale and what they cost, you decide what you’re interested in, and then you can pay. Sometimes the item you’re looking for isn’t in stock locally…so you’re told you’ll have to wait a few weeks for delivery.

With cars, though, everything is nuts. You need to go from dealer to dealer, each of whom has his own inventory. One guy only has blue paint. The other guy doesn’t have the blue paint, and also only has dark gray seats. And each has his own fake sticker prices and complicated cash-back offers. It’s no wonder 83 percent consumers say they would rather skip the haggling, and a third of people say doing taxes is less annoying than working with a car dealer.

But it’s not just the hassle. State bans on direct sales turn out to cost consumers an enormous amount of cash. It’s an enormous problem, and it warrants a federal solution.

Cars are the most expensive consumer product that the typical consumer buys. And while it may seem obvious that cars are expensive due to the material and labor required to build them, the logistics of distributing cars is actually a very expensive part of the process. Research by Eric Marti, Garth Saloner, and Michael Spence has concluded that as much as 30 percent of the cost of a car is the cost of distribution…

And yet there is little innovation in the distribution process, largely because distribution needs to be run through a dispersed network of dealerships. What’s visible about this to consumers is the limited choice and anachronistic haggling involved in the dealership model. The more economically savvy will note that for the dealerships to be profitable, consumers must be paying an extra, unnecessary markup.

…The most expensive part of the whole process is hiding in plain sight — it’s the stockpiles of unsold vehicles sitting around on dealers’ lots. He observes that in late 2008, there was a staggering $100 billion worth of unsold dealer inventory, with an annual carrying cost of $890 million.

In other words, it’s a huge pile of waste. At any given time there is a vast quantity of newly built cars sitting around unsold, and the price of the cars that are sold needs to be high enough to cover the costs of building and storing the unsold ones. Bodish cites a Goldman Sachs analysis indicating that replacing the current inventory-heavy method with a more efficient build-to-order method could reduce costs by 8.6 percent. Real-world experience from Brazil, where Chevrolet sells Celtas direct to consumers, shows a somewhat more modest savings of 6 percent relative to what’s paid at traditional dealerships. Either way, for a product that costs tens of thousands of dollars it’s a meaningful saving — over and above the large increase in convenience.

The issue of direct auto sales is frequently in the public eye these days because of Tesla. Tesla does not work with car dealerships. Instead, the company owns its own showrooms and sells cars directly to consumers. Every once in a while a state acts to ban these direct sales…and stories get written about it. But the real story here is much more general than Tesla. As Federal Trade Commission economists have written, protectionist laws that defend the interests of car dealerships over the broader public exist all across America.

The only reason Tesla is able to sell directly at all is these laws are frequently written so as to protect existing dealership networks. Since Tesla is brand new, it has no existing dealer networks to circumvent, and it is able to operate legally in many states until new laws are passed to block it…

At the national level, a coalition for reform could be built on legislators from car-manufacturing regions, principled free marketeers, and reform-oriented liberals. The fact that the Obama administration’s economic team has already weighed in against direct sale bans gestures toward the possibility of bipartisan cooperation.

Matthew Yglesias gave us a useful article. One that provides ammo for any group prepared to go to bat for consumers. Don’t count on anyone with that word in their corporate trademark; but, there may very well be one or another progressive group ready to pick up on this as a single-issue campaign.

Matt has one thing wrong – I believe. So-called local dealerships are about as local as local TV stations. That’s why you’ll see new Fords and Volvos on the lot of a Chevy or Jeep dealer. Just more shiny brought in from other dealerships in the group to fill-in price points and demographics on display.

I bought my Dodge pickup 21 years ago from a family-owned operation with 2 dealerships in the state. He’s gone. That same store is now one of 129 dealerships in 14 states – which is only the 7th largest retail car chain in the country.

In for surgery? Bring someone along to catalog medication errors!

About half of all surgeries involve some kind of medication error or unintended drug side effects, if a new study done at one of America’s most prestigious academic medical centers is any indication.

The rate, calculated by researchers from the anesthesiology department at Massachusetts General Hospital who observed 277 procedures there, is startlingly high compared with those in the few earlier studies. Those studies relied mostly on self-reported data from clinicians, rather than directly watching operations, and found errors to be exceedingly rare.

“There is a substantial potential for medication-related harm and a number of opportunities to improve safety,” according to the new study, published today in the journal Anesthesiology. More than one-third of the observed errors led to some kind of harm to the patient.

Attention has been focused on reducing medical errors since 1999. That’s when the Institute of Medicine identified them as a leading cause of death, killing at least 44,000 Americans a year — more than car crashes or breast cancer. Since then, hospitals have attempted to improve safety during surgery with simple checklists to avoid lapses like operating on the wrong side of the body. They’ve also switched to electronic prescribing systems that can warn doctors of potential medication errors.

…Mistakes at the intersection of medication and surgery “have really not been studied in any systematic way,” said Karen Nanji, an anesthesiologist at Mass General and lead author of the new study.

Drugs delivered during an operation don’t have the same safeguards that other medication orders do. In most parts of a hospital, prescriptions are typically double-checked by pharmacists and nurses before they reach the patient. Operating wards are riskier.

“In the operating room things happen very rapidly, and patients’ conditions change quickly, so we don’t have time to go through that whole process, which can take hours,” Nanji said.

While all the errors observed in the study had the potential to cause harm, only three were considered life-threatening, and no patients died because of the mistakes, Nanji said. In some cases, the harm lay in a change in vital signs or an elevated risk of infection…

The research may begin to draw attention to drug mistakes in the surgical suite. “It’s like a black box,” said Helen Haskell, a patient safety advocate and founder of Mothers Against Medical Error, whose son died because of a medication error after a routine surgery. Patients under anesthesia may not be aware that an error is made, especially if there is no lasting consequence.

Realize this study was done at one of the best general hospitals in the country. I shudder to think what the percentages might be some other places in the United States. Imagine what the numbers may be in a hospital where patient rights, modern standards, aren’t the rule.

Canada’s leaving F-35 program boosts costs for other nations, eh?


How many schools could we build for $412 million – each?

As the Pentagon prepares for Canada’s withdrawal from the F-35 jet program, lawmakers in Washington are raising concerns that the U.S. too will have to cut its numbers of stealth fighters because of increasing costs.

Prime minister-designate Justin Trudeau has promised to withdraw Canada from the F-35 program, saying it has become too costly. When that will happen is still unclear, as the Liberals won’t unveil the cabinet until Nov. 4.

A Liberal government would hold a competition to replace the current fleet of CF-18s and select a cheaper alternative to the F-35…

The Conservatives committed in 2010 to buy 65 of the aircraft but put that on hold because of the increased costs of the jet and allegations that the procurement process was not properly handled.

Before they were defeated in the election, the Conservatives said no decision on the F-35 had been made. But Bogdan told U.S. lawmakers on Wednesday that Canada was scheduled to buy the planes starting in 2017-18.

Harper caught in another lie.

The one-per-cent increase in the cost of the F-35 because of Canada’s decision to pull out of the program appears to be the least of the concerns for supporters of the aircraft.

The program is currently $200 billion over budget. It will cost an estimated $400 billion for the U.S. to buy the 2,443 aircraft it has determined it needs.

This is followed by threats of withholding orders from Canadian firms scheduled as subcontractors.

Trudeau said holding a competition for a new fighter jet would ensure Canadian firms receive work. Under the F-35 program, there were no guarantees Canadian companies would be entitled to a specific amount of work when Canada purchased the aircraft.

Don’t hold your breath waiting for Congress to have as much economic gumption as Canada. The Beltway hacks have a consistent record of voting for hardware even when the Pentagon declares it worthless crap.