Monday, April 09, 2007

Let's Destroy Some Jobs

No, seriously, let's destroy some jobs. I found this autoblog story interesting. The big 3 auto manufacturers are getting rid of unnecessary dealerships. This is probably a good idea, as their existence meant that the big 3 were to some extent competing with themselves. But there is a better solution.

Current law prohibits automotive manufacturers from owning their own car dealerships in the U.S. That is, no car company--not GM, not Honda, not Volvo-- can sell a car directly to you. Not online, not through a company-owned dealership, never. Not in the U.S., anyway. If you're wealthy enough, you can go to Germany and buy a BMW directly, but that doesn't help the poor much. Instead, you must go to an independent dealership.

This study suggests that savings of six to ten percent might be achieved by "cutting out the middle man" (if I'm reading it correctly--the section on cost savings is a bit poorly worded). Not only would we get cheaper cars, however--we'd also free up those resources for producing other things. To put it another way, we should destroy these jobs. For those of you who don't like that idea, consider this: We could create more jobs by legally mandating a new market: a car dealership dealership. That is, you cannot buy directly from a car dealership. Instead, you must go to a dealership dealership, where you will shop around for dealerships, and pay this new middleman a fee. Want to create more jobs? How about a dealership dealership dealership?

The problem with this argument is that jobs are not, in and of themselves, a good thing. Production of valuable goods and services is a good thing, and jobs that produce nothing of value should be destroyed, so that workers can produce something else. Jobs are valuable if and only if they produce things of value. If we all decided to quit our current jobs and take up the production of horse-drawn carriages and buggy whips, we'd all be employed, but we'd be wasting resources. If you really love that sort of thing, then have fun producing carriages, but don't expect anyone else to pay to indulge your production preferences, and don't ask the government to require people to buy your output.

This restriction on automobile manufacturers was imposed for antitrust reasons. The government feared that allowing manufacturers to run both production and distribution of their cars would be anticompetitive, and result in higher prices. There are two problems with this argument. The first is that there are many competing automobile manufacturers now. The real competition is between manufacturers, not dealers. The second problem is that this policy does nothing to reduce car prices. If the automobile manufacturers want to raise the retail price of cars, they can do so by simply raising the price at which they sell to dealers. To take an extreme case, a monopoly can extract monopoly profits at any point in the process between production and consumption. Microsoft doesn't need to own CompUSA and Bestbuy to make a lot of money off of Windows; it merely charges these retailers a high price.

So let's recap. Eliminating the restriction on direct retail distribution of automobiles by manufacturers would eliminate jobs, which would be good in the long run, as new jobs will be created in other industries, producing more valuable goods. Eliminating the restriction will result in lower car prices for everyone; rich and poor alike will be able to buy directly from the manufacturer.

Incidentally, that study I cited above also suggests that automotive dealerships have been taking their own anticompetitive action, lobbying for state laws that limit the entry of new dealerships. So there's a third potential benefit: new dealerships where they are valuable, and the elimination of old dealerships where they are not.