Policy Memo
Topline
Most states require new vehicles to be sold through a franchised dealer. This middleman mandate adds an estimated $3,934 to $4,992 to the price of a typical new vehicle. States should legalize direct-to-consumer sales for all manufacturers, not just a select few.
Affordability 101 · Chapter 5: Freedom to Innovate and Compete
Plymouth Institute for Free Enterprise
Most states require new vehicles to be sold through a franchised dealer. This middleman mandate adds an estimated $3,934 to $4,992 to the price of a typical new vehicle. States should legalize direct-to-consumer sales for all manufacturers, not just a select few.
Dealer-franchise statutes date to the 1930s and were enacted to protect dealers from factory pressure. They are now entry barriers in all 50 states, with some limited manufacturer exemptions for electric vehicles. A March 2026 study estimates this car “middleman tax” adds 7.9% to 9.9% to the average price of new vehicles. Dealers’ inventory carrying costs, retail overhead, and commissions add up. With good cause, the Federal Trade Commission urged states more than a decade ago to ease these anti-competitive bans for all manufacturers. Narrow carve-outs, most notably for Tesla, compound the anti-competitive problem. For instance, Ohio capped Tesla at three stores while barring every other automaker from direct sales. Washington, for more than a decade, exempted Tesla before providing a similar carve-out to Rivian and Lucid in March 2026 (S.B. 6354). Other manufacturers are still prohibited from making direct sales. This cronyism harms consumers while aiding dealers and a select few manufacturers.
Related Legislation: Washington S.B. 6354 (2026).
The Depression-era auto dealer cartel adds thousands of dollars to the price of new vehicles, and it’s time to end it.
This memo is part of Affordability 101, Advancing American Freedom’s playbook of 101 policy solutions to make life more affordable.