Government Red Tape Costs Dealers Billions

gov red tapFranchised new-car dealers in the United States spent a combined $3.2 billion in 2012 to meet federal regulations, a report released said.

Dealers spent the money to comply with 61 major federal rules, the report said. As a result, consumers paid more and the U.S. economy paid in the form of 10,550 fewer dealership jobs, the research found.

“The additional costs for new-car dealerships to comply with federal regulations are passed along to our customers in the form of higher prices, which results in lower vehicle sales and reduced employment at dealerships,” said Forrest McConnell, chairman of the National Automobile Dealers Association and a Honda and Acura dealer in Montgomery, Ala.

NADA commissioned the study, “The Impact of Federal Regulations on Franchised Automobile Dealerships,” which was conducted by the Center for Automotive Research in Ann Arbor, Mich.

In 2012, the average dealership spent $182,754 to comply with federal mandates governing employment, business operations, vehicle financing, sales, marketing, vehicle repair and maintenance, the study said.

The regulatory costs equaled about 22 percent of the average dealership’s pretax profits, or about $2,400 per dealership employee. The average dealership needed to sell 106 vehicles in 2012 to recoup its regulatory compliance costs, the report concluded.

Regulations on employment, accounting and vehicle financing made up nearly two-thirds of the estimated federal regulatory compliance costs, the study said.

The study estimated the overall impact of these costs on the 2012 U.S. economy at $10.5 billion in lost economic output and more than 75,000 fewer jobs.

The compliance cost estimates were based on a study of eight dealerships: one in Maryland and the rest in Michigan and Ohio. Dealers interviewed in 2013 and 2014 were asked to estimate costs and were “encouraged to substantiate costs, where appropriate,” the study said.

The study did not analyze the cost of mandates, such as fuel economy and safety rules, on manufacturers. It also did not study state and local regulatory mandates.

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