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What Are State Dealer Laws?

Updated: Jan 14, 2022

Buying a car is a big purchase for most consumers—usually the second-biggest purchase in one’s life, second only to a home.

Because cars are expensive and car buying is complex, state governments set up dealer laws to govern the car-buying process and protect consumers.

Here are some ways that car purchases differ from everyday purchases and require consumer safeguards.

  • Unlike most products, cars are regulated every step of the way.

    • Before driving away, consumers need a license issued by a state government agency. Many states also require insurance on vehicles, which is regulated by a different state agency.

    • More than 80% of car sales require financing, which mandates compliance with a host of financial regulations.

    • Some 60% of sales involve trade-ins, a super-complex transaction that often requires paying off a third-party loan, sometimes an out-of-state one.

    • Cars also contain hazardous materials such as fuel, batteries and fluids that are all regulated.

    • Most importantly, if a car needs service, consumers must be able to have their vehicles fixed correctly, by certified technicians, to comply with safety guidelines, especially if there’s a warranty or safety recall issue. (And unlike books or other things you buy online, if you operate a car improperly, you can hurt or even kill someone.)

  • Car sales are special purchases. Dealer laws protect consumers to make sure both vehicle sales and repairs meet important standards. Dealer laws also end up creating competition among dealers that can potentially drive prices down. Economists have estimated that when dealerships compete for sales, the average price of a vehicle drops by nearly $500. Competition in service means consumers always have the ability to get their vehicle serviced and operating properly.

  • Locally owned dealerships also have a huge positive impact on local communities. Aside from creating opportunities for employment in sales, service and management, dealerships also provide more than 15% of local tax revenue.

  • Dealer laws protect consumers in the car-buying process. By doing so, these laws helped create today’s local dealership network, with more than 16,000 stores and over 1.1 million good-paying jobs nationwide.

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