Bankrupting America: On May 30, The Center For Automotive Research (CAR)released a report that found that car dealers spent $3.2 billion in 2012 to comply with federal regulations. The research group found that dealerships had to comply with 61 major federal regulations, which resulted in higher prices for consumers and a loss of 10,500 dealership jobs. Today’s Regulation Watch will take a closer look at the CAR report.

According to the report, titled “The Impact of Federal Regulations on Franchised Automobile Dealerships,” “In 2012 the average dealership incurred $182,754 annually in federal regulatory compliance costs for regulations pertaining to employment, business operations, vehicle financing, sales, marketing, and vehicle repair and maintenance. These regulatory costs comprised 21.7 percent of the average dealership’s 2012 before-tax net profits, or nearly $2,400 per dealership employee. Regulations pertaining to employment, accounting, and vehicle financing made up more than 63 percent of the estimated federal regulatory compliance costs.”

The $3.2 billion spent on regulatory compliance in 2012 was eventually passed on to the consumer. This resulted in higher prices, which caused increases in economic cost due to total lost sales revenue, consumer surplus and producer surplus. According to CAR, “The overall impact on the U.S. economy—including direct, indirect, and expenditure-induced effects—is estimated at $10.5 billion in lost economic output and more than 75,000 fewer jobs in 2012. Every $1 increase in a dealership’s regulatory compliance costs results in $3.28 in lost output in the U.S. economy and a net loss to the U.S. Treasury of $0.44.”

Chairman of National Automobile Dealers Association, Forrest McConnell III noted, buyers often are unaware of the burden of regulation compliance on the cost of a car. He stated, “They would be shocked to know that 21 percent of the cost of the car is just what the manufacturer’s cost is for compliance. That takes money out of their pockets honestly and hurts jobs, too.” Chairman of Pohanka Auto Group Geoffrey Pohanka doubted that his grandfather would be able to start up this 100-year-old Washington, D.C. area family business in today’s regulatory environment. He stated, “We are basically being regulated to death.”

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