Automakers and the Right-to-Repair Battle
Senators Elizabeth Warren (D-MA), Jeff Merkley (D-OR), and Josh Hawley (R-MO) penned a letter urging top automakers to end their opposition to right-to-repair legislation. These laws generally require automakers to share proprietary data for third-party maintenance and repair. For example, automakers would be required to provide maintenance manuals as well as whatever electronic tools and credentials are needed to access cars’ onboard data and diagnostics systems.
Elsewhere, I refute the claim that right-to-repair legislation is justified by antitrust law. But these senators make a different claim.
According to the senators,
Right-to-repair laws support consumer choice and prevent automakers from using restrictive repair laws to their financial advantage. It is clear that the motivation behind automotive companies’ avoidance of complying with right-to-repair laws is not due to a concern for consumer security or privacy, but instead a hypocritical, profit-driven reaction.
But these claims are specious and false. First, there is nothing hypocritical about the profit motive. Are automakers hypocritical when they offer new features that they believe will attract more customers away from their competition? Are they hypocritical when they improve the safety of their vehicles in order to obtain the IIHS “Top Safety Pick” designation—which the automakers believe will boost sales and, therefore, profits? Will these senators be castigating Hyundai for adding reinforcements to improve the Hyundai Elantra’s safety in response to the IIHS’s new side-impact test?
In a competitive market, the only way to generally obtain a profit is to produce a better product than one’s competition—meaning either higher quality or the same quality but at a lower price. Even in a competitive market, negative supply shocks—such as COVID-19 supply-chain problems or Ever Given ship’s unintended blockade of the Suez Canal—can also create profit opportunities. However, such profits are short-lived, and these very profits create an incentive to resolve the supply shock.
Alternatively, profits can be earned through “rent-seeking,” which is when privileged interests successfully use the political process to restrict competition and entry. For example, when President Ronald Reagan threatened Japanese automakers with import tariffs unless the Japanese government chose to “voluntarily” restrict its exports, American automakers were being protected from competition. Improving the quality of cars is hard work. Hiring the “mafia” to bust the competition’s kneecaps is much easier. As George Stigler noted, “most important enduring monopolies or near monopolies in the United States rest on government policies.” The point is that there is nothing suspicious or hypocritical about profit per se. It all depends on the political or institutional environment. When there are no artificial barriers to competition, then profit will generally be obtained by serving consumers.
Second, these senators appear to confuse automakers with dealerships. They say that restricting third-party access results in “entrenching auto manufacturers’ dominance and eliminating competition from independent repair shops.” But it is dealerships, not automakers, who compete with independent repair shops. An automaker does not obtain or strengthen any monopoly when they create a benefit for dealerships at the expense of independent repair shops.
It may very well be that denying right-to-repair will benefit dealerships. However, these dealerships are independent of the automakers. In fact, dealerships are typically granted legal privileges by state franchise laws, which protect them from both competition and oversight by automakers. Here is not the place to question the legitimacy of state franchise laws. Suffice it to say, however, that dealerships are hardly the servants or subordinates of automakers.
In fact, the automaker is likely to suffer whenever there is an unjustified increase in the repair cost. When a vehicle costs more to repair, its sales will suffer. It is often observed that used Toyotas carry a price-premium over other makes because consumers value their reliability. It would be just as true to say that every used car besides a Toyota carries a price-discount. Every vehicle with worse reliability must sell at a lower price than an otherwise equivalent Toyota. Consumers are willing to pay more for reliability and demand a price-cut whenever reliability is lacking.
Insofar as new vehicle purchasers intend to own their vehicles for life, sales will decline as the cost of maintenance and repair rises. When vehicles are leased—with the intention of avoiding the need to ever repair the vehicle—there is still a rise in lease payments whenever there is a fall in the residual (the vehicle’s depreciated value at the lease’s end). Insofar as a vehicle has worse reliability or costs more to repair, there will be a fall in the used car’s value, which implies a fall in the lease residual and a rise in the lease payments. Thus, even those who lease a brand-new vehicle every 3 years will be forced to pay a higher price for a vehicle that costs more to maintain and repair. And higher prices will result in reduced sales for the manufacturer. An automaker that conspires to unnecessarily increase repair costs relative to its competitors will only shoot themselves in the foot.
As evidence, consider that Scout Motors—owned by Volkswagen—recently announced that their upcoming vehicles will promote ease of DIY repair by attaching panels using screws rather than adhesives and by using smaller, discrete panels with seams rather than larger, monolithic panels. Granted, Scout’s audience is off-roading enthusiasts, not the average consumer. It is notable that Scout alone, not even their owner, Volkswagen, made this announcement. Nevertheless, this demonstrates that automakers are willing to prioritize ease-of-repair whenever they believe that is what the consumer demands.
Of course, a vehicle with worse reliability may be cheaper to manufacture. There is a cost of reliability just as there is a cost of safety. An automaker will profit if they can reduce reliability by reducing the cost of manufacture even more. Consumers will also benefit if the car’s cost (and therefore the purchase price) is sufficiently reduced by reducing reliability. A car with half the life but one-third the purchase price might be an excellent bargain. However, insofar as the increased cost of repair is not justified by a reduced cost of manufacture or by the inclusion of some finicky but desirable technological feature, then sales and profits will suffer from reduced reliability. Thus, automakers have a vested financial interest in maximizing reliability and minimizing the cost of repair, given some cost of manufacture and some set of features. For these senators to claim that automakers are attempting to entrench their dominance by increasing the cost of ownership, these senators must assume that automakers are financially illiterate and economically irrational.
As previously noted, these senators confuse automakers with dealerships. But let us suppose, for the sake of argument, that dealerships really are the handmaids of the automakers, or perhaps vice-versa. Even then, it would not be possible for automakers to entrench their monopolies by denying right-to-repair. This is because of what economists call the “law of one monopoly profit.” This law states that for every monopoly, there is some profit-maximizing price. And this monopoly profit can only be earned once; there is no double-dipping. Assuming the monopolist is already charging (or doing their best to charge) the profit-maximizing price, anything that increases the price must be compensated by something else to decrease the price, causing the monopoly profit to remain fixed.
For example, suppose every automaker’s MSRP is already a profit-maximizing monopoly price. Then, anything increasing the repair cost will implicitly raise the total cost of ownership, reducing consumer demand. The price of the car will no longer equal the profit-maximizing price. A consumer does not just buy a vehicle in isolation. They buy an entire package of transportation services.
To the consumer, the price of everything in that package matters. If the price of gasoline increases, so does the cost of that transportation package, and automakers might have to reduce the prices of their vehicles, with the discount being proportional to each vehicle’s lack of fuel economy. Similarly, if the cost of maintenance goes up, then the desirability of the vehicle declines.
Earlier, we observed that while increasing the cost of repair may conceivably benefit independent dealerships, it would harm automakers. Here, we observe that even if dealerships and automakers were an integrated whole or a conspiring cartel—which they are clearly not—any increase in the price of the vehicle in one dimension will necessitate a discount in another dimension. Automakers who monopolized post-sale repair could not increase their profits by increasing the cost of repair because they would be forced to reduce the vehicle sales prices by an equal amount. The total monopoly profit would remain unchanged because the underlying profit-maximizing price had not changed.
Next, the senators address cybersecurity concerns. They note that some automakers oppose right-to-repair because they claim that sharing data and credentials with third parties will create security issues. For example, a data breach by an independent mechanic may allow hackers to take remote control of a vehicle. The senators reply that these concerns are “based on speculative future risks rather than facts.”
But all estimations of the future are necessarily speculative. An automaker that improves the safety of its vehicles does so based on a speculated future risk that the automobile may be involved in a collision. Government safety regulations are based on a speculated future risk that consumers and workers would be subject to danger without such regulations.
The question, then, is whose speculations will rule. Will we rely on automakers’ speculations of future cybersecurity risks? Or will we trust the government’s speculations? If we trust the government alone, then we put all our eggs in a single basket. If the government’s speculations turn out to be false, we will all suffer. Alternatively, if we allow automakers to speculate, then every automaker will be free to speculate differently.
Different automakers will judge the future differently and take different actions today. Some automakers will turn out to be more right or wrong than others. One of the great virtues of a competitive free-market is that we are free to experiment with different solutions. Competition in markets is the exact analog to competition in scientific research.
As F. A. Hayek famously said, “Competition [i]s a discovery procedure.” We would never dare establish a monopoly in scientific research, for this would forestall any competition by scientists with different hypotheses or methods. For the same reason, we should allow every automaker to be free to address cybersecurity differently—because we do not know ahead of time who will be right and who will be wrong.
This is not to necessarily deny the legitimacy of some minimum baseline established by government regulation. However, every manufacturer should always be free to exceed that minimum baseline. For example, NHTSA mandates certain minimum safety standards, but we would never wish for NHTSA to outlaw increases in safety beyond that baseline. Unfortunately, that is exactly what NHTSA did when it continued to ban European-style matrix (dynamic beam) headlights, which offer superior safety. Despite years of lobbying by Toyota to legalize this improved safety, NHTSA continued to outlaw this safety improvement until the 2021 Infrastructure Investment and Jobs Act directed NHTSA to legalize these improved headlights.
Therefore, while it may be legitimate and desirable to enact some minimum standards for automotive cybersecurity, banning automakers from attempting to exceed that minimum standard would be perverse. All attempts to exceed the minimum baseline are necessarily speculative. Nobody knows what the future will bring. When these senators criticize automakers’ reliance on speculations about future cybersecurity risks, they imply that automakers should never address any cybersecurity risks unless they are foreseen by government.
If a risk is predicted by automakers but not by government, they imply that automakers should ignore that potential risk and adhere to the minimum standard. By the same logic, no automaker should ever attempt to exceed any minimum safety standards set by NHTSA. This is not a recipe for a progressive society. It is rather a recipe for a sclerotic, frozen, backward society.
If the senators are correct that automakers’ cybersecurity speculations are specious, then automakers put themselves at a disadvantage. If their denials of right-to-repair are based on false concerns, then they unnecessarily increase the cost of repair. This, in turn, reduces consumer demand for their vehicles. Any automaker who facilitates third-party repair at a lower cost will, therefore enjoy a profit advantage over their competitors who deny right-to-repair and unnecessarily raise the cost of ownership. Every mistake creates a profit opportunity for anyone who avoids that mistake.
The competitive market is the best tool yet discovered for facilitating research and discovery—in both science and the production of goods and services. As long as automakers and dealerships operate in a competitive market free of politically-created barriers to entry, profit will be obtained by producing better products at lower prices.
The task for politicians is to eliminate the opportunities for anti-competitive rent-seeking and monopoly profits by abolishing and repealing protectionist laws that artificially create entry barriers. One good place to start is to harmonize US and EU vehicle safety standards so that homologation (certifying a product for a specific region) is easier. Eliminating such non-tariff trade barriers would allow European vehicles to be more easily sold in the United States without having to expensively re-engineer them. This would allow US consumers access to a wider variety of makes and models, promoting competition, the improvement of quality, and the reduction of price.
