For one hypothetical Steamboat Springs,

Colorado resident, today is a very

exciting day. After a decade of steady

career advancement and saving, after

years of driving a used car acquired

after college, and after months of

research, this northern Coloradan is set

to buy their first new car. A car that's

upscale, capable in the mountains, and

has the capacity to carry friends to a

hiking trailhead or possibly haul a

budding family in the coming years.

They've settled on an Audi Q3. But now

comes the hard part, or more

specifically, the overly complicated,

often misleading, always expensive part:

actually buying the car from a

dealership. First, there's the matter of

finding an authorized dealership.

Colorado as a state only has seven Audi

dealerships, and the western side,

dotted with wealthy mountain towns and

anchored by population center of over

150,000,

is served by just one: Audi Glenwood

Springs. It's the closest option, and it

happens to have a couple of Q3s on the

lot, according to its website, so our

buyer opts for here. They've secured a

ride down to the dealership more than

two hours away. They've read up on how

to navigate their interactions with the

sales team and financing manager, and

they've drawn up the number they're

willing to pay. But there's also what

they haven't considered. There's the

fact that not only are they opting to

likely buy from this dealership, but

that they're also entering into a de

facto long-term customer relationship

with them. That they're likely to get

their car serviced here for the next 10

years. That the salesperson is likely to

send them a holiday card and ask about

future upgrades or more purchases for

the family. The buyer's car business for

the life of the car is likely going to

be tethered to this dealership, and our

buyer doesn't actually even know who

owns [music] the dealership. Audi

Glenwood Springs, for its part, really

looks like it'd be owned by Audi, as its

interior, exterior, even its website,

all communicate the same upscale

minimalism of the car company. But this

dealership isn't owned by Audi, because

in Colorado, and in the other 49 US

states, that much is illegal. Rather,

this dealership is owned and operated by

Sonic Automotive, the same company that

owns the Land Rover and Volkswagen

dealerships in town. Sonic isn't local,

though. It's a growing car dealership

operator headquartered in North Carolina

that has become a Fortune 500 company

without ever actually manufacturing a

single vehicle. This much would be news

to our buyer. Because of some antiquated

laws, nearly every new car purchase in

the US is made through a franchised

middleman like Sonic Automotive. In a

country where car ownership is so

universal, this puts every car buyer in

a seriously compromised position without

them really knowing it. Globally, this

is fairly unique. While car sales in

North America go almost exclusively

through dealerships, in China, if a

buyer wants to buy a BYD, they just go

to BYD's website. In Japan, while

dealerships do exist, car companies are

allowed to sell directly to consumers.

In the UK, in Germany, and much of the

EU, you can work with car manufacturers

to get the exact color, trim, and

specifications you're looking for,

rather than having your choice limited

to what's left on the lot of a franchise

seller. In the rest of the world, you

have the choice of going through a

dealership or the manufacturer. In the

US, you don't.

Now, at one point, from the perspective

of car buyers and small business owners,

there was some good logic for

dealerships to be protected under state

law. At the beginning of the automotive

age, figuring out how to mass-produce

automobiles while at the same time

selling the public on their necessity

was a major hurdle. Factory production,

no matter how efficient, doesn't matter

if people wouldn't buy the cars. Ford

Motors turned to the franchise

dealership model to keep sales humming.

This allowed the company to stay focused

on its core competency, manufacturing,

while allowing entrepreneurial local

business people who knew the wants and

needs of their towns best [music] to

keep the product turning over. Through

the early 1900s, this model worked.

Americans adopted the automobile as a

necessity, small local dealerships

nationwide thrived, and Detroit's Big

Three became the center of the

automotive manufacturing world. But as

the Big Three crystallized an effective

oligopoly over domestic car

manufacturing, they began to leverage

their largess against the local

mom-and-pop dealerships. If you were to

walk into a Ford dealership in the

1920s, for example, you'd find a copy of

Henry Ford's anti-Semitic propaganda,

The Dearborn Independent, somewhere in

the lobby, not because the dealership's

owner was an anti-Semite, but because

Ford mandated it. In times of financial

difficulty, Ford would keep factory

production high and flood dealerships

with cars they couldn't hope to sell.

And should a dealership get sideways

with the manufacturer, the car company

would either freeze them out, open up a

direct competitor, or license a rival to

begin selling their vehicles across

town. Manufacturers, with little in the

way of competition, bullied the

dealerships. But by mid-century,

dealerships and their friends in elected

positions had conceived of a way to get

back. Laws that mandated and protected

[music] their existence. Even today, car

dealerships tend to be heavily ingrained

in their communities. In Glenwood

Springs, for example, the Ford

dealership sponsors high school golf

tournaments [music] and the Toyota

dealership sponsors the football games.

At mid-century, this influence and

visibility of the local dealership was

at an absolute peak. The interstate

system, the drive-thru and drive-in, the

post-war [music] consumer boom, all made

for record auto production and sales in

the 1950s, and at the center of it was

the town's local car dealerships.

Dealerships were pillars of the

community, their owners were local

celebrities, and the sales tax they

brought in was critical for state and

local governments. They had sway, and as

the Big Three manufacturers toyed with

them, they responded by using their

local importance to lobby for some

protections. Soon, all 50 states had

some form of legal bans on manufacturers

selling their own [music] cars in states

with already established franchise

dealerships. Now, Ford couldn't simply

open up their own showroom down the

block to put a company that sold Fords

for decades out of business.

>> [music]

>> In each state, the exact rules vary.

Certain states have added further

protections. In Colorado, for years this

law was pretty cut and dry. No

manufacturer shall own, operate, or

control any motor vehicle dealer or used

motor vehicle dealer in Colorado. And

while these mid-century laws remain, the

car landscape [music] has flipped on its

head. The arrival of foreign-made cars

has undercut the Big Three's oligopoly,

while consolidation is eating up the

dealerships. Along with Sonic, all of

these car dealerships are Fortune 500

companies, too, meaning there are more

massive [music] car dealership companies

than car manufacturing companies. Aided

by legal protections from a bygone era

and dealing with less and less

competition just means more leverage for

the middleman dealership, and they use

it.

While our buyer is prepared, once

they've stepped on the lot of Audi

Glenwood Springs, they're now navigating

a pretty hostile environment from the

perspective of the customer's wallet.

First, it's confusing. Cars are

inherently complicated, so our buyer is

at a knowledge disadvantage. Next, our

buyer [music] has to navigate a host of

separate motives. Because while the

manufacturer just wants the sale near

MSRP, the dealership's in the business

of resale, and for that to be

profitable, they need to do some

upselling, upgrading, or favorable

financing.

But even before these conversations

begin with the salesperson, our buyer is

already losing just on baseline MSRP.

They've decided going in that they want

to get this Q3 at sticker price. Well,

at $48,170,

that's already more than $4,400

more than the reported invoice cost, or

what the manufacturer sold it to the

dealership for. This number includes a

destination fee that the seller isn't

likely to haggle over. So, while you

can't custom order this car from the

manufacturer to ensure you have the

exact color or trim you want, you are

still paying for the shipping and

handling of a car you didn't really get

to choose. Our buyer is happy with

white, though, and willing to stomach

MSRP. Now there's the dealer handling

fees for another $500 which in a

business is usually just understood as

payment for all the paperwork that the

customer is expected to adjust accept as

part of purchase. But at least according

to Mountain States Toyota, a dealership

also owned by Sonic but one that proudly

weighs all dealer fees, these are

nothing more than additional profit

generators for the dealership. After a

positive test drive, our buyer has

agreed with the salesperson that they're

willing to pay sticker price so long as

the dealership fee is waived. They feel

pretty good about themselves, but so too

does the dealership. To this point of

the transaction, the dealership has come

out positive on what they call the front

end gross, turning a profit over what

they paid for the car from the

manufacturer. When sales are good, a

dealership hopes to turn 3 to 10% profit

on front end gross, but in bad times

they're okay with selling in the red

here. And that's because of the back end

earnings. Now our buyer is pretty

content with themself as they move from

the desk of the salesperson to the desk

of the finance and insurance manager.

This person, given their title, seems

like a paperwork person and that much is

intentional, but they are absolutely

another salesperson. Here's a job

listing for an F&I manager for Sonic

Automotive at Audi Central Houston. It

requires a lot of experience, it

provides good benefits, and it's a job

that comes with training and even

program schools. It's a job that nets

from 100 to 500,000 dollars and it's the

core of the dealership's business

because it's a major profit source. As

the listing describes, the job is to

sell, to upsell, to add on, to squeeze

every last dollar out of a deal that's

on the finish line. They'll do this

through financing, working the buyer to

as high of an interest rate as they can

stomach, they'll push the add-ons like

extended warranties, gap insurance,

winterization, paint, wheel, and glass

insurance. All are services that could

be helpful, but all are also massively

overpriced within this office. With the

buyer disarmed, with our most

experienced, highest compensated

salesperson on the job, it's through

back-end gross where car dealerships

make their real money. In 2025, Sonic

Automotive announced that their F&I

earnings hit record numbers, netting

gross profits of over $2,500

per unit sold. That's an incredible

amount of profit generated by a part of

the car buying interaction that's

supposed to feel like just tying up

loose ends and getting you out the door.

Our buyer is now finally door, but with

a car that cost $44,000 from Audi to the

dealership, but closer to $56,000 before

taxes for our buyer. A 25% markup. And

should they choose to service the

vehicle through the dealership for the

next 10 years, they'll come to expect a

similar strategy on upselling services

every single time they bring in the

vehicle.

Now, it'd be wrong to identify

dealerships as strictly a shady,

parasitic institution. They provide a

real and valuable service to

manufacturers in pushing their vehicles.

They provide a service to buyers through

location convenience and actually

getting people in these cars and

educating them on the vehicle. Their

lack of competition and strong legal

protections have given them far too much

leeway, though. It's hard to attack this

imbalance of power head-on as the

National Automotive Dealers Association

is a well-established lobby with deep

pockets and states themselves benefit

from the jobs and sales taxes that come

with dealerships. Consumers are

unmotivated to rally opposition to this

system because it's not one they deal

with on the day-to-day. So, it's largely

up to the manufacturers to try to check

this power. In 2021, a frustrated Ford

CEO, Jim Farley, threatened to cut

vehicle allocation to certain

dealerships because the company had

grown so frustrated over dealership

markups. [music] But then, there's what

Tesla did. Today, Tesla has more than

320 showrooms, service centers, and mall

pop-ups spread across the US, all of

which staffed by Tesla employees and

owned by Tesla. This makes the company

far and away the largest automotive

manufacturer in the states to run a

direct-to-consumer sales model. But,

they've had to fight tooth and nail to

establish this network, and still, in

many US [music] states, it's illegal to

buy a Tesla from Tesla within state

borders. Perhaps as bold as the concept

of fully automated driving was Tesla's

push to sell its cars directly to

consumers in the 2010s. Because the

product was so unique in the automotive

space, because the company is tasked

with more education about their product,

and because EVs just don't fit the

standard car dealership model very

cleanly, given how different they are

from any other product and how

dissimilar their maintenance

requirements can be, Tesla has always

viewed dealerships as a hurdle to their

success. So, they challenged franchise

dealership laws at the state level.

In many [music] states, Tesla could

argue that it was not actually competing

against any franchise locations because

Tesla had never actually established

Tesla franchises [music] at any point to

begin with. In the 2010s, Tesla faced

little opposition as it spread across

California, but in other states, the

battle took longer. In Colorado, for

instance, the law broadly banned

manufacturers from selling cars, but if

the manufacturer had no franchises

already running, then it could run

direct-to-consumer sales so long as it

only ran one location. That meant this

single spot held down all [music] the

state's Tesla sales for a decade. In

Texas, Tesla could open showrooms, but

not actually make sales within the

state. [music] So, someone could come

into the showroom, learn all about the

EV, then figure out an out-of-state

purchase option. In Connecticut, Tesla

could lease, but not sell. In New

Mexico, Tesla couldn't sell, but in both

states, Tesla found loopholes by working

with Native American reservations. After

nearly two decades of fighting in court

and lobbying battles going both

directions, the map looked like this.

Tesla can sell direct-to-consumer in all

these states, but not in these. But, the

growing popularity of EVs and the

arrival of companies like Rivian and

soon Scout are pushing the boundaries of

these franchise laws even further.

Colorado now has six separate Tesla

dealerships because under increasing

pressure from the anticipated arrival of

Rivian, the state revised adding this

clause that so long as the company is

producing EVs and not competing with any

of its own franchise dealerships, is

clear to sell direct to consumer from as

many locations as it pleases.

But dealerships aren't going quietly

into the night. Even in Colorado, where

franchise laws are seemingly getting

undercut one way or another every few

years, Sonic Automotive in 2026 sued the

state after its issuance of a dealership

license over to Scout Motors in 2025.

Sonic is arguing that Scout doesn't plan

to produce strictly EVs, but also

plug-in hybrids as their vehicles have

the option for a small [music]

gas-powered generator to extend range in

a pinch. The company also argues that

Scout's backing by Volkswagen means the

company is in fact competing with an

already established dealership network

within the state. While it remains to be

seen where this court case goes, it

makes it abundantly clear that franchise

dealers aim to continue to fight. An

inertia is perhaps the industry's best

line of defense though. While these laws

were designed to protect small business

and create competition, the competition,

from the perspective of the consumer, is

the worst sort of competition, where the

choice is pared down to a gut feel on

which option is going to rip you off the

least or which you have the most

bargaining leverage over. It's bad for

both the consumer and the manufacturer

when poll data shows that more than 70%

of respondents don't trust dealers to be

honest about pricing [music] and more

than 80% suspect hidden fees and don't

trust the transparency of dealerships

across the board. Protectionism has

created an environment that promotes

maximally [music] squeezing the consumer

and presents as the least bad option.

This is so backwards to the economic

ideals of the US and its freedom of

choice, pro-competition, pro-consumer

stances [music]

that the Federal Trade Commission has

gone so far as to state its stance on

the matter [music] and side with the

adoption of direct-to-consumer sales.

For now, the third-party dealership is

the status quo. It's something that a

consumer begrudgingly accepts as

something they hope to deal with once

every few years. But as EVs continue to

grow in popularity and as awareness of

their alternative model of sales and

servicing spread, a reckoning over

outdated state protections of

third-party dealerships becomes more and

more probable as the legacy

manufacturers begin to lose out to a

cheaper, more transparent,

>> [music]

>> and more approachable alternative.

Of course, it's easy to forget this much

in a car-brained culture like that of

the US, but there is another alternative

that's often far more efficient, far

cheaper, and far more interesting. And

that's public transportation. And look

no further than Jason from Not Just

Bikes' Nebula series Day Pass for proof

that places where you don't need to own

a car actually exists. Exploring some of

the most unique and robust transit

systems the world has to offer [music]

through the experiences of a public

transit superfan and super critic, and

Jason shows an alternative to automotive

obsession while also just providing a

really fun watch blending travel and

infrastructure. Of course, I'm bringing

up this Nebula original less to make a

larger point in this video and more to

bring attention to this video's sponsor,

Nebula. But the thematic connection of

this video and Day Pass really expresses

the value proposition of Nebula. Quite

simply, if you like the content that we

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Lag: The Game, it's more than likely

you're going to really enjoy this

limited series. Nebula, [music] through

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Everything. It means early access to Tom

Scott's return to video making with his

awesome series England, and means access

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to Africa.

>> [music]

>> And it means access to more and more as

the continued support from fans only

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you do. It helps us a ton and we're

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