Pub. 55 2014-2015 Issue 1

37 2014 FALL contain terms and conditions more onerous than what existed before. Frequently supplementing these agreements, which have been held to be contracts of adhesion, are controversial programs designed to control dealer behavior, often developed with little or no meaningful dealer input. The former Commissioner also suggested that “in many areas today” consumers no longer enjoy the benefit of a local entrepre- neur with hands-on responsibility for the dealership and who has direct contact with customers. This is also not reflective of the current marketplace. Dealerships remain closely tied to the community. Most are still family-owned and operated, includ- ing several of the larger, so-called “chain” dealerships. The fact remains that, for most dealers, their personal investment is on the line. Finally, former Commissioner Leary was also somewhat critical of dealers’ legislative activities, and he implied that the Supreme Court decisions that allow private interests to petition their state legislatures free of antitrust restraint are ill-advised. But these same decisions allow any private group, including manufacturers and consumers, to petition a state legislature. It is the province of each state’s elected representatives to balance these compet- ing interests and establish prudent transportation and consumer protection policies for the benefit of the residents of their states. Ironically, the existence of the federal antitrust rules is actually one of the reasons why the state franchise laws are so necessary. The federal antitrust laws significantly constrain collective dealer activities. Individual dealers may complain, criticize, second- guess, and vent about their manufacturers. Dealers acting as a group, however, are subject to extensive antitrust restrictions on their activities. Dealer groups may not, for example, agree to refuse to sell an unpopular car or decline to participate in an exploitative manufacturer program. Dealer groups may not require better financial arrangements as a condition of using a manufacturer’s captive finance company. Lastly, and most importantly, no group of dealers may jointly refuse to accept a manufacturer’s unilateral revisions to its franchise contract. If these restrictions did not ex- ist, dealers would be in a position to exercise collective economic self-help to address manufacturer overreach and abuse. However, they do exist, and dealers are, as a result, often left with seeking redress in their state legislatures as their only viable option. CONCLUSION The long-term consequences of allowing manufacturer-con- trolled stores are not benign. It is true that, as a theoretical matter, there will be times when the introduction of vertical integration into a market offers improvements in economic efficiency and provides other clear benefits to consumers. However, your writ- ings present no evidence that, in the specific case of automotive retailing, consumers, the economy, or even manufacturers would tangibly benefit in any way from vertical integration. Indeed, as we have explained, proper economic analysis of auto retailing reveals that vertical integration of the distribution channel could very possibly harm consumers, including in unintended and unforeseen ways. The lack of empirical evidence of benefits, the inability to find any industry parallels, and the high probability of negative unforeseen consequences leads to the conclusion that there is in fact no benefit to consumers in ending current restric- tions on automobile manufacturers from selling directly to the public. State legislators should not forgo all the tangible benefits that local dealers provide based solely on theoretical claims of consumer advantage that are unsubstantiated in the actual mar- ketplace at issue. The fact that one cannot articulate with reliable analysis how motor vehicle consumers would specifically benefit from direct manufacturer sales should, in and of itself, give pause to any state legislator considering the drastic regulatory changes you advocate. But in this case there is much more. As we have explained, there are several compelling public policy considerations that fully justify the various state determinations to restrict a manufacturercon- trolled motor vehicle distribution system. The primary benefits of such regulations include the increased intra-brand competition that independent dealers foster, the safety benefits that indepen- dent dealers bring by being economically aligned with consumers’ interests, the increased long-term accountability that independent dealers provide, and the local economic benefits that independent dealers create. The analysis set out in your writings simply fails to recognize this range of public policy reasons why these laws are needed and appropriate and fully benefit consumers. We would appreciate the opportunity to discuss these matters with you, and we look forward to constructive engagement and a helpful dialogue on these issues. Please feel free to contact us at akoblenz@nada.org . Respectfully submitted, Peter K. Welch Executive Vice President Andrew D. Koblenz Steven Szakaly President Chief Economist Legal and Regulatory Affairs