Pub. 56 2015-2016 Issue 3

29 SPRING 2016 and Toyota number of dealerships and the Cadillac example with 1,000 points of sale compared to the “other” luxury makes which have 200 to 300 points of sale is of interest. Professor Schneider points out that Cadillac sells, on average, approximately 200 new cars per franchise; whereas, others “may sell 600, 700, 800 or even over 1,000 new cars per franchise. And presumably those costs are passed on to some degree to consumers.” 34 Professor Schneider also discusses “costs of sort of having more points of sale for at least some car manufacturers and dealers is it makes it hard, for example to reach economies of scale. .. there’s all kinds of savings you can get from being larger in terms of back office costs, financing terms, and so on. It’s a complicated issue how large you want your dealer to be in terms of market power versus scale. But generally having more flex- ibility, I think, would be beneficial.” 35 The alleged savings and costs that Professor Schneider enu- merates are not quantified. It may be that they are not measured because no economies of scale are measurable in this instance or they may be slight or illusory; however, to suggest that unmeasured and unsubstantiated costs are borne by the manu- facturer or customer is giving a peek into the professor’s ideology. The fiction that a dealership is a cost to a manufacturer is discussed in a July 19, 2010, SIGTARP report. 36 In that report, “the anticipated benefits to GM and Chrysler from a smaller dealership network were far more amorphous–a better ‘brand equity’ and the potential ability to decrease dealership incentives over time.” The report continues that “GM acknowledged that its cost savings (assuming the decreases in incentives could be realized) could only be calculated across its entire network and could not be calculated for a single particular closed dealer- ship. Indeed, one GM official emphasized this point by telling SIGTARP that GM would usually save ‘not one damn cent’ by closing any particular dealership.” 37 One of the lessons learned from the questionable and painful dealership termination process is that the anticipated benefits to the companies of accelerated terminations were “based al- most entirely on the not-universally-accepted theory that an immediate decrease in dealerships would make them similar to their foreign competitors and therefore improve the companies’ profitability, and the theory arguably did not take into account some of the unique circumstances of the domestic companies’ dealership networks.” 38 SIGTARP also found that no market studies to test their theory was undertaken until after making the termination de- cision. In addition, there was no effort to quantify the number of job losses that the closing decision would contribute to until, again, after making the decision. The effect on the broader economy was also not “sufficiently considered” in the decision to accelerate dealership terminations. 39 Decisionsmade at the federal level are far removed fromlocal needs. This one significant example and its impact on the industry and local communities exemplifies the reason for the state to continue to make decisions regarding themotor vehicle industry, especially distribution. Again, the statutes passed by Texas do not prohibit the es- tablishment of a new franchised dealership point nor do they prohibit the relocation of an established dealership. Finally, no law prohibits the manufacturer or distributor from terminating a dealer for good cause. These statutes bring together the interests of the consumer, community, and state as well as the party’s interests and define the elements for the board to consider. Warranty Reimbursement and Recalls The second workshop discusses warranty reimbursement with respect to the FTC’s vision and mission. A Texas dealer is required to perform warranty repairs 40 as well as recalls. The tools, training, facilities, and certified technicians are costs borne by the franchisee. A significant amount of repairs are performed under warranty and of late, under recall. It was reported in Automotive News 41 that the Takata airbag inflator recalls alone are impacting 12 manufacturers and as many as 25 million U.S. vehicles, spanning model years from 2000 to 2015. A manufacturer disallowing the sale of a vehicle because of a re- call is quite costly for the dealership as the dealer owns that vehicle, typically when it is delivered to a common carrier. 42 A vehicle under recall with a “stop sale” requires a dealer to continue to safeguard and pay carrying costs on that vehicle without knowing when it will be repaired and subsequently available for sale. The cost of a part used in a recall is also under the manufacturer’s control in that before the recall, the part may be one amount and after the published recall, the part may be listed for another amount. As an example, effective March 27, 2015, a platform trailer hitch is listed to the dealer for $189.60; to the trade for $268.60; and list for $316.00, with a core value of $0. These prices continue in effect through 2015. On January 1, 2016, this same platform trailer hitch part is now payable to the dealer for $42.19; to the trade for $0; list for $0; and has a core value of $100.00. On March 1, 2016, a factory bulletin is sent to the dealers stat- ing that the trailer hitch could develop cracks at the weld points and the dealer must remove and replace it. Dealers are notified that the involved vehicles must be held and not delivered to customers, dealer-traded, released to auction, used for demonstration, or any other purpose. The service is performed at no charge to the customer until February 28, 2018.  DEALER FRANCHISE — CONTINUED FROM PAGE 27  DEALER FRANCHISE — CONTINUED ON PAGE 30