Pub. 56 2015-2016 Issue 3

30 This particular trailer hitch part is an example of the ability of the manufacturer to substantially alter the price of a part and the amount paid to a dealer. With respect to warranty and recall repairs, the manufacturer not only prices the part but determines the amount of time that it will pay for any repair through published time standards, regardless of the actual time expended by the technician. Since the manufacturer sets the time standard for a warranty or recall repair, the dealership is bound by it and is paid in accordance with the manufacturer’s stated time. Whether the published factory time standards are accurate or not, the dealership and technician are paid subject to the manufacturer’s determination. Being able to rely upon a required dealer network to satisfy a buyer’s warranty claims and recall needs is necessary for the customer as well as beneficial to themanufacturer and the dealer.The buyer knows where to go when their vehicle fails. The manufacturer can set reasonable repair standards for the franchiseewho in turn can satisfy the customer’s needs. Adequate and fair compensation and reimbursement for work that is charged for similar nonwarranty work is the standard in this state for warranty work reimbursement. 43 The quality of the vehicle manufactured and the length of the fac- tory’s warranty primarily determines whether a vehicle will need a repair covered by warranty and consequently whether a dealer will ever be performing and thus compensated for warranty repairs. The dealership has no guarantee of any warranty work; yet, the dealership must meet the standards set by the manufacturer for tools, training, facilities, and certified technicians. Professor Sappington theorizes that “in my view, the competition is quite pronounced in the auto industry today. And, therefore, other than serving to transferwealth frommanufacturers to dealer, it’s not clearwhat role these rules [Re: warranty work] are playing.” 44 The professor also argues that requiring a manufacturer to pay the same for warranty as a customer pays for the same repair provides an incentive for a dealership to increase the prices charged to a customer for nonwarranty work. 45 The professor does not state the methodology used to conclude that when a manufacturer pays for a good or service in which the amount of time expended is predetermined by that manufacturer and when a part used in both warranty and customer pay is that manufacturer’s original equipment manufacturer part, that a “transfer of wealth” occurs. Also unstated is data for the assertion that there is an incentive for a dealership to increase their customer pay repairs.The “pronounced” competition in the industry as acknowledged by the professor should allay this concern. The many dealerships available for service allows an automobile owner to be selective as to who performs and where to go for their warranty repair. This choice breeds competition. Again, the current system is satisfying the goals of the FTC’s mission and vision of choice and competition. As posited by Maryann Keller when discussing warranty repairs: “Who would you trust to do the right thing for the owner? The dealer who desperately wants to retain the customer or the auto maker who wants to minimize the cost of the repair?” 46 Factory Distribution This FTC Workshop, Segment 3, determined to re-visit the issue of manufacturer direct distribution of motor vehicles. Mr. Roach, with the FTC’s Office of Policy Planning, stated that “this is a topic on which the FTC staff has expressed our views in advocacy letters responding to state legislators in three states over the past couple years. We have opposed these sorts of regulatory restrictions [prohibiting manufac- turer district distribution].” 47 In addition to the staff ’s advocacy letters, FTC Commis- sioner Maureen K. Ohlhausen is determined to bring this viewpoint for direct sales forward. The commissioner, in a speech given June 27, 2015, discusses that many U.S. states have automobile distribution statutes that prohibit the direct sale by manufacturers to consumers. She continues by stating that “the FTC staff has pointed out repeatedly in letters and commentary to state legislatures and government officials that these laws are anomalous within the larger economy and potentially counterproductive.” 48 Continuing, the Commissioner states that “thankfully, it seems the FTC’s advocacy efforts are paying some dividends, albeit small ones. The state of New Jersey recently passed leg- islation–what I would call a test bill–that specifically allows Tesla to operate a handful of direct sales outlets in the state.” A justification for this point of view by the Commissioner is that “these new distribution models also offer potential efficiencies that could be passed on to consumers in the form of better pricing or quality of service.” 49 (Emphasis added.) There is no evidence that the direct motor vehicle distribu- tion model offers any consumer efficiency. More importantly, there is no evidence that if the model derived any efficiency that the manufacturer would pass it on to a consumer in the form of better pricing or quality of service. As franchised automobile dealerships compete on price, financing, and service, the research on intra-brand competi- tion demonstrates that competition lowers the price of the automobile. Thanks is rightfully given to those states and their legislators that allow for intra-brand competition. This is the system that allows a consumer to choose their seller, determine the product best-suited to their needs, and en- courages a competitive market and price–not the one price, one seller, one location, one choice system that allows one manufacturer to build, price, sell, and locate their product and availability. The Phoenix Center for Advanced Legal & Economic Public Policy Studies released a report in March 2015 that examined approximately 250,000 data samples of vehicle trans- actions between the years of 2011 and 2013 in Texas. The report shows that intra-brand competition in newmotor vehicle sales lowers the price of the vehicle for the consumer. The Honda Accord is shown to sell for $500 more when the distance between Honda dealerships is increased by 30 miles. 50  DEALER FRANCHISE — CONTINUED FROM PAGE 29