Pub. 56 2015-2016 Issue 3

32 Dear Chairwoman Ramirez and Commissioners Brill, Ohlhausen and McSweeny: As groups that advocate for competitive markets, we are concerned about the Federal Trade Commis- sion’s (FTC) January 19, 2016 workshop on the retail automotive market. While the FTC’s mission is to “prevent business practices that are anticompetitive or deceptive or unfair to consumers,” both economic theory and empirical evidence show with little doubt that the retail automo- tive market is extraordinarily competitive. Thousands of franchised automobile dealers compete on pricing, financing and servicing, and empirical research shows that this competition drives down prices for consumers. In short, the FTCappears to be trying to find a problem in a market where no evidence of a problem exists. In March 2015, the Phoenix Center for Advanced Legal & Economic Public Policy Studies released a re- port that examined large data samples of transactions for ten of the most popular new cars purchased in the state of Texas for the years 2011, 2012, and 2013 and found that intra-brand price competition between franchised new-car dealerships significantly lowers prices for con- sumers. According to the research, which has not been challenged or rebutted in the public sphere, intra-brand price competition by multiple dealers has the effect of lowering prices on new cars substantially – in the case of a newHonda Accord or Toyota Camry sold inTexas, by approximately $487 per automobile when multiple same-brand dealers compete in a given radius. Thismatches the economic theory thatwhenmultiple sellers of a good or service compete on price, prices will drop. Eliminate sellers, and prices will rise. Similarly, the National Automobile Dealers Asso- ciation’s annual report on dealer profitability show that profits onnewcars average only 2.2%per cars – far lower thanmany other retail businesses, evenonhigh-pricedor durable items like furniture or appliances. All evidence suggests that the retail automobilemarket is competitive, that intra-brandprice competitiondrives downprices for consumers, and that eliminating dealerships will hurt consumers by driving prices higher. Finally, we find it a bit ironic that the FTC is investigating the effect of state dealer franchise laws when it was the federal antitrust laws that motivated the enactment of such laws in the first instance. As you know, auto retailers are prohibited by federal antitrust laws from collectively negotiating their contracts with manufacturers, and this artificial intrusion created an imbalance that disadvantaged dealers. Because exercis- ing their collective economic power is prohibited by federal law, dealers had no choice but to turn to state legislatures to level the playing field while bargaining withmanufacturers. A truly freemarketplacewould not have these antitrust prohibitions against auto retailers nor state franchise laws. But eliminating one and not both would create an imbalance in the manufacturer-retailer relationship, and is tantamount to the government pick- ing winners and losers. Bottom line: there is no fact-based evidence in the public sphere that the current franchised dealer distri- bution system does not benefit consumers. All available evidence says that consumers will pay more for their vehicles if intra brand price competition through dealers is eliminated. Given these facts, and the lack of any real world evidence to the contrary, it is troubling that the FTC would spend valuable time and resources looking into an issue where no evidence of a problem exists. We await your response to the fact-based research in the Phoenix Center study. Sincerely, Grover Norquist Andrew Langer Americans for Tax Reform Institute for Liberty Phil Kerpen George Landrith American Commitment Frontiers of Freedom Jeffrey L. Mazzella Center for Individual Freedom cc Patrick Roach, Office of Policy Planning James Frost, Office of Competition ATTACHMENT 3 January 19, 2016 Edith Ramirez, Chairwoman, Federal Trade Commission Julie Brill, Commissioner, Federal Trade Commission Maureen K. Ohlhausen, Commissioner, Federal Trade Commission Terrell McSweeny, Commissioner, Federal Trade Commission Federal Trade Commission 600 Pennsylvania Avenue, N.W. Washington, D.C. 20580