Pub. 56 2015-2016 Issue 4

17 SUMMER 2016 our federal system in governing markets like the one for retail autos, and (3) why the laws that have been duly enacted by the 50 state legislatures to address the profusion of overreach that has resulted from the manufacturers’ superior economic posi- tion remain necessary and prudent. We address these issues both generally and with respect to each of the specific areas into which the FTC has inquired. Finally, throughout these comments, we explain why many of the statements of the “experts” that the FTC invited to speak against the existing system fail to reflect what actually occurs in the market and were otherwise misguided. Taken as a whole, the comments that follow demonstrate that (1) the existing system of auto distribution in the U.S. is both consumer friendly and highly efficient and (2) the state legislatures — government entities duly authorized to write rules in this area — have gotten the regulatory structure right. Process Concerns The manner in which this initiative has been put together to date suggests that it has been structured to reach a particular conclusion. To be sure, representatives of the dealer perspec- tive were included in all of the Workshop panels, but in three out of those four panels the dealer representatives were outnumbered by voices from the other side. Some of these opposing voices were representatives of the manufacturers who could be expected to provide a viewpoint that differs from that of the dealers. Presumably, however, the academ- ics that the FTC staff asked to participate were invited to provide a more detached view — what Professor Schneider referred to as an “outsider’s perspective as an economist on these issues.” Transcript of theWorkshop, Segment I at page 21. 3 Indeed, one would think that, for these roles, the FTC staff would seek out scholars whose minds were truly open. Sadly, however, this does not appear to have been the case. Most, if not all, of the people chosen had already extensively commented in the public record in ways that were hostile to the current system of auto retailing or the regulatory struc- ture that governs it, 4 and these speakers certainly manifested those predispositions at the Workshop. 5 The FTC should have invited a more independent set of outside academics to round out its panels, 6 and should ensure that it seeks out those voices in the future. Perhaps the greatest example of the predetermination of the Workshop was found in the existence and composition of the third panel (which was dedicated to discussing state laws that limit vertical integration in auto retailing). In his introductory remarks for that panel, one of the FTC attorneys candidly ac- knowledged that the FTC staff not only already had views on the topic but that it already had publicly expressed them, and they were completely opposed to the type of laws that were to be discussed. If the FTC staff had already determined what the correct answer was in this area, then why have the panel at all? And if the purpose of the panel was, as this attorney suggested, “to listen, to ask questions, and to learn from the discussion,” TR. III; 9, then why stack it with people whose views and analyses were already well known to the FTC — representatives from the two companies whose cause the FTC had already taken up in letters to state legislatures and Professor Crane? Why not ask people with different views — like Dr. George Ford from the Phoenix Center and/or Steven Szakaly, NADA’s Chief Economist — to present and be challenged through questions? Again, the predisposition displayed at the Workshop saps it of its ability to meaning- fully contribute to a dialogue on these issues. Finally, beyond predisposition, the Workshop process has suffered from its failure to ensure that all the people allowed  NADA RESPONSE — CONTINUED ON PAGE 18 3 The Transcript of the Workshop is set out in four segments on the FTC’s website. For example, the transcript for the first segment is available at http://1.usa.gov/1Zz7irL. For ease of reference, the transcript will be cited in these comments in the following format: “TR. I; 21.” In this format, the Roman numeral refers to one of the four segments and the Arabic numeral refers to a page within that segment. 4 Professors Lafontaine and Scott Morton have collaborated on such an article. Lafontaine, Francine and Fiona Scott Morton. (2010) “State Franchise Laws, Dealer Termina- tions, and the Auto Crisis” Journal of Economic Perspectives 24(3) 233-50. Professor Crane has also been prodigious in his writing against the current dealer laws Crane, Daniel. (2015) “Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism” Iowa Law Review , Forthcoming; Crane, Daniel. (2014) “Tesla and the Car Dealers Lobby” Regula- tion 37(2) 10-14. Professor Schneider has written critically of the auto buying process. Murray, Charles and Schneider, Henry S. (2016) “The Economics of Retail Markets for New and Used Cars” Handbook on the Economics of Retail and Distribution, Forthcoming. And Professor Carlton, while not opining about the auto retailing industry specifically, has criticized the state action doctrine, upon which the state franchise laws proceed. Carlton, Dennis W. 2007 “Does Antitrust Need to be Modernized?” Economic Analysis Group Discussion Paper , 21(3) 155-176. 5 A subtle but clear example of this predisposition was found in Professor Scott Morton’s comments on panel four. There, at the beginning of what appeared to be a long pre- pared statement, she said that “this morning what we discussed is that the laws surrounding auto distribution in the United States are largely frozen and prohibit innovation .” TR. IV; 13 (emphasis added). This statement plainly ignored many of the earlier comments that were directly on point. For example, Mr. Jacoby, during panel one, stated that “[t]he innovations that are happening in the industry – internet sales, direct sales, just as examples, autonomous vehicles – those are things that are not truly covered by a lot of the existing regulations.” TR. I; 25. Similarly, it was conceded by Tesla General Counsel Todd Maron that even the most salient “innovation” discussed at the workshop – Tesla’s desire to vertically integrate its product distribution – was restricted in only a tiny minority of the states. TR. III; 13. Putting aside that Messrs. Jacoby and Maron were correct in their statements, Professor Scott Morton’s categorical characterization of the earlier discussions, without even an acknowledgment that contrary points had been raised, manifests the type of problematic predisposition we have identified. 6 We are aware that the FTC staff asserts that it could not find any such academics or economists. However, this ignores the fact that NADA identified for the FTC one such economist – Dr. George S. Ford, the Chief Economist at the Phoenix Center – who was both (1) qualified – Dr. Ford authored the only empirical study of which we are aware that seeks to measure the impact of intra-brand competition on consumer prices in the auto retailing industry – and (2) available. (The Phoenix Center study authored by Dr. Ford is discussed in section III.C., below.) In fact, NADA provided Dr. Ford’s contact information to the FTC by email on October 14, 2015.