Pub. 56 2015-2016 Issue 4

20  NADA RESPONSE — CONTINUED FROM PAGE 19 best positioned to determine what approach to, and level of, market regulation is appropriate for their citizenries. 14 At the same time, although there are variations among the states in the specific franchise law provisions that have been enacted, it should also be significant to the FTC that, at a higher level of abstraction, there is no disagreement among the states that some form of regulation of this market is needed. All fifty states have enacted auto distribution franchise laws. This includes both states that are big and those that are small, those that are rural and those that are urban, and those that are politically liberal and those that are conservative. The fact that the bodies to whom this decision has been commit- ted — bodies that on many other matters may come out very differently — have unanimously determined that regulation is required speaks volumes about the appropriateness of these laws from a consumer and public interest perspective. Our federal system empowers the elected state legislatures to exercise regulatory oversight over markets such as the one for auto retailing, and all fifty of themhave determined that some legislative activity in this arena is necessary and appropriate. This does not mean that anyone, including the FTC, needs to agree with every decision that has been made to date or that no prior decision should be revisited. It does mean, however, that the FTC should be mindful that the state legislatures play a primary role in considering what is right for a given state’s residents and should not try to usurp that role for itself. II. e Value and Importance of the Dealer Franchise System and the Laws that Support It Automobiles are sold through franchised dealers in the United States because that method of distribution is a good model for everyone involved, most notably consumers. And the laws that the 50 state legislatures have enacted to regulate this market reflect prudent public policy choices that help ensure that consumers get the full benefit of this system. Those laws also serve to level the playing field between auto manufacturers and auto dealers that is otherwise tilted decidedly in favor of the manufacturers as a result of unique market structures and public policy choices that have beenmade by theU.S. Congress. A. e Franchise System and the Laws that Support It Bene t Consumers An automobile is often a person’s second largest purchase, in dollar terms, after a home. Moreover, the automobile is a complex piece of machinery that (1) consumers typically own for extended periods and rely on heavily for many aspects of their daily existence, (2) will usually require regular mainte- nance and repair servicing, and (3) has tremendous personal and public safety implications. Given the centrality of the automobile to the lives of so many Americans, it should come as no surprise that state legislatures have determined that the auto retailing and servicing markets require regulation. 15 The laws that these legislatures have adopted directly benefit consumers. 16 The following is just a partial list of the myriad ways in which this consumer-friendly dynamic plays out: • Franchise laws helpensure that ahealthy level of com- petition exists in all facets of auto retailing. Of course, these laws promote vehicle sales price competition among dealers. And the price competition that is fostered is both inter-brand and intra-brand. In fact, the most in- tense competition is intra-brand — it is often said that the strongest competitor to a Ford dealer is the nearest Ford dealer. 17 But the franchise laws foster competition on more than just price; they also support competition in other key areas such as trade-in valuations, vehicle 14 In this regard, Professor Carlton’s suggestion that state economic legislation (like the state franchise laws) is the product of “corruption,” TR. III; 3, 6, is particularly troubling. This assertion unjustifiably impugns the integrity of an entire class of government officials in all 50 states, and the FTC should not credit it in the slightest. 15 It should be noted that Congress has concluded that these markets require significant federal regulatory oversight as well. Examples include the Truth in Lending and Truth in Leasing Acts, 15 U.S.C. §§ 1601, et seq.; the Federal Odometer Act, 49 U.S.C. §§ 32701, et seq.; the Automobile Dealer Day in Court Act (ADDCA), 15 U.S.C §§ 1222, et seq.; the Motor Vehicle Franchise Contract Arbitration Fairness Act, 15 U.S.C § 1226; the National Motor Vehicle Title Information Act, 49 U.S.C §§ 30501, et seq.; and the FTC Act itself, 15 U.S.C §§ 41, et seq., just to name a few. 16 Indeed, as a review of the preambles of the state franchise laws reveals, consumer protection is often the legislature’s primarymotivation in enacting these provisions. For example, the California legislature, in passing its dealer franchise law in 2013, included the following among its legislative findings: The newmotor vehicle franchise system, which operates within a strictly defined and highly regulated statutory scheme, assures the consuming public of a well-organized distribution system for the availability and sale of new motor vehicles throughout the state, provides a network of quality warranty recall and repair facilities to maintain those vehicles, and creates a cost-effective method for the state to police those systems through the licensing and regulation of private sector franchisers and franchisees. Sen. Bill 155, 2013-2014 Reg. Sess., ch. 512, 2013 Cal. Stat. Similar statements can be found in the laws of Mississippi (Mississippi Code § 63-17-53), Nebraska (Nebraska Revised Statutes § 60-1401.01), Oklahoma (Oklahoma Statutes § 561), and Washington (Revised Code of Washington § 46.96.010), among many others. 17 That intra-brand competition between dealers benefits consumers by lowering prices was empirically demonstrated in the recent study by the Phoenix Center which is discussed in Section III.C., below. But this reality is also evidenced by the findings of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) July 19, 2010 report on the dealer closings in the GM and Chrysler bankruptcies. Factors Affecting the Decisions of General Motors and Chrysler to Reduce their Dealership Networks , Office of the Special Inspector General for the Troubled Assets Relief Program, U.S. Treasury Department, SIGTARP-10-008, July 19, 2010 (the SIGTARP Report). The SIGTARP Report can be found at http://1.usa.gov/20WaUo6. The SIGTARP Report found that the Department of Treasury’s auto task force wanted to rapidly reduce the dealership networks of GM and Chrysler because having fewer dealerships would reduce “internecine” (or, in other words, intra-brand) competition and thereby enable manufacturers and dealers to retain higher margins.