Pub. 57 2016-2017 Issue 1

19 FALL 2016 terminationwithout cause and the threat that themanufacturer would seek to oust them by establishing additional competing dealerships with the same brand nearby the original dealer. Moreover, in an attempt to indirectly achieve the same ends, the manufacturers became particularly adept at transferring every conceivable cost (direct and indirect) from the manufacturer to the dealers, thereby imposing an involuntary cost structure upon the entire dealer body. 43 And, as explained above, in the face of these oppressive unilateral actions by the manufactur- ers, the dealers were powerless due to the federal antitrust laws to join together to fight back. So, lacking sufficient individual negotiating power and being precluded fromexercising collec- tive power, dealers sought redress fromtheir state governments. Key elements of the enactments that resulted were the dealer network provisions of these laws – most notably, the franchise law provisions that address arbitrary dealer terminations and those that regulate the arbitrary placement of new dealerships in the immediate physical proximity of existing dealers. For example, the very first state franchise law, passed inWisconsin in 1937, prohibited a manufacturer from terminating a dealer “without due regard to the equities of said dealer and without just provocation.” 44 The state franchise laws relating to dealer networks do not confer monopoly power on incumbent dealers. At the Workshop, the provisions of the state franchise laws that regulate RMAs or preclude unfair terminations or denials of succession were criticized in theory for undermining competi- tive markets. 45 As we demonstrated in NADA’s 2014 Letter, there is no statistical evidence to support such claims. These laws, which only regulate business-to-business transactions, simply inject balance into the otherwise inherently imbalanced manufacturer-dealer relationshipwhile ensuring that the public interest is considered as well. The typical RMA statute defines the regulated market area to be within 7 to 10 miles of an existing store. However, as explained by both Mr. Jacoby and Mr. Roesner, TR. I; 15, 18-19, not a single state RMA provision grants an incumbent dealer the right to veto a new store within an RMA. Rather, the RMA provisions merely provide incumbent dealers with a right to protest a new store as part of a proceeding that balances the interests of the dealer, the manufacturer, and the public. Generally speaking, if the manufacturer can demonstrate that it makes economic sense for both consumers and dealers to add a new dealer in a specific market, that point will be added. In this regard, as Mr. Jacoby explained, TR. I; 29, it is important to note that the protesting dealers usually lose the cases brought under the RMA laws and, in the vast majority of settlements in these cases, new dealer points are added. 46 Indeed, due to internet-driven price information, geographically-defined RMAs are less relevant in defining actual and potential mar- kets. However, as Mr. Roesner explained, one salutary impact of these laws is that they prompt manufacturers to “look long and hard at terminations and additional points,” TR. I; 19, rather than to make those decisions precipitously. Thus, the RMA statutes do not dictate outcomes, but instead simply ensure that when dealer network decisions are made, there is an appropriate balancing, administered by an independent fact finder, of the public interest (including the impact on  NADA RESPONSE — CONTINUED ON PAGE 22 43 Some of the typical ways that manufacturers continue unilaterally to impose costs on dealers are as follows: • Pressure the dealer to take excess or undesirable new inventory or used inventory coming off lease as a condition of obtaining desired new inventory; • Unreasonably chargeback warranty work; • Impose exorbitant signage obligations and/or sign rental fees; • Establish sales percentage metrics that are mathematically unattainable; • Create complex sales incentives that alter wholesale pricing retroactively; • Bill a dealer for unordered and excessive tools via an open account between the manufacturer and dealer; • Pressure the dealer to take excess parts inventory; • Require redundant dealership employee training; • Require facility upgrades with payments insufficient relative to the anticipated return on investment; • During facility upgrades, require the use of specific vendors that are less competitive than local vendors and/or materials that may not be suited for the local market; • Unreasonably deny dealership succession plans; and • Impose extensive cross-default clauses in the various required contracts (franchise agreement and related documents incorporated by reference, various personal guar- antees, financing documents, etc.) The manufacturers derive the power to do this from several sources. The owners of many smaller dealerships have too much of their total personal wealth tied up in the dealership to challenge the manufacturer. The owners of many larger dealership chains have too much corporate exposure to challenge the manufacturer. Moreover, the franchised dealer’s business model is disproportionately capital intensive. As a result, dealers, even the largest ones, are heavily credit dependent (the economies of scale for larger dealers are not manifested in reduced credit dependency). Additionally, this business model has disproportionately more frozen capital (large, single-purpose real property) for large and small dealers alike. 44 1937 Wis Laws, chs 377; 378. And the states were not alone in addressing these issues. In the 1950s, Congress considered and, in 1956, enacted the ADDCA. Significantly, however, the ADDCA generally does not preempt state dealer franchise laws. 45 For example, in his comments on panel one, Professor Schneider suggested this when he spoke of dealers “having some market or monopoly power in their local area.” TR. I; 22. See also Professor Scott Morton’s comments during panel four to the affect that “[a] single franchise dealer that owns the car has market power in its local area, and it will set a stiff retail market.” TR. IV; 24. 46 As Mr. Jacoby also explained, TR. I; 29, the fact that the protesting dealer usually loses when protests are litigated also fully addresses and negates the complaints that were made at the Workshop by Mr. Chiapa and one of the public questioners, TR. I; 28, that the presence of dealers on the motor vehicle boards that consider these cases is problematic and otherwise deprives those boards of objectivity.