Pub. 57 2016-2017 Issue 1

22 competition) along with the economic interests of the various market participants. 47 Similarly, the state lawprovisions governing unfair termination or denial of succession do not vest dealers with veto rights over a manufacturer’s decision. Instead, the typical provision requires amanufacturer to showgood cause prior to terminating a dealer agreement and provides a framework for determining a fair value of the terminated franchise. 48 Adealer facing a precipitous termination can file a protest before an independent board or commission. In rendering a decision, the administrative hear- ing officer balances the interest of the individual dealer and the manufacturer, but also weighs other broader effects such as the impact on futuremarket participants if an unwarranted termi- nation were to be sustained. As in the case of the RMA deci- sions, these laws often trigger negotiations that, in turn, lead to settlements that reflect a dealer’s economic harm resulting from the closure. However, in practice, the amount of money that the dealer is awarded in an administrative proceeding or receives in the context of a settlement usually does not fully mirror the actual amount of harm sustained. The state franchise laws relating to dealer networks have not prevented the “rationalization” of those networks. There were a number of comments at theWorkshop about the impediments that the dealer network laws supposedly place in the way of updating a manufacturer’s representation in a given market. But for more than 60 years, the number of dealerships in theUnited States has been shrinking consistently, despite the enactment of the allegedly anti-competitive, market-limiting state franchise laws in every state during the very same time frame. In reality, the decline in the number of dealerships has reflected market conditions. The number of dealerships peaked in the 1950s at about 50,000 dealerships and by 1970 had declined to 30,800. In 1987, there were 25,150 new-car dealerships; by the end of 2015 there were only 16,545. 49 Dealerships, like all economic firms, respond to market conditions and economic cycles. State franchise laws, which have been in existence throughout this period of dealership count decline, have never impeded the natural market forces of growth or decline; rather, they have simply provided for oversight of a divisive and often imbalanced process. Perhaps one of the clearest examples of successful consolida- tion activity led by a manufacturer occurred with Ford Motor Company in the years leading up to and following the great recession of 2008-09. While GM and Chrysler executives relied on bankruptcy to reduce their dealer networks, 50 Ford executives avoided bankruptcy and yet still adjusted the Ford dealer network in proportional numbers. They did so by analyzing local markets and working with existing dealers to create mutually-beneficial arrangements that still served the consumers in those markets. And this was all achieved within the framework of the existing franchise laws. In this way, it can be seen that the existence of the dealer network statutes creates an incentive for a manufacturer to enter into good faith negotiations with its dealers when a market restructuring is planned rather than to act precipitously or arbitrarily. Additionally, the existence of franchise laws has never inter- feredwith the establishment of new brands or the entry of new manufacturers. Product failures aside, everymanufacturer that has chosen to operate within the established guidelines has successfully launched and established a retail dealer network.  NADA RESPONSE — CONTINUED FROM PAGE 19  NADA RESPONSE — CONTINUED ON PAGE 24 47 It is significant that the courts that have reviewed these laws have found them to be appropriate exercises of legislative authority. The United States Supreme Court upheld the constitutionality of California’s RMA law based on the following rationale: “The disparity in bargaining power between automobile manufacturers and their dealers prompted Congress and some 25 states [now all 50] to enact legislation to protect retail car dealers from perceived abusive and oppressive acts by the manufacturers. California’s version is its Automobile Franchising Act. Among its other safeguards, the Act protects the equities of existing dealers by prohibiting manufacturers from adding dealerships to the market areas of its existing franchises where the effect of such intrabrand competition would be injurious to the existing franchisees and to the public interest.” New Motor Vehicle Board v, Orrin W. Fox Co., 439 U.S. 96, 100-102 (1978) (emphasis added). Similarly, a California appellate court upheld the same provision, concluding that it was supported by the legislative intent to balance the dealers’ interest in maintaining viable businesses, the manufacturers’ interest in promoting sales, and the public’s interest in adequate competition and convenient service. Piano v. State of California ex rel New Motor Vehicle Board, 103 Cal.App.3d 413 (1980). See also American Motor Sales Corp. v. Division of Motor Vehicles, 592 F.2d 219 (4th Cir. 1979); Tober Foreign Motors Inc. v. Reiter Oldsmobile, Inc., 381 N.E.2d 908 (Mass. 1978); Ford Motor Co. v. Pace, 335 S.W.2d 360 (Tenn. 1960); Forest Home Dodge, Inc. v. Karns, 138 N.W.2d 214 (Wis. 1965). 48 Some of these laws go further and actually define in the statute what constitutes good cause. The granularity in these latter statutes was often enacted in response to attempts by manufacturers to classify as constituting “good cause” facts and circumstances that no reasonable person would agree did so. 49 Interestingly, during the period in which the number of retail dealerships has been cut in half, the U.S. vehicle population that these dealers sell and service has more than doubled – from 125 million vehicles in 1976 to approximately 260 million vehicles today. 50 The dealer terminations in the GM and Chrysler bankruptcies were very controversial and, in many respects, misguided. Indeed, although saving money was one of the reasons offered to justify the dealer closures effected through the GM and Chrysler bankruptcies, SIGTARP failed to identify any such “savings” from those closures. See SIGTARP, Quarterly Report to Congress (October 26, 2010) at 22. (This quarterly report is available at https://www.sigtarp.gov/Quarterly%20Reports/October2010_Quar- terly_Report_to_Congress.pdf.) And the reason that there were no savings from these closures was because dealers simply do not cost the manufacturers anything to operate. See The Franchised Automobile Dealer: The Automaker’s Lifeline (Casesa Shapiro Group, November 26, 2008), a copy of which is available here. The primary conclusion of the Casesa Shapiro Group report was that “[f]ar from being a burden to the manufacturer it represents, the automobile dealer supports the manu- facturer’s efforts by providing a vast distribution channel that allows for efficient flow of the manufacturer’s product to the public at virtually no cost to the manufacturer .” (Emphasis added).