Pub. 57 2016-2017 Issue 1

28 suggest that manufacturers do not want to satisfy their custom- ers. However, as Mr. Appleton aptly explained in his remarks during the panel discussion, TR. III; 34, the state regulation of warranty service, including making sure that dealers are compensated appropriately, is more than justified and, indeed, is essential in helping to ensure that warranty and non-warranty customers are treated fairly. Another reason for the recent focus on legislation in this area has been the expansion in the duration of manufacturer warranties. What was once uniformly a one year, twelve thou- sandmile non-transferrable obligation is now commonly three years or longer in duration, covering thirty-six thousand miles (or more) of operation and passing to the new owner when the car is sold. This has increased the percentage of service work where manufacturers can unilaterally set the compensation that dealers receive. State legislatures have determined that regulation in this area is important to ensure that dealers are not subsidizing the manufacturers. 61 Complaints by auto manufacturers that state warranty reim- bursement laws are unfair, lead to higher costs, and are not in the best interest of consumers are disingenuous. Everywarranty repair is the result of an automanufacturer error – that is, a badly designed ormanufactured part. Federal and statewarranty laws are designed to holdmanufacturers responsible for, and tomake consumers whole in connection with, such mistakes. Dealers are charged with the responsibility and expense of carrying out warranty repairs, and it is well within the purview of state legislatures tomake sure that proper warranty repairs are being performed for their residents and that the dealers that perform those repairs are fairly and adequately compensated. 62 C. Direct Sales NADA has previously submitted extensive comments to the FTC explaining why public policy considerations fully justify state determinations to prohibit vertical integration in the sales of motor vehicles. See NADA’s 2014 Letter. In particular, NADA’s 2014 Letter described in detail the following primary policy considerations that underlie these enactments: (1) the promotion of intra-brand price competition; (2) the desire to ensure that the economic incentives of the party performing warranty work on a vehicle align with those of the consumer; (3) the interjection of additional parties accountable to the consumer in the event a manufacturer departs from the market; and (4) the promotion of local economic activity. As explained in NADA’s 2014 Letter, these points apply even where, as is currently the case with Tesla and ElioMotors, the manufacturer does not itself have any franchised dealers. The Letter also explained, in detail, why the public policy justifi- cations for prohibiting direct factory sales are even stronger when a manufacturer does have an established independent franchised dealer network. We will not repeat all of the analy- sis that is laid out in NADA’s 2014 Letter on these subjects. Rather, we incorporate that Letter and the analysis it contains (which, as noted above, is contained in Attachment A hereto) by reference in these comments. The balance of this section sets out certain additional points regarding the state franchise laws relating to direct sales that need to be made in response to statements and assertions that were made by some of the participants at the Workshop. Intra-brandcompetitionbenefits consumers. Central to the discussion of direct sales laws is the question of the value and role of intra-brand competition. Despite all of the articulated hostility to laws that prevent vertical integration, some of the presentations at the Workshop actually confirmed that the intra-brand competition those laws engender can be very good for consumers. For example, Mr. Anderson certainly extolled the virtues of intra-brand competition at the beginning of his prepared remarks on panel one. 63 Similarly, Professor Schneider explained that “[i]f there were intense competition at sort of the  NADA RESPONSE — CONTINUED FROM PAGE 27  NADA RESPONSE — CONTINUED FROM PAGE 30 61 Moreover, as we discuss below, this trend is likely to continue, and perhaps accelerate, given the likely need to extend warranties on autonomous vehicles. 62 In this regard, it is also important for the FTC not to give short shrift to the broad scope of the franchise laws in the warranty arena. This issue is not solely about warranty reimbursement. Rather, these laws also require that manufacturers file the details of their warranty coverage with the state and ensure that manufacturers and dealers perform their warranty obligations. Finally, a number of states also require manufactures to discharge fully their obligations regarding motor vehicles that are recalled due to product defects. For example, the warranty provisions of Alabama’s franchise law provides as follows: Every manufacturer and new motor vehicle dealer shall fulfill the terms of any express or implied warranty concerning the sale of a new motor vehicle to the public of the line make which is the subject of a contract or franchise agreement between the parties. If it is determined by a court of competent jurisdiction that either the manufacturer or new motor vehicle dealer, or both, have violated an express or implied warranty, the court shall add to any award or relief granted an additional award for reasonable attorney’s fees. Ala. Code § 8-20-8 (Warranty obligations of manufacturers and dealers to consumers). All of these elements of the warranty laws are focused on consumers. 63 There, Mr. Anderson stated as follows: In the U.S., virtually all new automobiles are sold through a network of franchised new vehicle dealers. The primary purposes of the dealer networks are to provide consum- ers a competitive environment in which to shop and convenient access to the product for both sales and service. Manufacturers initially appoint a number of well-located dealerships to compete with nearby same-brand dealerships on an intra-brand basis as well as other brand dealerships on an inter-brand basis. . . . When the individual needs of manufacturers, dealers, or consumers are not met, the system fails. Manufacturers and dealers have to make a reasonable return on their investments, and consumers must be provided superior products, a competitive environment in which to shop, and convenient access to the product for both sales and service to have a sustainable system. . . . The franchise system has served manufacturers, dealers, and consumers relatively well. TR. I; 16 (emphasis added).