Pub. 57 2016-2017 Issue 1

31 FALL 2016 integration in auto retailing require manufacturers to choose as dealers people or companies who are already engaged in the business for other manufacturers. Tesla could comply with the various bans on direct sales and avoid all of the concerns that Mr. Maron raised at the Workshop simply by engaging persons other than traditional dealers and setting upwith those new dealers, through a franchise agreement, the retail model that Tesla wants. No one questions that Tesla has the right to determine the go-to-market strategy that is right for it. For example, if Tesla wants to eschew inventories, advertising, and business lines other than new vehicle sales, it may do so. But there is nothing about such a strategy that inherently requires vertical integration. 68 More significantly, Mr. Maron’s points do not join issue at all with the public policy considerations, laid out inNADA’s 2014 Letter and in the foregoing comments, which have led some state legislatures to conclude that vertical integration should be limited in this market. Perhaps most telling is that, with respect to the second of these public interest considerations, Tesla has not only failed to address it, it has taken a position that is entirely inconsistent. Both in NADA’s 2014 Letter and in the comments presented at the Workshop by Ms. Keller, TR. III; 19, it was noted that Tesla has stated in its securities law disclosures that one of the reasons it wants to vertically integrate its vehicle distribution is that “by owning [its] sales network [it] will avoid the conflict of interest in the traditional dealership structure inherent to most incumbent automobile manufacturers where the sale of warranty parts and repairs by a dealer are a key source of revenue and profit for the dealer but often are an expense for the vehicle manufacturer.” 69 In other words, one of Tesla’s stated goals is to avoid (in the interest of saving money) one of the key consumer benefits that indepen- dent dealerships provide and limit the value of thewarranty that its customers have already purchased. Indeed, the so-called “conflict of interest” that Tesla wants to eradicate is in reality a consumer-friendly dynamic that franchise laws operate to fo- ment. It is specious to suggest that state legislatures that reject Tesla’s self-interested approach and vote to create a healthy economic alignment between the warranty repairer and the consumer are acting in a manner that is anti-consumer and/or the product of “crony capitalism.” Tesla clearly doesn’t want to use independent dealers to retail its vehicles. But that preference doesn’t necessarily translate into good public policy. And, as we explained here and in NADA’s 2014 Letter, there are, in fact, several strong policy reasons that warrant restricting direct manufacturer-to-consumer sales in the auto retailing marketplace. Consequently, a state legislature that opts to limit or prohibit vertical integration in this distribution channel would be well within the exercise of prudent judgment. IV. Future Trends Will Undoubtedly Require a Dealer Pres- ence in the Evolving Mobility Market Panel four at the Workshop addressed “Future Trends” in the auto manufacturing and retailing industries. However, this panel’s focus on the potential effect of autonomous vehicles and certain “ridesharing” business concepts on the current automo- tive distributionmodel largelymissed the mark. First, while it may be entertaining to speculate on the impact such changes may have if widely adopted, we do not share in the predictions of imminent widespread adoption, and even when adopted, of any fundamental changes in theway automobiles are consumed or distributed in this country. Second, we believe that rather than focusing on such speculation, the Commission should instead engage its efforts in assisting with the two critical areas that are the most important to consumers, the most closely aligned with the FTC’s mission, and the most likely to “make or break” these new technologies: privacy and cybersecurity. The franchised dealer network will facilitate – not impair – the deployment of autonomous vehicles in the market. Dealers wholeheartedly support the advances in autonomous technology and share the excitement about the safety and efficiency promises such technology holds. Many “driver- assist” and semi-autonomous features are currently in vehicles on our roads today and will soon be in millions more. Con- sumers appreciate these features and are often shopping with them in mind. As with any new technology, the ultimate test is and should be consumer acceptance, and we agree that there will be exponential growth in the near term in both vehicle connectivity and semi-autonomous capabilities. Semi-autonomous features, however, are vastly different from fully autonomous vehicles, which are likely to be further away from widespread adoption than many have suggested. In addition to the numerous technical, legal, and practical  NADA RESPONSE — CONTINUED ON PAGE 33 68 The only one of Mr. Maron’s seven points that even approaches the issue of vertical integration is point six relating to Tesla’s inevitable undercutting of its putative dealers through direct online sales. But this point seems to proceed on the assumption that Tesla would sell vehicles to its dealers at the same retail price as it sold those same vehicles to the public. Since the dealers in this case would be absorbing some of Tesla’s distribution costs, it is hard to understand why Tesla would not simply establish a lower wholesale price for its dealers. This is what every other seller of goods does where dual distribution is allowed and utilized. 69 Tesla Motors Inc., 2014 Annual Report (10-K) at 8 (February 26, 2015). This same provision also appeared in Tesla’s 2013 10-K. As noted above, it is interesting that this statement was deleted from Tesla’s 2015 10-K which was filed after the Workshop at which Ms. Keller highlighted this admission of conflict.