Pub. 57 2016-2017 Issue 1

39 FALL 2016 drive, look at the features of the car, [and] physically touch the car” before purchase. 84 The first issue is addressed above. The second example is a manufacturer issue, not a dealer issue, and the reasons why just in time (also referred to as build-to-order) manufacturing is inapplicable to the automotive sector have been thoroughly addressed elsewhere. 85 And the third alleged example of a limitation on innovation is simply mistaken. Dealerships are as flexible and innovative as any retailers in the way they sell their products and services, and the notion that dealers do not or will not exercise any option available in the market reflects a lack of understanding of the business. Dealers innovate all the time. (If they fail to do so, they become former dealers.) In addition to every flavor of online and electronic marketing, dealers display cars at malls, fairs, auto shows, and other venues. And there is a huge number of vendors – many of whom are themselves market disruptors – that find dealers to be among their best customers for cutting edge products and services. If there is an innovative method of selling that will increase sales, dealers will undertake it, and any suggestion to the contrary is unfounded. The bottom line is that there are no facts asserted that legitimately support the argument that dealer franchise laws somehow impede amanufacturer’s ability to “innovate” with respect to the retailing automobiles. We agree with Commissioner McSweeny who recently stated that “[t]he age of connected cars has begun, and, I believe, will only accelerate from here. The answers for what that means for consumers, for the automotive industry, and for the job market will be shaped by how regulators, enforcers, legisla- tors, and most importantly, the innovators approach issues of safety, security, and privacy.” 86 For the FTC, that means focusing on “the important role security and privacy play in building [consumer] trust.” 87 The coming years will be very exciting indeed in the automotive industry; however, no one knows exactly what the future holds and speculation at this early stage is likely to be counterproductive. We would urge the Commission to continue to focus its efforts on those two critical issues – privacy and security – because unless those are assured, the full promise of many of these new technologies will not be met. V . Conclusion As we stated at the outset, it is essential that the FTCapproach issues pertaining to the state franchise laws in a balanced fash- ion and that it carefully consider the actual effects that removal of these laws may have on this efficient and consumer-friendly model. And, for all of the reasons that we have explained, a balanced and open review of these laws, informed by market data and not merely hypothetical economic theory, reveals that the existing system of auto distribution in the U.S., in all of its variations, works well for all parties, starting with consumers. In essence, the state legislatures that have considered these issues have gotten it correct, and their regulatory decisions should be respected. Thank you for the opportunity to comment in this matter. Please contact the undersigned if we can provide you with additional information that would aid the Commission in its consideration of these issues.  Respectfully submitted, NADA’s 2014 letter to the FTC providing themwith much of the information that they were seeking in the 2016 workshop can be found at bit.ly/286w8oC. Andrew D. Koblenz Executive Vice President, Legal andRegulatory Affairs Steven Szakaly Chief Economist  NADA RESPONSE — CONTINUED FROM PAGE 36 84 Id. (“So what would those innovations be? Remote updates of software are an obvious one that Ellen pointed out. This is very handy for the consumer. Saves them lots of time and schedule hassle. And it omits the need for a physical presence in their local area. Efficient manufacturing, just in time manufacturing. So this is the Dell model as it used to be called. I produced a [sic] demand and not inventory. I make cars that people want. In fact, I make cars that people have already paid a deposit on. So I don’t even incur the cost for the parts until I have cash in hand. That saves carrying costs for both the manufacturer for parts and the dealer for inventory. Moreover, you’re never marking down a car, because every car is already bought. So that, the estimates on the savings of that changing a system from producing to inventory to producing to demand are quite large. So then, you don’t need a local dealer to hold inventory for you. You do need to test drive, look at the features of the car, physically [sic] touch the car perhaps. There are many interesting ways to organize that. It’s not clear that the franchise model would be the one.”) 85 See NADA’s 2014 Letter; the comments of Ms. Keller during panel three, TR. III; 17-18; and Maryann Keller and Kenneth Elias, Consumer Benefits of the Dealer Franchise System, 2014, a copy of which is available here. 86 See Keynote Remarks of Commissioner Terrell McSweeny at the Connected Cars USA Conference 2016 at 1. 87 See id. at 5.