Pub. 58 2017-2018 Issue 3

18 any personwho distributes or sells newmotor vehicles to dealers and who is not a manufacturer. 10 Upon enactment of the TMVC Code, a “dealer” was defined as any person engaged in the business of buying, selling or ex- changing new motor vehicles at an established and permanent place of business pursuant to a franchise in effect with a manu- facturer or distributor. 11 This definition was amended in 1995 when independent or used motor vehicle dealers came under the agency’s jurisdiction.The defined “franchised dealer” is now more reflective of the franchised dealer's required activities by the franchisor and over which the Texas Division of Motor Vehicles (TxDMV) is responsible. 12 The definition for “franchised dealer” is a person who: (A) holds a franchisedmotor vehicle dealer's license issued by the board under this chapter andChapter 503, Transporta- tion Code; and (B) is engaged in the business of buying, selling, or ex- changing newmotor vehicles and servicingor repairing mo- tor vehicles under amanufacturer’s warranty at an established and permanent place of business under a franchise in effect with a manufacturer or distributor. 13 (Emphasis added.) Juxtaposing the definitions of a manufacturer, a distributor and a franchised dealer, the Legislature plainly intends that a manufacturer builds or fabricates a motor vehicle; a distribu- tor apportions or sells new vehicles to franchised dealers; and, a franchised dealer is charged with buying, selling, exchanging, and servicing, or repairing motor vehicles at a permanent location through a franchise. A franchised dealer performs numerous other activities that are not under the TxDMV’s jurisdiction and license, such as acting as a holder and financing and assigning motor ve- hicle retail installment contracts; 14 collecting and remitting motor vehicle sales tax; 15 performing safety and emission motor vehicle inspections, 16 to name but a few. However, the franchised dealer’s license issued by the TxDMV allows for the regulation and enforcement of the manufacturer and distributor and dealer relationship as delineated in the TxDMV’s respective statute. Neither a manufacturer nor a distributor is licensed by the State of Texas for the activities of a franchised dealer, i.e., buying, selling, exchanging, servicing, or repairing motor vehicles through a franchise. Nor is a dealer licensed by the State of Texas to assemble or build or distribute motor vehicles. The defined responsibilities for a manufacturer, distributor, and a franchised dealer comport with the State’s chosen method for the sale of new motor vehicles since 1971. The State determined that the best system to prevent fraud, unfair practices, discriminatory practices, impositions and other abuses of Texans is to specifically define who is a manufacturer, distributor, and dealer; licensing those persons by the State; and, requiring motor vehicle sales through an independent person, separate from the manufacturing and distribution activities. The State’s chosen sales method gives Texans intra-brand competition. The Legislature determined that intra-brand competition bests vertical integration for the consumer and the State with respect to the motor vehicle industry. The benefits of intra-brand competition over vertical integra- tion are well-known as intra-brand competition: • Promotes price transparency. • Promotes a healthy economic alignment between: 1. Those who advocate for and perform warranty work; and 2. The consumer. • Promotes price competition which lowers prices for consumers; whereas, direct sales eliminates intra-brand competition. 17 • Provides accountability through independent franchised dealers. • Creates local economic benefits through independent franchised dealers. Not only do the statutory definitions describe each licensee and their function for purposes of the TxDMV license and enforcement, but the statute also specifically prohibits verti- cal integration by stating that a manufacturer or distributor may not, directly or indirectly: 1. Own an interest in a franchised or non-franchised dealer or dealership; 2. Operate or control a franchised or non-franchised dealer or dealership; or, 3. Act in the capacity of a franchised or non-franchised dealer or dealership . 18 (Emphasis added.) The above prohibition is straight-forward. A manufacturer or distributor may not own, operate, control, or act in the capacity of a franchised or non-franchised dealer or dealer- ship. Many of the activities required of a franchised dealer by a manufacturer or distributor are outlined in a dealer’s sales and service agreement or franchise agreement. 19 A franchised dealer is charged by the State with buying, selling, exchanging new motor vehicles as well as servic- ing or repairing motor vehicles under a manufacturer's warranty at a “dealership” and all of the attendant func- tions necessary to buy, sell, exchange, repair, or service motor vehicles. These functions include stocking inven- tory of new and certified motor vehicles, stocking parts for repairs, advertising, test driving, training, titling and registering a retailed vehicle as well as performing recall repairs, not to mention adequate capitalization-which are only some of the essential activities involved in buying,