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A bill in the Nevada legislature that would restrict automobile brokering -- arranging the sale or lease of new cars and trucks to consumers for a fee -- could reduce competition and increase prices for Nevada consumers buying or leasing new vehicles, the Federal Trade Commission staff has told the Nevada State Assembly. "Curtailing brokering functions could eliminate services that benefit Nevada consumers by saving them money and inconvenience," according to comments submitted in response to a request by Joan Lambert, a member of the Assembly.

The bill, A.B. 205, would amend the definition of "new vehicle" by adding the criterion of having less than 2500 miles on the odometer, and would prevent used vehicle dealers from doing anything except acquiring and selling used vehicles.

Currently, "Nevada law authorizes licensed vehicle dealers to engage in a broad range of activities. Dealers in used vehicles can and apparently do help consumers arrange purchases of new vehicles, by performing brokering functions included in the statute's definition of 'dealer'. A.B. 205 would prevent used vehicle dealers from continuing to perform those functions with respect to new vehicles," according to the FTC staff letter. "The effect of preventing anyone except new vehicle dealers from offering such services could be to inhibit existing and potential competition in new vehicle sales and leases," the letter says.

Consumers use of buying services and individual brokers for buying new cars is on the upswing according to the letter. "These brokers may solicit competitive bids from dealers for vehicles that meet their customers' requirements. Thus, brokers can save consumers money on the purchase or lease price, and they can also save them 'search costs' that is, the cost of time and effort spent on shopping and haggling."

The letter said that credit unions which sponsor automobile sales may also offer consumers an advantage because auto dealers make vehicles available to credit union members at favorable prices. "Consumers may benefit from lower prices, easier shopping and better financing arrangements," the letter says.

"Under A.B. 205, vehicle brokering services to consumers could be curtailed, because parties that now offer those services would be prevented from continuing to do so, while those that are permitted to offer the services may have little incentive to promote them," the letter says. "...A.B. 205 used vehicle dealers from the business of assisting consumers with new vehicle transactions."

"Nevada law already prevents parties other than dealers from performing brokering services for compensation. A credit union or buying club might be acting as a broker if it received something of value from the seller or purchaser for matching them up," the staff letter says. "A.B. 205 would make the situation worse, by changing the definitions of "dealer" to prevent anyone other than a new vehicle dealer from offering brokering services for new vehicles."

"New vehicle dealers may not promote those services as aggressively as other firms would. One aspect of brokering services that consumers are likely to find most attractive is the prospect of obtaining the lowest possible price. New vehicle dealers would not be expected to view that prospect with the same enthusiasm. Instead, new vehicle dealers might have incentives to keep retail prices high," according to the staff.

"A.B. 205 may reduce competition and increase what Nevada consumers pay to buy or lease new vehicles," the FTC staff concluded. "Prohibiting brokering except by new vehicle dealers could discourage sales techniques that may save Nevada consumers substantial amount of both money and time in new vehicle transactions," it said.

These comments represent the views of the FTC's San Francisco Regional Office and its Bureau of Competition, and not necessarily those of the Commission or any individual Commissioner.

Copies of the letter are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC Matter No. V950009)