FTC to Host Public Workshop Examining the U.S. Auto Distribution System Workshop Will Explore Competition, State Regulations, and Emerging Trends in the Industry, Project No. P131202 #26320

Submission Number:
Thomas Durant
Classic Chevrolet Inc.
Initiative Name:
FTC to Host Public Workshop Examining the U.S. Auto Distribution System Workshop Will Explore Competition, State Regulations, and Emerging Trends in the Industry, Project No. P131202
Ladies and Gentlemen of the Commission, I write to you on behalf of Classic Chevrolet Inc. and at the request of the DFW New Car Dealers Association. I am a lifelong participant in the auto industry, as well as a third generation automotive dealer. My education is chiefly in law and economics, and I will focus on those areas in my comments. In brief, my argument is that the state run franchise automobile sales systems preserve small business opportunity, create a flexible and adaptable dealer support network, and provides consumers with the best chance of receiving a fair and honest transaction. My chief argument in support is that local ownership preserves and unifies the authority needed to operate in the automotive sales industry with the accountability for misuse of that authority. The argument is being made that manufacturers without a dealer network should be allowed to operate their own franchises. Historically this have never worked well for the consumers, because the people who were accountable, the shareholders, were so far removed from the people who were responsible, the dealer operators. Dealership operation, unlike for example, a fast food restaurant, requires a great deal of local discretion. Examples of this discretion include discounting, rebate application, appraisal of a vehicle offered in trade, and estimation of repair and recondition cost to the trade vehicle, as well as the origination of financing, and the offering and pricing of insurance products. Small, family owned businesses have succeeded in the dealership industry because they localize and unify the roles of decision maker and shareholder in the dealer operator. Successful dealership owner/operators are present each day to observe the environment of sales transactions first hand. They directly observe the use of authority dispersed to the selling agents, and are in the best position to prevent corrupt practices that could damage the reputation and profitability of the dealership. In many cases, the stores are named after the owner/operator and their personal reputation is tied to their business reputation in the community. In the case at hand, the States each create their own regulatory environment that protects the franchises from direct competition with their manufacturer. Over time, we can observe from state to state which franchise auto dealer regulations are benefitting consumers, and which are hurting them by the difference in consumer experience across the different states. This is the classic system of laboratory experiments that the founders of this country argued in the Federalist Papers. Preserving the States power to regulate protects the majority of the population from the regulatory missteps and unforeseen consequences that any individual state may make. At the same time, all states learn and benefit from the successes of other states. It is my prediction that the current experiment of manufacturer direct sales will fail. In my experience, manufacturers are rarely willing to entrust sufficient authority to local officers to engage in automotive sales, and when they do, they are rarely able to monitor the use of that authority to prevent its corruption. The small piece of the pie left to franchised automobile dealers rarely seems worth the cost of preserving it after the manufacturer is forced to change its centralized authority scheme. Under the present system, this failure will only hurt the consumers in the few states who choose to allow direct sales. Federalizing the franchise system in order to allow manufacturer competition would ultimately hurt the consumers in all the states when that manufacturer failed.