Pub. 14 2015-2016 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 7 new jersey auto retailer W W W . N J C A R . O R G 5 Myths Perpetuated by Opponents of State Motor Vehicle Franchise Laws President’s MESSAGE | BY JAMES B. APPLETON Marcy Maguire’s NADA Director’s column in this is- sue of the New Jersey Auto Retailer magazine talks about the recent Federal Trade Commission (FTC) hearings in Washington, DC, which can only be described as a public lynching of the dealer- franchise system. There’s no question that automakers have grown frustrated by their inability to persuade state legislatures to reject or at least limit the dealer and consumer protection policies that are the bedrock of the motor vehicle franchise system, and so they have turned to the FTC to help make their case. I had the opportunity to present at the FTC Workshop and to sit through 8 hours of testimony, which, I am disappointed to say, was heavily stacked in favor of the opposition. It’s interesting that what I heard from the witnesses on the other side was a well- orchestrated and very disciplined attack that relied on 5 recurring themes, which I refer to as the 5 myths perpetuated by opponents of the motor vehicle franchise system. Myth #1 – The auto retail industry has remained unchanged for 80 years and dealers sell cars the same way today as they did 80 years ago. FTC Chairwoman Edith Ramirez and a number of the academics and automaker advocates who appeared at the FTC Workshop stated that cars are being sold the same way today as they were decades ago. Anyone with any first-hand knowledge of the car business knows this is a myth. The auto retail business is constantly changing and evolving and new car dealers embrace this change; more importantly, consumers demand it. To be sure, there are many aspects of the auto retail sector that have remained unchanged over the years. But these “constants” have everything to do with the nature of the automobile, as a consumer product, and nothing to do with any real or imagined restrictions imposed by state motor vehicle franchise laws. Myth #2 – The disparate bargaining power between small deal- ers and large automakers is no longer present in the marketplace and, therefore, the so-called “protections” built into state au- tomotive franchise laws for small dealers are no longer needed. Another myth. The top 7 publicly traded auto groups (AutoNation, Berkshire Hathaway’s Van Tuyl Group, Penske Automotive, Sonic, Asbury, Group 1, and Lithia) have a combined market cap of $18B; Toyota’s market cap is almost ten times that and the combined market cap of the top 7 automakers is more than 25 times the market cap of the top 7 public auto groups. General Motors, the smallest of the top seven automakers, is still eight times bigger than AutoNation, the largest of the top seven auto retailers. These numbers are indisputable: even the largest dealer groups are nowhere near equal in size and bargaining power to even the smallest automakers. Myth # 3 – The franchise system creates exclusive markets that stifle competition. Franchise laws do not create exclusive markets; they simply cre- ate a system that fairly and impartially balances the interests of consumers, local communities and incumbent franchisees against the interests of a powerful automaker that seeks to realign its pres- ence in the marketplace. Dealers who have invested substantial sums in facilities, equipment, training and personnel cannot easily repurpose that investment if they are forced to quit a manufacturer who treats them unfairly or if they are unilaterally terminated by that manufacturer. The power to create a new dealership or relocate one is also the power to destroy an existing dealership and wreak financial havoc on individual dealer-investors and the communities that rely on them. And, it should be equally clear that the power to protest the creation of a new dealership or the relocation of one is not the power to stop it. All the franchise laws do is create a process to manage competition and allow the automakers to manage their brand, while at the same time protecting the public interest in a stable and highly competitive auto retail network. Myth #4 – The franchise system stifles innovation. Franchise laws do not stifle innovation; they simply regulate the manner in which automobiles are sold and serviced and free up capital that manufacturers need to innovate. Let’s be clear: new car dealers want to sell what consumers want to buy. Innovation benefits new car dealers as much as it does consumers. The fran- chise system that is in place all across America has no impact on the way these products are designed or the innovative technology President’s MESSAGE  continued on page 26