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January 20, 2016 FacebookTwitterFlickrRSSSEND TO A FRIENDPRINT
Inside this issue
Groups Warn That FTC Move Against Car Dealerships Will Raise Prices
FTC Workshop on Auto Retailing Examines Regulation, Factory-Direct Sales
U.S. News: The Federal Trade Commission is Using Faulty Data to Attack Auto Dealers and Justify New Regulations
Lawmakers Dispute Method to Identify Victims of Racial Bias in Auto Lending
NADA Asks for Workforce Study Participation
Top Stories
Groups Warn That FTC Move Against Car Dealerships Will Raise Prices

A move by the Federal Trade Commission to tackle the current car dealership system could lead to fewer dealers and much higher prices, five influential conservative groups said in a letter to the agency. Led by Americans for Tax Reform, the five accused the FTC of targeting the system potentially for break up despite evidence that the competitive system saves car buyers nearly $500. The letter from ATR President Grover Norquist, Phil Kerpen of American Commitment, Andrew Langer of Institute for Liberty, George Landrith of Frontiers of Freedom and Jeffery L. Mazzella of Center for Individual Freedom, slapped an FTC hearing set for Tuesday that appeared to push the position of Tesla maker Elon Musk who wants to sell directly to consumers.

Under that scheme, the groups warned, dealerships of the same companies like Ford or Toyota that directly compete would dry up, leaving just one direct seller in an area. And that would jump prices since consumers wouldn't be able to play dealers off each other. At issue are laws on dealerships and the practice inter-brand competition, or General Motors dealers competing with nearby GM dealers. The group provided a report that showed inter-brand competition saves consumers money, but an analyst writing in The Hill newspaper said that FTC staff thinks otherwise.
Source: The Washington Examiner
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FTC Workshop on Auto Retailing Examines Regulation, Factory-Direct Sales

State laws prohibiting automakers from selling directly to consumers can drive up prices and limit hours of operation, both hurting consumers. On the other hand, state laws that regulate auto retailing often protect consumers and improve safety in the workplace. So how much regulation is too much?

That was the key question, and those were some of the countervailing arguments, that the Federal Trade Commission attempted to tackle in a daylong workshop on automotive retailing that the agency held at its Washington offices Tuesday. The workshop addressed the topics of regulation of dealer location, laws relating to reimbursement for warranty services and restrictions on automakers’ ability to engage in direct sales to consumers. It looked at how state laws and regulations governing car sales may affect consumers and competition and to what extent the need for those laws continues to exist. It also explored whether less restrictive alternatives to the current system might meet policy goals while promoting greater competition and innovation.

... Advocates of the franchise system argued that intrabrand competition helps set a fair price for consumers. “There are no savings to be passed on to the consumer from direct sales,” said automotive analyst Maryann Keller, managing partner of consulting firm Maryann Keller & Associates in Scottsdale, Ariz. Dealer lawyer Paul Norman added: “Independent dealers add an extra layer of credibility in the auto industry." Peter Welch, president of the National Automobile Dealers Association, commented on the implications for auto retailing of increased ride sharing and autonomous vehicle development as part of a panel titled “Future Trends.”

After the day’s sessions ended, NADA issued a statement from Welch that read in part: “A lot of what we heard today was, in fact, an affirmation of the tremendous value to consumers that the independent, franchised dealer network provides. “Empirical research has demonstrated that intense competition among franchised dealers lowers new-car prices by hundreds of dollars. But the benefits to consumers don’t end there -- they extend to service, warranty work, recalls, and the hundreds of millions of dollars that’s invested in local communities.” Welch added: “The only question that wasn’t answered today is how consumer interests would be better served if the FTC, or another federal agency, were to upend the automobile retail sector.”
Source: Automotive News
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U.S. News: The Federal Trade Commission is Using Faulty Data to Attack Auto Dealers and Justify New Regulations
By Peter Roff

Remember how Barack Obama campaigned for re-election in 2012 on the idea that because of his leadership, Detroit had survived and Osama bin Laden didn't? Well, from the "that was then, this is now" department comes news that his administration now seems to be making war on the auto industry. I've already written in this space about the way the Consumer Financial Protection Board is using specious statistical analyses to suggest auto dealers discriminate when making loans, an effort some have described as an attack on dealer financing. Now the Federal Trade Commission has taken up the charge through a public workshop Tuesday, designed to show the franchise model on which the industry operates is anti-competitive and results in consumers paying higher prices for new cars than they ought. On its face, the very idea is silly and runs counter to common sense. One only need open the Sunday automotive section in any major paper to see different dealers offering different prices and different incentives on the same automobiles. That's the effect of competition.

Don't tell that, however, to the FTC. The commission is going ahead with its workshop despite the fact that it is ignoring the only available empirical research on the topic. It's all part of plan, say sources who follow the issue, to force state to rewrite their franchise laws or to get Congress to act on the subject and preempt with new federal legislation what states may or may not allow. Failing either of those options, the expectation is the commission will go ahead and issue regulations of its own that will produce the desired effect.

The one study on point on this subject, produced by the non-partisan Phoenix Center for Advanced Legal and Economic Public Policy Studies, looked at hundreds of thousands of car sales in Texas between the years 2011 and 2013. Its conclusion, which is hardly sui generis, is that when dealers selling the same make of automobiles compete against each other in a given market, auto prices drop significantly. It's Economics 101: "the law of supply and demand." So it should come as no surprise the study also found less competition leads to higher prices. According to the researchers at Auburn University who pulled the data together, that kind of competition between dealers lowers the price of a new Honda Accord or Toyota Camry by about $500.
Source: U.S. News & World Report
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Lawmakers Dispute Method to Identify Victims of Racial Bias in Auto Lending

Consumer Financial Protection Bureau test may have led to white borrowers getting checks, critics say

Nearly a quarter million customers of auto lender Ally Financial Inc. are receiving checks for between $100 and $520 from the federal government this month, the outcome of a controversial test used to identify the victims of alleged discrimination against minority borrowers. The tally was among the findings of a new report from congressional Republicans, who have been investigating the Consumer Financial Protection Bureau’s handling of a 2013 enforcement action in which Ally agreed to pay borrowers at least $80 million to settle allegations of racial and ethnic discrimination.

One focus of the lawmakers’ probe was the federal watchdog’s reliance on educated guesses to identify minority borrowers, using their last names and addresses. Critics say this may have resulted in a number of white borrowers receiving checks, even though they weren’t subjected to discriminatory actions. Auto lenders are prohibited by law from collecting data on the borrowers’ race or ethnicity. The report, prepared by the Republican staff of the House Financial Services Committee, was viewed by The Wall Street Journal ahead of its release Wednesday. In a letter sent to CFPB Director Richard Cordray Tuesday, Committee Chairman Jeb Hensarling (R., Texas) called on the regulators to “immediately suspend distribution” of the Ally settlement proceeds until all claimants have verified their eligibility in writing.
Source: The Wall Street Journal
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NADA Asks for Workforce Study Participation

With a retail workforce topping 1 million employees and the industry poised for sales growth, the National Automobile Dealers Association believes its members now more than ever need to focus on hiring and keeping talented employees. To help franchised dealerships stay competitive, officials are asking for participation in the NADA Dealership Workforce Study. The project is designed to provide the industry's only authoritative analysis of employee compensation, retention and turnover, employee benefits, work schedules and demographics.

NADA explained that dealerships that complete a questionnaire and submit their payroll data will receive two complimentary reports — including comparisons of their dealerships to their peers nationally, regionally and by state as well as by brand. The participation period is open now through April 29. The study will close promptly so that NADA can provide dealers the information they need to adjust pay plans and benefit packages. To begin the process, visit www.nadaworkforcestudy.com. If dealers have any questions, they can send an email to WorkforceStudy@nada.org or call (800) 557-6232.
Source: Auto Remarketing
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Quotable
“A lot of what we heard [Tuesday] was, in fact, an affirmation of the tremendous value to consumers that the independent, franchised dealer network provides. The only question that wasn’t answered is how consumer interests would be better served if the FTC, or another federal agency, were to upend the automobile retail sector.”

   
-- NADA President Peter Welch, in a statement following Tuesday's FTC workshop on automotive retailing, Automotive News, Jan. 19

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