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FALL 2016

drive, look at the features of the car, [and] physically touch the

car” before purchase.

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The first issue is addressed above. The

second example is a manufacturer issue, not a dealer issue, and

the reasons why just in time (also referred to as build-to-order)

manufacturing is inapplicable to the automotive sector have

been thoroughly addressed elsewhere.

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And the third alleged

example of a limitation on innovation is simply mistaken.

Dealerships are as flexible and innovative as any retailers in the

way they sell their products and services, and the notion that

dealers do not or will not exercise any option available in the

market reflects a lack of understanding of the business. Dealers

innovate all the time. (If they fail to do so, they become former

dealers.) In addition to every flavor of online and electronic

marketing, dealers display cars at malls, fairs, auto shows, and

other venues. And there is a huge number of vendors – many

of whom are themselves market disruptors – that find dealers

to be among their best customers for cutting edge products and

services. If there is an innovative method of selling that will

increase sales, dealers will undertake it, and any suggestion to

the contrary is unfounded. The bottom line is that there are

no facts asserted that legitimately support the argument that

dealer franchise laws somehow impede amanufacturer’s ability

to “innovate” with respect to the retailing automobiles.

We agree with Commissioner McSweeny who recently stated

that “[t]he age of connected cars has begun, and, I believe, will

only accelerate from here. The answers for what that means

for consumers, for the automotive industry, and for the job

market will be shaped by how regulators, enforcers, legisla-

tors, and most importantly, the innovators approach issues

of safety, security, and privacy.”

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For the FTC, that means

focusing on “the important role security and privacy play in

building [consumer] trust.”

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The coming years will be very

exciting indeed in the automotive industry; however, no one

knows exactly what the future holds and speculation at this

early stage is likely to be counterproductive. We would urge

the Commission to continue to focus its efforts on those two

critical issues – privacy and security – because unless those are

assured, the full promise of many of these new technologies

will not be met.

V . Conclusion

As we stated at the outset, it is essential that the FTCapproach

issues pertaining to the state franchise laws in a balanced fash-

ion and that it carefully consider the actual effects that removal

of these laws may have on this efficient and consumer-friendly

model. And, for all of the reasons that we have explained, a

balanced and open review of these laws, informed by market

data and not merely hypothetical economic theory, reveals that

the existing system of auto distribution in the U.S., in all of its

variations, works well for all parties, starting with consumers.

In essence, the state legislatures that have considered these

issues have gotten it correct, and their regulatory decisions

should be respected.

Thank you for the opportunity to comment in this matter.

Please contact the undersigned if we can provide you with

additional information that would aid the Commission in its

consideration of these issues.

Respectfully submitted,

NADA’s 2014 letter to the FTC providing themwith much of the

information that they were seeking in the 2016 workshop can be

found at

bit.ly/286w8oC.

Andrew D. Koblenz

Executive Vice President,

Legal andRegulatory Affairs

Steven Szakaly

Chief Economist

NADA RESPONSE

CONTINUED FROM PAGE 36

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Id. (“So what would those innovations be? Remote updates of software are an obvious one that Ellen pointed out. This is very handy for the consumer. Saves them lots of

time and schedule hassle. And it omits the need for a physical presence in their local area. Efficient manufacturing, just in time manufacturing. So this is the Dell model

as it used to be called. I produced a [sic] demand and not inventory. I make cars that people want. In fact, I make cars that people have already paid a deposit on. So I don’t

even incur the cost for the parts until I have cash in hand. That saves carrying costs for both the manufacturer for parts and the dealer for inventory. Moreover, you’re never

marking down a car, because every car is already bought. So that, the estimates on the savings of that changing a system from producing to inventory to producing to demand

are quite large. So then, you don’t need a local dealer to hold inventory for you. You do need to test drive, look at the features of the car, physically [sic] touch the car perhaps.

There are many interesting ways to organize that. It’s not clear that the franchise model would be the one.”)

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See NADA’s 2014 Letter; the comments of Ms. Keller during panel three, TR. III; 17-18; and Maryann Keller and Kenneth Elias,

Consumer Benefits of the Dealer Franchise

System,

2014, a copy of which is available here.

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See Keynote Remarks of Commissioner Terrell McSweeny at the Connected Cars USA Conference 2016 at 1.

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See id. at 5.