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NADA Responds to Op-Ed Critical of Dealer Franchise Laws

September 25, 2014

In an op-ed published today in The New York Times, Peter Welch, president of the National Automobile Dealers Association, responded to a guest editorial published in the news outlet last week that was critical of dealer franchise laws. That piece (“Tesla Breaks the Auto Dealer Cartel), penned by John Kerr, a former editorial page editor for the Las Vegas Review Journal, centered on concessions Nevada lawmakers made to attract Tesla Motors’ new lithium battery factory.

Aside from giving the high-end electric-car maker $1.3 billion in tax breaks to secure the business, Nevada lawmakers approved legislation to exempt Tesla from the state’s dealer franchise laws that band direct-to-consumer sales. Kerr, currently a communications fellow with the Institute for Justice, a nonprofit, public-interest law firm in Arlington, Va., wrote that the pact exposed the “hypocrisy of state laws that band consumers from buying a new car from anybody but a license dealer.”

The following is Welch’s response to Kerr’s Sept. 16 op-ed piece.

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John Kerr's op-ed critical of state automobile franchise laws misses a core reason of why franchise laws exist. They level the playing field between dealers and manufacturers because dealers are prohibited by antitrust laws from negotiating freely with automakers ("Tesla Breaks the Auto Dealer Cartel," Sept. 17).

In a truly free market, local new-car and -truck dealers, who have invested more than $200 billion in their land and facilities, would be able to collectively negotiate their contracts with manufacturers on pricing and distribution. However, dealers are prohibited from federal and state antitrust laws from doing this. In fact, dealer groups are under constant scrutiny of their compliance with state and federal antitrust laws — including major investigations by the U.S. Department of Justice in recent decades.

The automotive market is highly regulated at all levels — requiring licensing, insurance, financing, care of hazardous materials, all regulated by different bureaucracies. State legislatures passed franchise laws to remedy the antitrust harm against dealers and to help protect consumers. These laws also have the benefit of adding intra-brand price competition into the marketplace, adding extra consumer accountability on warranty and recall issues, and keeping local ownership of businesses on Main Street. And the franchise model is extraordinarily efficient at bringing cars to market with gross margins of less than 6%. It is an extremely competitive system that benefits consumers, manufacturers and local communities alike.

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