4
Idaho Automobile Dealers As sociation Inc. Ma rch 4, 2016 FTC Public Comments Re: Auto Distribution My name is Kev in Ha nigan and I am the VP I Exec ut ive Direc t or of the Idaho Aut omob il e Dealers Association {IADA) in Boise, Idaho. While I have only been th e executive for one year, I have a unique perspecti ve on the aut omoti ve industry and manufact urer to dealer relations. I was a former dealer ow ner and was t he genera l manager of our d ea lershi ps t hat were owned by my br oth er an d m e. Our or iginal d ea lership was founded in 1925 by o ur grandfather, co nti nu ed by our father, and to th is day is still under my broth er's family ow nership. My perspective is also unique because I was a f ormer boa rd mem ber and Pres iden t of the Id aho Aut omo bi le Dealers Associati on, se rving in th ose ca pac ities from 2009 until 2012. I was recr uit ed by the cu rr ent board of directors to se rve as o ur d irec tor and I th ink I understand the issues that su rround dealershi ps , th eir manufac turers, and th e distribution system that is in place in o ur country. I represent the interests of al l new f ranchised dea lers in our state bef ore t he local govern ments and o ur state legislature and I have a comprehensive knowledge of how our industry operat es in Id aho as we ll as t he importa nce of our fr anchi se laws and how they protect and maintain a s trong system of independe nt owne rs througho ut the state. The purpose of my lett er is to ex press my frustration over much of what I heard presented at the workshop the FTC cond uct ed on Jan ua ry 19, 2016. Dea lerships are independent busin esses wi th co nt racts with their manuf ac turers that are non-negotiable. Beca use of th is, dea lers many years ago were forced to work w it h t hei r r es pective state legisla tu res to ensu re a level playing field and to require fair trea tm ent f ro m the ir manufacturer. My int erpretation of the FTC workshop was t hat the FTC wants to tag an industry that they t hink is a pro bl em, but t hat I know is not a pro bl em. Th e fr anchi se system was se t up by the ma nufactu rers over the past 100 years because these same co mp an i es did not wa nt to invest in la nd, buildings, em pl oyees, and operations in the many towns and citi es that th ese d ea lers se r ve throughout the Unit ed States. Instead, they al lowed independent businesses to "se ll th eir produ ct" and own a f ra nchi se . We have 110 dea lershi ps in our state, eac h owned by an e ntit y wit h commitments in the ir com mu ni ty to th eir customer s, to the ir employees, and to their famili es . Eac h of th ese independent businesses deserves to be treated fai rl y by th ei r manuf ac tu re r, by the ir state, and by th e federal gove rn ment. You r workshop focused on the aut o dist ri but ion and the franchi se laws th at all 50 states have enacted t o regulate certain aspects of the relationshi p between manuf ac tu rers and in depe nd ent fra nch ise d motor vehicle dealers. Instead of being a f ac t based examination of o ur indust ry, your workshop included 4980 W. State • Boise, ID 83703 • P (208) 853-4668 • F (208) 853- 6671 • www.idahoada.org

FTC Public Comments Re: Auto Distribution€¦ · FTC Public Comments Re: Auto Distribution . ... that there is now a fairly eq ual balance of power between dealers and ... Here are

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Idaho Automobile Dealers Association Inc

March 4 2016

FTC Public Comments Re Auto Distribution

My name is Kevin Hanigan and I am the VP I Execut ive Director of t he Idaho Automobile Dealers Association IADA) in Boise Idaho While I have only been the execut ive for one year I have a unique

perspecti ve on the automotive industry and manufact urer to dealer relat ions I was a former dealer

owner and was the genera l manager of our dea lerships t hat were owned by my brother and me Our original dea lership was founded in 1925 by our grandfather continued by our father and to th is day is

stil l under my brothers fami ly ownership My perspective is also unique because I was a former boa rd

member and Pres ident of the Idaho Automobi le Dealers Association serving in those capacities f rom

2009 until 2012 I was recruited by the current board of di rectors to serve as our direct or and I th ink I

understand the issues t hat surround dealerships their manufacture rs and the dist r ibution syst em that is in place in our country I represent the interests of al l new f ranchised dea lers in our state before t he

local govern ments and our state legis lature and I have a comprehensive knowledge of how our industry

operates in Idaho as well as t he importance of our franchise laws and how they protect and maintain a

strong system of independent owners throughout the st ate

The purpose of my letter is to express my frustration over much of what I heard presented at the

workshop the FTC cond uct ed on January 19 2016 Dealerships are independent bus inesses with contracts wit h their manufacturers that are non-negotiable Beca use of th is dea lers many years ago

were forced t o work w it h t hei r respective st ate legislatu res to ensure a level playing field and t o require

fa ir t reatment f rom their manufacturer My interpretation of t he FTC workshop was t hat the FTC wants

to tag an industry t hat they t hink is a pro blem but t hat I know is not a problem The franchise system

was set up by the manufactu re rs over t he past 100 years because these same companies did not want to invest in land buildings employees and operat ions in the many towns and cities that these dea lers

serve throughout the United States Instead they al lowed independent businesses to se ll their

product and own a f ranch ise We have 110 dealerships in our state each owned by an entity with commitments in their community to their cust omers to t heir employees and t o their fam ilies Each of

these independent businesses deserves to be treat ed fai rly by thei r manufacture r by their state and by the federal govern ment

Your workshop focused on the auto dist ribution and the f ranchise laws that all 50 states have enacted t o regulate certa in aspects of t he relationshi p between manufactu rers and independent fra nchised motor

veh icle dealers Instead of being a fact based examinat ion of our indust ry your workshop included

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853- 6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

(2)

severa l speakers w ith clear bias against dealership franchise systems Your so ca lled experts were chosen to talk about and present one v iewpoint Your fo rum was not an equal forum You chose no

dealers to be a part of that and other than the NADA President and one state executi ve you vi rtually

had no one present from any of t he historica l auto manufacturers present You invited two upstart manufacturers to speak but did not include any of the existing auto manufacturers There are 17000+

dealers in our country and yet none were on your panel to present their viewpoin t Why

These experts were genera lly opposed to the current system of veh icle dist ribution in the US and the

franchise laws that regulate it (and this ultimately keeps the manufacturers from treating their dea ler

partners poorly) And trust me without franchise laws these big compa nies would do just that The majority of dealersh ips in the US are still family owned Mom amp Pop stores While the press points out

large corporations and dealer groups that own multiple dealerships it is untrue that these are the majority and it is so far from the truth that any type of dealership owner has any control over their

relationship with their manufacturer All dealer agreements are the same across the board

Manufacturers do not contract with each dealer individually with different terms One contract is drafted and it had better fit all But it doesnt That is why dealers and their dealer associations in t heir

states work with their state legislature to ensure fa ir treatment for t hese dealers Without this fair treatment dealers would be put out of business each day every day when the direction of the wind (or

manufacturers management) changed They dont like the color of your showroom tile youre out They dont like that you wont invest $4 million in facility upgrades youre out They dont like that

you dont force al l your customers to finance their auto loans th rough their captive finance company youre out These would all be true if we did not have state franchise laws in place

Would you like a better example When two large well-known manufacturers filed for bankruptcy in 2009 they saw that through the protection of the federal bankruptcy laws they could shut down

dealers and strip franchises away from t hose they didnt particularly ca re for (and other such atrocities)

and they could do this because they were al lowed After that calamity the IADA implemented w ith the help of our state legislature laws that would strengthen the st atutes to help protect Idahos

independent dealerships from this ever happening again Our manufacturer stripped us of two of our

f ive product brands Why Because they could

And without franchise laws in place they would continue to do that at any given opportunity By

banding together dealers have formed st rong state and national associations to protect their interests

This is important Taking this away wou ld most certain ly wipe out our economy both in Idaho and

nationally Stripping the franchises from dealers would be catastroph ic Allowing manufacturers to se ll directly to consumers same th ing But it gets worse When there is only one sel ler of a specific

product it is cal led a monopoly When that one seller is allowed to do that do you think the American consumer pays more or less for that product I know the answer but I am not sure that the FTC knows

or understa nds that

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

3)

Your workshop did a huge disadvantage to our industry because of the disparaging remarks made by a few persons w ho tru ly were not in the know about how our industry operates The economic

relationship between a dealer and a manufacturer are not even today nor have they ever been in our

industry The public policy grounds which supported the enactment of these laws originally---the need for consumer protection the disparity in bargaining power between manufacturers and dealers and the

value of community-based businesses---are as va lid today as w hen these laws were first enacted

Consumers in Idaho are protected by unscrupulous businesses because it is the right th ing to do These laws are designed to protect the consumer and the dealership These laws drive efficiency by ensuring

that a stable and level playing field exists in auto reta iling The speakers at the FTC workshop who sa id

that there is now a fairly eq ual balance of power between dealers and manufactu rers were simply

wrong To the contrary manufacturers continue to have the clear upper hand in th is relationsh ip Once

a dealer has invested millions of dollars to support a particular franchise the dealer becomes in a very rea l sense the economic captive of t he manufacturer The following examples should help educate the

FTC about the continued need for these laws

1 A dealer wanting to succeed is highly encouraged to adopt his or her manufacturers latest image program

where they remodel their bu ild ing to the manufacturers specifications This is not where a dealer puts up

the sign and says theyre open for business They are required to buy the f loor tile from a specific vendor

they are required to have their store look like al l other stores And if they dont they suffer financial and

product availability consequences When I was a dealer and one that cou ld not afford a $15 mi llion remodel

in our town of 7000 (it wasnt financially justifiable) we were at a d isadvantage---the manufacturer would

incent the nearest dealer who did the remodel and sometimes in terms of thousands of dol lars per vehicle

sold and that put my store at a sign ificant disadvantage Hard to continue on

2 Many manufacturers will not provide a dealer with a proper flow of vehicle inventory I have severa l dealers

presently in Idaho that are fighting this issue The playing f ield is not level

This imbalance in bargaining power paves the way for manufacturers to act opportunistica lly toward

their dealers With the overarching control that they w ield manufacturers routinely take advantage of their dealers seeking to transfer costs to them and punishing those who wont comply And as you will

see these instances are not from the distant past Manufacturer overreaches continue to occur today

The stories are legion Here are just some examples that I have persona lly witnessed

bull Constant threat of termination by the manufacturer because of underperformance

bull Inventory allocation inequities

bull Demands for facility relocations or upgrades to t he tune of mi llions of dollars

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

4)

bull Unreasonable requirements to invest in equipment training and other costly justified purchases by the

manufacturer to stay in business

bull Unreasonable incentive programs that often favor a large dealer over a small dealer offering

thousands more per vehicle to the favored dealer and true two-tier pricing wh ich can effectively shutter

the small dealership

For these reasons and for the many more that I chose not to include in this letter it is not hard to understand why state legislators in all 50 states have voted time and time again to ensure that the

system of retailing automobi les rema ins consumer friendly and fa ir The FTC needs to look beyond the

theoretica l and attempt to understand the actual realities before making unreasonable conclusions about thi s important industry Fina ll y and of the utmost importance the FTC also needs to appreciate

and respect the fundamenta l role the states play in determin ing what level and type of regulation these

markets need

Thank you for your consideration of my views on this important matter

Sincerely

( VP I Executive Director

Idaho Automobile Dealers Association

208 8534668 khanigan idahoadaorg

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

(2)

severa l speakers w ith clear bias against dealership franchise systems Your so ca lled experts were chosen to talk about and present one v iewpoint Your fo rum was not an equal forum You chose no

dealers to be a part of that and other than the NADA President and one state executi ve you vi rtually

had no one present from any of t he historica l auto manufacturers present You invited two upstart manufacturers to speak but did not include any of the existing auto manufacturers There are 17000+

dealers in our country and yet none were on your panel to present their viewpoin t Why

These experts were genera lly opposed to the current system of veh icle dist ribution in the US and the

franchise laws that regulate it (and this ultimately keeps the manufacturers from treating their dea ler

partners poorly) And trust me without franchise laws these big compa nies would do just that The majority of dealersh ips in the US are still family owned Mom amp Pop stores While the press points out

large corporations and dealer groups that own multiple dealerships it is untrue that these are the majority and it is so far from the truth that any type of dealership owner has any control over their

relationship with their manufacturer All dealer agreements are the same across the board

Manufacturers do not contract with each dealer individually with different terms One contract is drafted and it had better fit all But it doesnt That is why dealers and their dealer associations in t heir

states work with their state legislature to ensure fa ir treatment for t hese dealers Without this fair treatment dealers would be put out of business each day every day when the direction of the wind (or

manufacturers management) changed They dont like the color of your showroom tile youre out They dont like that you wont invest $4 million in facility upgrades youre out They dont like that

you dont force al l your customers to finance their auto loans th rough their captive finance company youre out These would all be true if we did not have state franchise laws in place

Would you like a better example When two large well-known manufacturers filed for bankruptcy in 2009 they saw that through the protection of the federal bankruptcy laws they could shut down

dealers and strip franchises away from t hose they didnt particularly ca re for (and other such atrocities)

and they could do this because they were al lowed After that calamity the IADA implemented w ith the help of our state legislature laws that would strengthen the st atutes to help protect Idahos

independent dealerships from this ever happening again Our manufacturer stripped us of two of our

f ive product brands Why Because they could

And without franchise laws in place they would continue to do that at any given opportunity By

banding together dealers have formed st rong state and national associations to protect their interests

This is important Taking this away wou ld most certain ly wipe out our economy both in Idaho and

nationally Stripping the franchises from dealers would be catastroph ic Allowing manufacturers to se ll directly to consumers same th ing But it gets worse When there is only one sel ler of a specific

product it is cal led a monopoly When that one seller is allowed to do that do you think the American consumer pays more or less for that product I know the answer but I am not sure that the FTC knows

or understa nds that

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

3)

Your workshop did a huge disadvantage to our industry because of the disparaging remarks made by a few persons w ho tru ly were not in the know about how our industry operates The economic

relationship between a dealer and a manufacturer are not even today nor have they ever been in our

industry The public policy grounds which supported the enactment of these laws originally---the need for consumer protection the disparity in bargaining power between manufacturers and dealers and the

value of community-based businesses---are as va lid today as w hen these laws were first enacted

Consumers in Idaho are protected by unscrupulous businesses because it is the right th ing to do These laws are designed to protect the consumer and the dealership These laws drive efficiency by ensuring

that a stable and level playing field exists in auto reta iling The speakers at the FTC workshop who sa id

that there is now a fairly eq ual balance of power between dealers and manufactu rers were simply

wrong To the contrary manufacturers continue to have the clear upper hand in th is relationsh ip Once

a dealer has invested millions of dollars to support a particular franchise the dealer becomes in a very rea l sense the economic captive of t he manufacturer The following examples should help educate the

FTC about the continued need for these laws

1 A dealer wanting to succeed is highly encouraged to adopt his or her manufacturers latest image program

where they remodel their bu ild ing to the manufacturers specifications This is not where a dealer puts up

the sign and says theyre open for business They are required to buy the f loor tile from a specific vendor

they are required to have their store look like al l other stores And if they dont they suffer financial and

product availability consequences When I was a dealer and one that cou ld not afford a $15 mi llion remodel

in our town of 7000 (it wasnt financially justifiable) we were at a d isadvantage---the manufacturer would

incent the nearest dealer who did the remodel and sometimes in terms of thousands of dol lars per vehicle

sold and that put my store at a sign ificant disadvantage Hard to continue on

2 Many manufacturers will not provide a dealer with a proper flow of vehicle inventory I have severa l dealers

presently in Idaho that are fighting this issue The playing f ield is not level

This imbalance in bargaining power paves the way for manufacturers to act opportunistica lly toward

their dealers With the overarching control that they w ield manufacturers routinely take advantage of their dealers seeking to transfer costs to them and punishing those who wont comply And as you will

see these instances are not from the distant past Manufacturer overreaches continue to occur today

The stories are legion Here are just some examples that I have persona lly witnessed

bull Constant threat of termination by the manufacturer because of underperformance

bull Inventory allocation inequities

bull Demands for facility relocations or upgrades to t he tune of mi llions of dollars

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

4)

bull Unreasonable requirements to invest in equipment training and other costly justified purchases by the

manufacturer to stay in business

bull Unreasonable incentive programs that often favor a large dealer over a small dealer offering

thousands more per vehicle to the favored dealer and true two-tier pricing wh ich can effectively shutter

the small dealership

For these reasons and for the many more that I chose not to include in this letter it is not hard to understand why state legislators in all 50 states have voted time and time again to ensure that the

system of retailing automobi les rema ins consumer friendly and fa ir The FTC needs to look beyond the

theoretica l and attempt to understand the actual realities before making unreasonable conclusions about thi s important industry Fina ll y and of the utmost importance the FTC also needs to appreciate

and respect the fundamenta l role the states play in determin ing what level and type of regulation these

markets need

Thank you for your consideration of my views on this important matter

Sincerely

( VP I Executive Director

Idaho Automobile Dealers Association

208 8534668 khanigan idahoadaorg

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

3)

Your workshop did a huge disadvantage to our industry because of the disparaging remarks made by a few persons w ho tru ly were not in the know about how our industry operates The economic

relationship between a dealer and a manufacturer are not even today nor have they ever been in our

industry The public policy grounds which supported the enactment of these laws originally---the need for consumer protection the disparity in bargaining power between manufacturers and dealers and the

value of community-based businesses---are as va lid today as w hen these laws were first enacted

Consumers in Idaho are protected by unscrupulous businesses because it is the right th ing to do These laws are designed to protect the consumer and the dealership These laws drive efficiency by ensuring

that a stable and level playing field exists in auto reta iling The speakers at the FTC workshop who sa id

that there is now a fairly eq ual balance of power between dealers and manufactu rers were simply

wrong To the contrary manufacturers continue to have the clear upper hand in th is relationsh ip Once

a dealer has invested millions of dollars to support a particular franchise the dealer becomes in a very rea l sense the economic captive of t he manufacturer The following examples should help educate the

FTC about the continued need for these laws

1 A dealer wanting to succeed is highly encouraged to adopt his or her manufacturers latest image program

where they remodel their bu ild ing to the manufacturers specifications This is not where a dealer puts up

the sign and says theyre open for business They are required to buy the f loor tile from a specific vendor

they are required to have their store look like al l other stores And if they dont they suffer financial and

product availability consequences When I was a dealer and one that cou ld not afford a $15 mi llion remodel

in our town of 7000 (it wasnt financially justifiable) we were at a d isadvantage---the manufacturer would

incent the nearest dealer who did the remodel and sometimes in terms of thousands of dol lars per vehicle

sold and that put my store at a sign ificant disadvantage Hard to continue on

2 Many manufacturers will not provide a dealer with a proper flow of vehicle inventory I have severa l dealers

presently in Idaho that are fighting this issue The playing f ield is not level

This imbalance in bargaining power paves the way for manufacturers to act opportunistica lly toward

their dealers With the overarching control that they w ield manufacturers routinely take advantage of their dealers seeking to transfer costs to them and punishing those who wont comply And as you will

see these instances are not from the distant past Manufacturer overreaches continue to occur today

The stories are legion Here are just some examples that I have persona lly witnessed

bull Constant threat of termination by the manufacturer because of underperformance

bull Inventory allocation inequities

bull Demands for facility relocations or upgrades to t he tune of mi llions of dollars

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

4)

bull Unreasonable requirements to invest in equipment training and other costly justified purchases by the

manufacturer to stay in business

bull Unreasonable incentive programs that often favor a large dealer over a small dealer offering

thousands more per vehicle to the favored dealer and true two-tier pricing wh ich can effectively shutter

the small dealership

For these reasons and for the many more that I chose not to include in this letter it is not hard to understand why state legislators in all 50 states have voted time and time again to ensure that the

system of retailing automobi les rema ins consumer friendly and fa ir The FTC needs to look beyond the

theoretica l and attempt to understand the actual realities before making unreasonable conclusions about thi s important industry Fina ll y and of the utmost importance the FTC also needs to appreciate

and respect the fundamenta l role the states play in determin ing what level and type of regulation these

markets need

Thank you for your consideration of my views on this important matter

Sincerely

( VP I Executive Director

Idaho Automobile Dealers Association

208 8534668 khanigan idahoadaorg

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg

Idaho Automobile Dealers Association Inc

4)

bull Unreasonable requirements to invest in equipment training and other costly justified purchases by the

manufacturer to stay in business

bull Unreasonable incentive programs that often favor a large dealer over a small dealer offering

thousands more per vehicle to the favored dealer and true two-tier pricing wh ich can effectively shutter

the small dealership

For these reasons and for the many more that I chose not to include in this letter it is not hard to understand why state legislators in all 50 states have voted time and time again to ensure that the

system of retailing automobi les rema ins consumer friendly and fa ir The FTC needs to look beyond the

theoretica l and attempt to understand the actual realities before making unreasonable conclusions about thi s important industry Fina ll y and of the utmost importance the FTC also needs to appreciate

and respect the fundamenta l role the states play in determin ing what level and type of regulation these

markets need

Thank you for your consideration of my views on this important matter

Sincerely

( VP I Executive Director

Idaho Automobile Dealers Association

208 8534668 khanigan idahoadaorg

4980 W State bull Boise ID 83703 bull P (208) 853-4668 bull F (208) 853-6671 bull wwwidahoadaorg