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FTC: Direct Consumer Auto Sales: It's not just about Tesla

Robert.Boston

Model S VIN P01536
Oct 7, 2011
7,844
37
Portland, Maine, USA
Disappointing that a stronger case wasn't made for how the dealer franchise monopoly is contrary to the interstate commerce clause.
The FTC lives within the FTC Act. My (limited) assessment is this: the auto dealers are not engaging in any act proscribed by the FTC Act, and the FTC has no jurisdiction to bring an action against a state itself. (15 USC §45(a)(2) "The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except
[list of exceptions] from using unfair methods of competition in or affecting commerce and unfair or deceptive actsor practices in or affecting commerce.") Note that "states" is not on that list.

To the extent that there is federal action on this issue, I think it will have to come from the DOJ under the Sherman Antitrust Act. This will be tough because the SCOTUS has already issued an order about new car dealers. I'm going to quote an analysis of this ruling by the South Carolina AG's office:
The United States Supreme Court case of New Motor Vehicle Bd. v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d361 (1978) is directly on point. The Court in Fox considered the California Automobile Franchise Act, which required approval by the California New Motor Vehicle Board before opening a new retail motor vehicle dealership within the market area of an existing franchise. .... In California, an automobile manufacturer who proposes to establish a new retail automobile dealership, or to relocate one, must first give notice to the Board and each of its existing franchisees within the ‘relevant market area’ (defined as ten miles from site of proposed new dealership). If any existing dealer protests within fifteen days, the Board is required to convene a hearing within sixty days to determine good cause for refusing to permit the establishment or relocation.

In ruling upon the antitrust issue, the Court noted that the California Legislature had enacted ‘a system of regulation, clearly articulated and affirmatively expressed, designed to displace unfettered business freedom in the matter of the establishment and relocation of automobile dealerships.’ Id. at 109, 99 S.Ct. at ——, 439 L.Ed.2d at 376. It, therefore, held that such regulation was outside the reach of the antitrust laws under the ‘state action’ exemption. See, Parker v. Brown, 317 U.S. 341, 63 S.Ct.307, 87 L.Ed. 315 (1943).

So, bottom line, I think the FTC and DOJ are reduced to trying to persuade state legislatures that these dealer restrictions are bad policy.
 

brucet999

Active Member
Mar 12, 2015
2,679
1,489
Huntington Beach, CA
To the extent that there is federal action on this issue, I think it will have to come from the DOJ under the Sherman Antitrust Act. This will be tough because the SCOTUS has already issued an order about new car dealers. I'm going to quote an analysis of this ruling by the South Carolina AG's office:


So, bottom line, I think the FTC and DOJ are reduced to trying to persuade state legislatures that these dealer restrictions are bad policy.

I must have missed something here. This decision seems to have dealt with laws regulating manufacturers in establishment of a new franchised dealership in the territory of an existing franchised dealer. I don't see anything that would apply to state laws preventing a manufacturer which has no franchised dealers from establishing company-owned stores. That would appear to me to clearly violate the interstate commerce clause.
 

JohnQ

Active Member
Jan 1, 2012
1,612
75
Redding, CT
I must have missed something here. This decision seems to have dealt with laws regulating manufacturers in establishment of a new franchised dealership in the territory of an existing franchised dealer. I don't see anything that would apply to state laws preventing a manufacturer which has no franchised dealers from establishing company-owned stores. That would appear to me to clearly violate the interstate commerce clause.

As Robert.Boston mentioned, the Sherman Act does not prohibit restraints on commerce imposed by a state acting as sovereign. So, states can regulate all sorts of things such as how liquor is sold, prescriptions, electricity, even raisins. Although I don't believe it's been tested, this would likely fall under that category.

Incidentally, there are enormous complexities in determining whether an action is authorized by the state, whether the action goes against a stated goal of competition in a particular marketplace, etc. But, in general terms, the explicit regulation of a marketplace by the state for a specific benefit is difficult to challenge.
 
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