FTC Staff Comment to Governor William P. Clements, Jr. Concerning Texas H.B. 1953 to Prohibit Dealer Sales of Used Cars at Temporary Locations and Fleet Dealer Sales at Temporary Locations

Ft"d.·raJ Trade Commission
OUi.'.' tlf tht' H"brionaJ J)irt'('lnr
R.303 [Intl.rook Orin'
(hila", TI'\;I" 75247
(21·1) 767·';'050
June 	1, 	1987
The 	Honorable William P. 	Clements, 	Jr.
Governor 	of 	Texas
Office 	of 	the 	Governor
Austin, 	Texas 	78711
Dear 	Governor 	Clements:
The 	Federal 	Trade 	Commission 	stalf 	is 	p'"e(lSel~ to 	have 	th5.s
opportunity 	to 	respond 	to 	your 	of.fice's 	reql1e'3t 	for 	comments 	on
House 	Bill 	1953. 1 	This 	bill 	would 	prohibit 	dealers 	from 	s~llinq
used 	vehicles 	at 	temporary 	locations 	and 	would 	orl?vent 	fleet
dealers, 	such 	as 	Rertz·and 	Avis, 	from 	conducting 	fleet 	s~les at
locations 	other 	than 	their 	licensed, 	permanent 	aealer 	lots. 	~h?
orobable 	effect 	of 	such 	legislation 	will. 	be 	to 	reollce 	com;)(~t.ition	. 	. 	..
and 	to 	increase 	the 	prices 	paid 	by 	Texas 	consureers 	for 	US0rl
vehicles. 	We 	believe 	that 	consumers 	will 	be 	!X~ttf~( serv0.d 	i r= 	l:h0
market 	is 	left 	free 	to 	operate 	wi thout 	unneceSS;lr'{ 	reqllla t i ',i1,
and 	we 	therefore 	recommend 	that 	this 	bill 	not 	b;:>, 	enacted.
Our 	interest 	in 	this 	legislation 	sterne:; 	from 	the 	r'ommission'r-;
mandate 	to 	enfnrce 	the 	antitrust 	and 	consumer 	protection 	laws 	o[
the 	United 	States. 	~ection 5 of 	the' Federal 	~[n~e ~ommission Act
prohibits 	unfair. 	methods 	of 	com1?etition, 	ann 	uni'air 	or 	11ec0otl\lC
acts 	or 	practices. 	By 	enforcing 	this 	statute, 	t~e Co~missi0n
staff 	has 	gained 	subsfantial 	experience 	in 	ann 1 vzlng 	the 	impa~t-:
of 	various 	restraints 	on 	competition 	and 	the 	C0St~ and 	benefits
to 	consumers 	of 	these 	restraints. 	Tn 	recent 	ve~rs, W0 	h~ve 	been
involved 	in 	several 	issues 	that 	relate 	specifiCAllY 	to 	th0 	u~e~
ca r 	market. 	In 	I Q84, 	for 	example, "the 	"'omm i Sf) i.:·n 	i sstle,l 	th<:>
"Used 	Car 	Rule" 	to 	reduce 	the 	frequency 	and 	?f~cr:t of 	ora)
misrepresentations 	in 	used 	car 	transactions.' 	'I'h~ develop'11ent 	of
this 	rule, 	as 	well 	as 	the 	conduct 	o€ 	investigations 	and
preparation 	of 	studies 	relating 	to 	the 	automobi~e in~ustrv,
1
2
The 	comments 	represent 	the 	views 	of 	the 	nal~~s Regional
Office 	and 	the 	Bureaus 	of 	Competition, 	Consumer 	Protection,
and 	Economics 	of 	the 	Federal 	'rrade 	Commie:;sion 	anr, 	are 	n0t
necessarily 	those 	of 	the 	Commission 	itself. 	~he rommission
has, 	however, 	voted 	to 	authorize 	us 	to 	prescnt 	these
comments.
Used 	Motor 	Vehicle 	Trad~ Regula~ion Rulp, 	l~ 	~.~.R. 	~ 	~ss.

The 	Honorable 	William 	P. 	Clements, 	Jr. 	-- 	paqe 	~
provided 	the 	Commission 	staff 	with 	experienc~ in 	~anv uspe~t~ of
the 	automobile 	market.] 	In 	addition, 	the 	sti'.lff 	has 	r;uhrnitt.<:,1
comments 	on 	other 	issues 	similar 	to 	those 	rai5e~ by 	this 	hill 	4
We 	believe 	that 	House 	9i11 	1953 	is 	1. ikely 	to 	arf~ct ·1\.::\,::I~~
consumers 	adversely 	by 	restricting 	coml?ctition 	in 	tr.e 	lI!;Ni 	r.lr
market. 	This 	in 	turn 	would 	likely 	lead 	to 	price 	increa~~s.
Currently, 	automobile 	sales 	may 	be 	ffiZ1de 	by 	any 	jl~.11er hol"ing 	a
license 	for 	a 	permanent 	location. 5 	A dealer 	whc 	has 	~uch a
license 	may 	op~rate 	under 	it 	anywhere 	within 	city 	limits. 	"ous~
Bill 	1953 	would 	require, 	however, 	that 	a 	dealer 	~~11 only 	rrn~
the 	specific 	location 	for 	which 	the 	license 	was 	0riginallv
issued. 	Fur.thermore, 	each 	location 	woulfl 	have 	~-.;) quo: 11. f.v 	.::t'.; 	11:l
"established 	and 	permanent 	place 	of 	business" 	an~ would 	hnvp 	to
hav~ an 	eml?loyee 	present 	durinq 	reasonable 	business 	hours.
The 	usual 	practice 	of 	fie"et 	oealers, 	such 	<.1::; 	Hel:-tz 	nn·.l 	1\vi.s,
is 	to 	hold 	used 	car 	sales 	on 	credit 	union 	prol?ertv. 	Sincn 	~~e~e
sales 	entail 	low 	overhe.ad, 	fleet 	dealers. 	are 	able 	to pass 	;)10ng
subst3nt~al savings 	to·consumers. 	~redit unions 	recently
surveyed 	by 	the 	Illinois 	Credit 	Union 	League 	"ntimatc~ thnt
members 	pa.id 	an 	average 	of 	$1,118 	less 	for 	a 	usot:l 	car 	~oln <It: 	,"'l
credit 	union-sponsored 	fleet 	sale 	than 	they 	woulrl 	hnve 	p;)i~ 	for 	~
vehicle 	sold 	by a 	Aconventional- 	used 	car 	dea10r.
The 	propose~ bill 	would 	prohibit. fleet 	nealers 	f.rom 	selling
vehicles 	at 	temporary 	locations, 	such 	as 	tho~e s~t 	up 	hv 	credit
unions 	and 	rental 	car 	companies. 	The 	hill 	~lso allows 	th(~ ~otor
Vehicle 	Commission 	to 	cancel 	a 	dealer's 	license 	if 	the 	dCtller
all')ws 	it 	to 	be 	utilized 	by 	another 	entitv or 	individual. 	House
Bill 	1953 	therefore 	proposes 	to 	virtually 	eliminate 	fleet 	sales
J.s 	they 	are 	presently ,conducted. 	rrhe pd.ncipal 	eff.ect 	of 	t!lis
\-.'Ould 	b".! 	to 	increase 	costs 	to 	consumers 	in 	the 	u~Jen car 	mark'2t.
The 	effects 	may 	be 	particularly 	pronounced 	in 	certain 	~r~~s
of 	the 	s ta te. 	tie 	understand 	tha t 	many 	flee t 	5.1 l,~s <He 	m.)r10. 	in
3
4
5
The 	FTC ~ureau 	of 	Economic's 	Staff 	aeport 	on 	the 	Bfrect~ o~
State 	Entry 	Regulation 	on 	Retail Antornobile 	Markets,13nuary,
1986, 	is 	a 	recent 	example 	of 	the 	Federal 	~r~je Commission's
concern 	with 	anticompetitive 	regulations 	in 	the 	al1torno~i).e
market.
Letter 	from 	John 	'f. 	Peterson 	of ·the 	'F'T~ Chicago 	~egion<ll
Office 	to 	John 	W. 	Hallock, 	Illinois 	ftoune 	0-: 	Repre!1entati.ves,
November 	13, 	1986: 	Letter 	from 	John 	M. 	Peter~on 	of: 	the 	p~~
Chicago 	Regional 	Office 	to 	Woods 	Bowman, 	Illinois 	1I0u!'>e 	of
Representatives, 	April 	24, 	1987.
Tex. 	Rev. 	Civ. 	~tat. 	I\nn. 	art. 	6696 	(Vernon 	1..(87).

The 	Honorable 	William 	P. 	Clements, 	Jr. 	-- 	page 	~
smaller 	cities 	or 	towns 	where 	there 	may 	only 	he~: 	lj111tr:r) 	nu:-n!)er
of 	conventional 	dealerships. 	Competition 	[rom 	t.n0 	flJ~ct 	s.Jlr=s
may 	be 	especially 	important 	in 	thi~ context.
The 	apparent 	purpose 	of 	this 	bill 	is 	to 	prot0ct 	consu~pr3
from 	fly-by-night 	operators. 	Texas 	already 	ad~r'!sses these
concerns 	in 	several 	ways. 	The 	Texas 	Deceptive 	Trade 	Practlces~
Act 	provides 	treble 	damages 	for 	fraudulent 	acts 	and 	practic~s."
Further, 	current 	Texas 	law 	requires 	that 	dealers 	participating 	in
sales 	must 	hold 	a 	license 	number 	for 	a 	permanent 	location 	in
Texas. 7 	Thus, 	Texas 	consumers 	are 	alrea~y proteGte~ f~om
unscrupulous 	operators 	who 	do 	not 	have 	a 	valid 	husiness 	location
in 	the 	state. 	.
The 	proposed 	bill 	would 	harm 	consumers 	in 	the 	rental. 	car
market 	as 	well. 	Fleet 	sales 	benefit_this 	market 	by 	enablinq
fleet 	dealers 	to 	turn 	over 	Eheir'invantories 	more 	efficiently.
By 	prohibiting 	fleet 	sales 	as 	they 	are 	now 	con~ucte~, 	House 	~ill
1953 	would 	tend 	to 	increase 	the 	cost 	of 	car 	rent21s.
In 	conclusion, 	we 	believe 	that 	House 	Rill 	lQSl 	woul~
virtually 	eliminate 	fleet 	sales 	as 	they 	are 	preri()ntlv 	c()n(lw~tj'(~
and 	would 	ultimately 	harm 	consumers 	of 	used 	vehi~l0.s. 	The
unjustified 	'.imitations 	on 	fleet 	sales 	are 	likel\; 	1:0 	increase
fleet 	dealers' 	costs 	and, 	correspondingly, 	increasA 	the 	pric0s
conSU'Tl(~rs pay 	for 	used 	vehicles. 	Restrictinq 	flE-~et. salQs 	jn 	t.~10
manner 	pr090~ed would 	also 	reduce 	th~ competttio~ that 	th0s~
sales 	provide 	to 	other 	segments 	of 	the 	used 	car 	ft1fclrket. 	Fi!1(\llv,
the 	proposed 	bill 	may 	lead 	to 	similar 	increases 	;n 	price 	in 	the
rental 	vehicle 	market. 	For 	all 	of 	the 	ahove 	rca~ons, 	th~ 	~t~rf
of 	the 	Federal 	Trade 	Commission 	recommends 	that 	nouse 	Ri.ll 	19C\1
not 	be 	enacted.
~e 	appreciat~ having 	had 	this 	o~portunity to 	provi~p. our.
views 	on 	these 	issues.
Sineere .Y, 	.
//)/ 	. 	//
/ 	I 	I·.·.. 	. -: f,	
I· 	C { 	- _ .•.
",;/
J'm 	Moseley·
~egi~nal Director
Dallas 	Regional 	Officp.
6
7
Tex. 	~us. 	& Com. 	~ode 	Ann. 	~ 	17.01 	et. 	seq. 	(Vernon 	1087).
Tex. 	Rev. 	Civ. 	Stat. 	Ann. 	art. 	6686 	(Vernon 	lq87).