FTC Staff Comment Before the Texas Motor Vehicles Commission Concerning Proposed Amendments to Advertising Rules

S7ATEMENT OF 	JIM 	MOSELEY
REGIONAL 	DIRECTOR
DA:LAS 	REGIONAL 	OFFICE
FE~ERAL 	TRADE 	COMMISS:ON
On 	Behalf 	Of
COMMISSIOI
APPROVED
dh- 	3-c/ GJ
Dallas 	Regional 	Office 	And 	Bureaus
Of 	Competition, 	Consumer 	Protection,
Anc 	Econorr:cs 	Of 	The 	Federal 	Trade 	Commission
Before 	the
TEXAS 	MOTOR 	VEHICLE 	CO~V.ISSION
?:=pcsec 	Amendments 	T~ 	Chapter
:05 	Of 	:r.e 	Advertising 	R~les Of 	The 	Texas
X=:~r Vehicle 	Comnissicn
Marc:: 	26, 	1986
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I 	a~ pleased 	~o 	have 	the 	opportunity 	to 	co~~ent on 	the 	proposed
a~endments to 	the 	advertising 	rules 	of 	the 	Texas 	Motor 	Vehicle
Commission 	("Commission"). 	These 	comments 	represent 	the 	views 	of
the 	Da::as 	Regional 	Office 	and 	the 	Bureaus 	of 	Competition,
Cons~me: 	Protection, 	and 	Economics 	of 	the 	Federal 	Trade
Com~issic~ 	("FTC"). 	They 	do 	not 	necessarily 	represent 	the 	views
~: 	t~e 	Commission 	or 	of 	any 	individual 	Commissioner. 	The
Co~~:ssion, 	however, 	has 	a~thorized the 	staff 	to 	sUbmit 	these
=o~~~~:s. 	Our 	comments 	a:e 	directed 	at 	the 	proposed 	modification
to 	Ses::on 	lO~.12 of 	the 	Texas 	Motor 	Vehicle 	Commission's
ajve:tisins 	regUlations 	which 	would 	prohibit 	"invoice"
a=vertising. 1
~~ 	cannot 	support 	the 	ban 	on 	invoice 	advertising 	as 	proposed
OJ 	the 	Texas 	Motor 	Vehicle 	Commission. 	Restrictions 	on
a~ve:tisins have 	the 	potential 	to 	harm 	competition 	without
inc:easing 	the 	quality 	of 	service 	that 	is 	provided. 	As 	a 	general
rJle, 	it 	is 	far 	more 	efficient 	and 	less 	expensive 	to 	address
?:oble~s of 	misleading 	consumer 	information 	by 	requiring 	fuller
d:sclosure 	of 	information 	than 	by 	attempting 	to 	ban
advertising. 	This 	rule 	applies 	to 	the 	automooile 	industry. 	We
are 	aware -of 	no 	empirical 	studies 	which 	show 	that 	consumers 	have
oeen 	deceived 	by 	the 	invoice 	advertising 	of 	automobiles. 	To 	the
contrary, 	invoice 	advertising 	has 	been 	shown 	to 	be
procompetitive. 	It 	provides 	some 	accurate 	and 	verifiable
1 	We 	~ave 	no 	comments 	~ith 	respect 	to 	the 	proposed 	amendments
to 	Sections 	105.3, 	105.5, 	105.8-.10, 	and 	105.21 	of 	the
Commission's 	rules. i
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information 	a~out the 	cost 	of 	automobiles. 	It 	may 	reduce
consumer 	search 	costs 	anj 	it 	e~hances comparison 	shopping. 	On
balance, 	automo:_~e invoice 	adve~tisin9 is 	helpful 	to
consumers. 	~e 	~elieve, 	therefore, 	that 	the 	Commission 	should
contin~e to 	pe:xit 	invoice 	advertising, 	and 	if 	it 	finds 	some
~estric:ion on 	tne 	advertising 	to 	be 	warranted, 	rather 	than
Danning 	all 	use 	of 	invoice 	information, 	it 	should 	simply 	prohibit
advertisers 	fro~ 	referring 	to 	invoice 	price 	without 	also
cis=losin~ that 	invoice 	price 	is 	not 	necessarily 	the 	same 	as
I. 	INTEREST 	AND 	EXPERIENCE 	OF 	THE 	FEDERAL 	TRADE 	COMMISSION
The 	FTC 	is 	empowered 	by 	Congress 	to prevent 	unfair 	methods
of 	competition 	and 	unfair 	or 	deceptive 	acts 	or 	practices 	in 	or
affecting 	commerce. 	Pursuant 	to 	its 	statutory 	mandate, 	the 	FTC
enco~rages 	competition 	among 	members 	of 	licensed 	groups, 	such 	as
the 	learned 	professions, 	to 	the 	maximum 	extent 	compatible 	with
other 	legitimate 	state 	and 	federal 	goals.
As 	a 	part 	of 	the 	FTC's 	effort 	to 	foster 	competition 	among
licensed 	groups, 	it 	has 	examined 	the 	effects 	of 	pUblic 	and
private 	restrictions 	that 	limit 	the 	ability 	of 	licensed 	groups 	to
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engage 	in 	nondeceptive 	advertising. 2 	Studies 	show 	that 	prices
for 	goods 	and 	services 	provided 	by 	licensed 	gro~ps are· lower
where 	truthful 	adver:isi~g free:j 	exists 	than 	where 	it 	is
. 	d 	h'·' 	d 	3	restrlcte 	or 	pro.1Dlte 	. 	federal 	Trade 	Commission 	and
indepe~dtnt studies 	also 	provide 	evidence 	that 	restrictions 	on
trut~f~: advertising 	are 	net 	associated 	with 	a~ 	ij;crease 	in 	the
2
3
See, 	e.o., 	American 	Medical 	Association, 	94 	F.T.C. 	701
(1979~ff'd, 638 	F.2d 	443 	(2d 	Cir. 	1980), 	aff'd 	memo 	by 	an
eoually 	divided 	Court, 	455 	U.S. 	676 	(1982). 	The 	~hrust 	of
the 	A."'_~. decision 	-- 	"that 	broad 	bans 	on 	advertising 	and
soliciting 	are 	incor:sistent 	with 	the 	natior:'s 	public 	p"Jlicy"
(94 	F.T.C. 	at 	1011) 	-- 	is 	consistent 	with 	the 	reasoning 	of
recent 	Supreme 	Court 	decisions 	involving 	professional
regulations. 	See,~, 	Zauderer 	v. 	Office 	8f 	Disciplinary
Counsel 	of 	the 	Supreme 	Court 	of 	Ohio, 	105 	S. 	Ct. 	2265 	(1985)
(holding 	~hat an 	attorney 	~ay 	not 	be 	discip:i~ed for
soliciting 	legal 	Lusir:ess 	through 	printed 	advertising
cOj;:air:ing 	truthful 	and 	nondeceptive 	inf8r~a:ion and 	advice
regarding 	the 	legal 	rights 	of 	pOtential 	clie~ts or 	using
nondeceptive 	illustra~ions cr 	pictures); 	3ates 	v. 	State 	3ar
of 	;'.rizcr.a, 	-i33 	:1.5. 	350 	(1977) 	(h01di:-:g 	state 	supreme 	court
pr~hibiticn on 	advertising 	invalid 	under 	the 	First 	Amendment
and 	according 	great 	importance 	to 	the 	role 	of 	advertising 	in
the 	efficient 	functioning 	cf 	the 	marKet 	fer 	professiona:
services); 	and 	Virginia 	State 	Board 	of 	Pharmacy 	v. 	Virginia
Citizens 	Consumer 	Ccunci:, 	Inc., 	425 	U.S. 	748 	(1976) 	(holding
Virgi~ia prohibi:ior: 	on 	advertising 	by 	pharmacists 	invalid).
Cleveland 	Regional 	O::ice 	and 	3~r=au of 	Ecenc~ics, Federal
Tr ad e 	Cc m.m iss ion, 	Imp r 0 'l i :; ~ 	Co f. S '...l:T1 erA c c e s s 	:::; 	Leg a 1
Services: 	:he 	Case 	fer 	Re~~~ing Restric:ic:-:s 	on 	Truthful
Advertisi~g (1984); 	Burea~ c= 	~concmics, 	Federal 	Trade
Co~~is~ion, Effects 	of 	Restric:ions 	on 	Advertising 	and
Cc~~ercia: Practice 	in 	the 	Professions: 	The 	Case 	of
O?~ome~ry (1980); 	Benham 	and 	Benham, 	Regulati~g Throuoh 	the
~--&p~Si~~S· 	A ~er-pecr;ve 	~n 	Tnform-r:-~ 	C-~~rol 	-8 	_. 	r	.. 	..... 	...::> 	-l... 	Q 	•• 	_ .. \...' 	, 	~ 	~._. 	::s
~=~~. 	421 	(:975); 	Benham, 	T~e 	Effects 	of 	Acve:t:sing 	C~ 	:he
Price 	0: 	Eyeglasses, 	:5 	J.~. 	& Econ. 	337 	(19;2).
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q~ality 	of 	services 	available 	in 	the 	marketplace. 4 	The 	FTC's
goa: 	is 	to 	identify 	and 	seek 	the 	removal 	of 	those 	restrictions
t~at 	impede 	compe:itior., 	increase 	COStS, 	and 	harm 	consumers
without 	providing 	c8~nterva~~lng bene:its. 	Therefore, 	to 	the
extent 	that 	tr~t~:~: advertisin~ is 	restricted, 	higher 	prices 	and
a 	decrease 	in 	cons~rrer we::are 	~ay 	res~lt wit~c~: any
c:rrespcnding 	increase 	. ~	
... 	qua:ity.
we 	appreciate 	the 	delicate 	balance 	that 	often 	must 	be 	struck
be:~eer. the 	desire 	cons~rrers to 	have 	access 	to 	useful
i~:ormatic~ anc 	the 	necessi:y 	cf 	prevent:ng 	deception. 	However,
it 	is 	irr.por:an: 	:0 	recognize 	that 	advertising 	prohibitions
irrpcsed 	to 	protect 	consumers 	can 	themselves 	be 	the 	source 	of
cons~mer injury. 	Acvertising 	prohibitiors 	may 	reduce 	the
dissemination 	:f 	infor~ati:n that 	might 	potentially 	mislead 	some
ccns~~ers, 	but 	pror.i8itions 	rray 	also 	reduce 	the 	dissemination 	of
acc~rate information 	that 	wou:d 	assist 	ffiany 	others 	in 	making
Fo~ 	:hese 	:easons, 	we 	be:ieve 	that 	only
ad~er:isir.g whic~ 	is 	:a:se 	:r 	deceptive 	or 	ot~erwise causes
s~~star.:ia: cons~mer 	in:~ry wi:ho~: offsettin~ benefits 	should 	be
prohibited 	in 	the 	~arketp:ace. 	Any 	other 	standard 	is 	like:y 	:0
red~ce consumers' 	expos~re :0 	information 	that 	is 	potentially
~sef~:, 	and 	may 	contrib~te 	to 	an 	increase 	in 	prices 	or 	a 	decrease
, ~uris 	and 	~cChesr.e:, Ad~er:isir.= and 	the 	Price 	and 	Qual::'; 	:f
~eoa: 	Services: 	:~e 	Case 	f:r 	:ecal 	Clinics, 	1979 	AM. 	B.
Fo~r.d. 	Researc~ 	:79 	(:9~9); 	Cady, 	~es:ric:ed Advertisir.o
a~d 	C8~petit:or.: 	:he 	Case 	of 	Re:aii 	Jrugs 	(:976). 	See 	a1s8
B~=ea~ ~f 	~c~~c~:cs, :edera: 	Trade 	C8;.~is5i2~, E:fec:s 	~----
Restric:i~r.s ~~ 	Adver:isi~; ar.d 	Corr~ercia: ?:actice 	In 	tte
Pr~fess!o~s: 	:r.e 	Case 	sf 	Optorne~ry (:980).
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in 	consumers' 	aci:ity 	to 	choose 	effectively 	between 	competing
goods 	and 	services. 	If 	consumers 	are 	show~ 	to 	be 	misled 	about 	a
particular 	issue, 	mcreover, 	the 	best 	remedy 	is 	usually 	to 	require
fuller 	disc:cs~res ~~ 	that 	specific 	issue, 	rather 	than 	to 	ban 	an
entire 	class 	of 	advertisme~ts.
II. 	TEE 	PROPOSED·AMEN~~E~T 	TO 	SECTION 	105.12 	OF 	THE
CO~~:SS:ON'S 	RU:ES
Au:c~:=i:e 	dealers 	i~ 	:exas 	are 	current:y 	permitted 	to
engage 	in 	"i::.voice" 	or 	"inv:Jice 	plus" 	advertising 	(~, 	"$49
over 	i::.voice," 	"5% 	over 	invcice"). 	The 	proposed 	amendment 	to
Section 	:05.12 	of 	the 	Co~~ission's rules 	would 	prohibit 	this
type 	of 	ad,ertisi~g.
~~e 	reaseD 	for 	t~i5 	proposed 	cha~ge appears 	to 	be 	a 	concern
that 	co::.sur..ers 	:r,ay 	equate 	the 	"invoice 	price" 	of 	a 	vehicle 	with
the 	dealer's 	C:JS:. 	As 	we 	~nderstand 	it, 	the 	invoice 	price 	is 	the
~a5e price 	:~e ~a::.~:ac:~rer c~arges a 	dea:er 	for 	an 	au:omobile.
Tr.e 	actual 	cea:er's 	cos: 	::r 	a::. 	aU::Jro:Joile, 	however, 	depends 	~pcn
c:~e= 	:act2:s, 	s~c~ as 	~a~~:ac:~re=s' reba:es, 	sa:es 	:ncentive
pla::.s, 	ac 	allowances, 	a::.d 	~rices 	paid 	:0 	other 	dealers 	:0 	acquire
cars 	:~=t 	are 	in 	great 	demar-c, 	wr.ich 	are 	::'0: 	ref:ected 	in 	the
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in~~ice.5 	There 	is 	concern 	therefore, 	that 	in 	the 	face 	of
advertising 	based 	on 	invoice 	price, 	which 	does 	not 	take 	account
of 	acjustme~ts made 	to 	arr:ve 	at 	deale: 	costs, 	c~nsumers will
conclude 	that 	they 	are 	receiving 	a 	better 	bargain 	than 	they
rec:ly 	are 	ane 	will 	.. at 	shop 	aggressively 	for 	the 	lowest 	price
t~c: 	they 	c~~ld cbtain.
A. 	Benefits 	from 	I~voice A~vertising
However, 	invoice-based 	price 	advertising 	e~es 	provide
vcl~able ir.:ormaticn 	which 	ca~ 	substantially 	assist 	consumers 	in
mc~ing automobile 	p~rchasing decisions. 6 	The 	invoice 	is 	a
doc~~en: 	in 	:~e 	dealer's 	possession 	which 	contains 	some
:he 	proposed 	~cdificatis~ to 	Section 	105.12 	wou:d 	prohibit
the 	use 	~f 	ad ..'ert':'sin<; 	"..:-::c:-. 	c~!ltains 	the 	terms 	"invoice" 	or
"invcice 	price" 	er 	other 	terms 	"wr.ich 	refer 	to 	the 	cost 	cf
the 	vehicle 	tc 	tr.e 	dealer 	or 	imply 	that 	the 	vehicle 	is 	being
effered 	fer 	sale 	at 	the 	dealer's 	COSt." 	The 	language 	of 	the
proposed 	modification 	therefore 	indicates 	that 	the 	basis 	for
the 	propcsed 	rule 	change 	is 	a 	cor.cer~ 	that 	cens~mers may
ccnfuse 	:he 	"i;:'lcice" 	?r ice 	"",'i th 	the 	actua2. 	"dealer 	cost."
6 	Con'"ersely, 	other 	:er::.s, 	s'.:.o:-. 	as 	"dealer 	cos:," 	may 	be
sign:ficar.:ly 	~cre ~is:eading :0 	consumers. 	Ccst 	and 	pre:i:
fi<;'.:.res 	~ay 	be 	calculated 	in 	a 	~ariety 	of 	ways, 	rendering
them 	cf 	little 	shopping 	value 	to 	consumers. 	Moreover,
because 	of 	manufacturers' 	rebates, 	sales 	incentive 	plans, 	and
o::-:er 	a2.l:war.ces, 	it 	is 	~ifficult fer 	an 	a~t:mcbi:e dealer 	::
~r.ow the 	true 	cost 	of 	a 	vehicle 	at 	the 	ti~e when 	it 	is 	beinq
advert:sec 	f~r 	sa:e. 	-
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information 	about 	the 	dealer's 	costs 	in 	obtaining 	the 	vehicle. 7
This 	information, 	including 	the 	total 	invoice 	price 	of 	the
vehicle, 	can 	be 	verified 	by 	t~e 	cons~rner 	simply 	by 	viewing 	the
invoice. 	7he 	purchase 	of 	a 	new 	car 	differs 	from 	most 	other
retail 	purchases 	i~ 	that 	the 	actual 	selling 	price 	is 	typically
negotiated 	De:wee~ the 	seller 	and 	the 	buyer. 	Consequently,
i~for~a:icn about 	the 	seller's 	c~sts can 	substantially 	aid
prespective 	car 	purchasers 	i~ 	their 	negotiations 	by 	helping 	them
t~ 	estimate 	what 	price 	the 	seller 	might 	be 	willing 	to 	accept.
Eve;) 	if 	t::is 	i~'loice information 	is 	"imperfect" 	in 	the 	sense 	that
it 	does 	net 	reflect 	any 	rebates 	or 	other 	adjustments 	that 	may
affect 	t~e 	dealer's 	ultimate 	cost. 	1t 	is 	nonetheless 	quite 	useful
to 	co~sumers. 	7~e value 	of 	invoice 	price 	information 	to
ce~sumer: is 	evidenced 	by 	the 	fact 	many 	consumers 	are 	willing 	to
purchase 	this 	type 	of 	information 	from 	publications 	such 	as
Ccr.su~er Reports 	or 	a~to purchasing 	guidebooks. 	Without 	this
type 	=r 	infor~a:ion, 	the 	average 	consumer 	will 	often 	be 	at 	a
s~bs:a~~:a: 	di5acva~~age 	i~ 	ice~:ifying 	a~d 	negotiating 	the
. 	. b' 	.	_owes: 	pess: 	_e 	pr:ce.
~creover, 	i~vcice-based advertisir.g 	is 	helpful 	to 	consumers
whc 	are 	comparison 	shopping. 	:he 	invoice 	amount 	for 	like 	make
and 	model 	automobiles 	with 	identical 	equipment 	does 	not 	vary
7 	The 	i~vcice does 	not 	oO~tain i~::rrna:ion about 	manufacturers'
rebates, 	sales 	incentive 	plans, 	ad 	allowances 	and 	other
factors 	affecting 	the 	dealer's 	tetal 	cost 	ef 	vehicles. 	:hese
figures 	are 	eften 	unknown 	until 	long 	after 	the 	dealer 	has
obtained 	the 	vehicle 	and 	sold 	it 	to 	the 	consumer. 	Moreover,
because 	these 	payments 	cfte;) 	depend 	or. 	a 	dealer's 	total 	sales
v:lu~e, 	they 	are 	analogous 	t~ 	overhead 	expenses 	and 	cannet 	be
ur.amDiguously 	assigned 	to 	any 	individ~al vehicle.
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among 	competing 	dea2.ers 	in 	a 	given 	geographic 	market; 	it 	can
provide 	a 	benchmark 	to 	which 	cons~mers can 	compare 	th~ offers 	of
c~mpeting dealers. 	Thus, 	permitting 	dealers 	to 	advertise 	on 	an
invoice 	basis 	irnpr~ves the 	ability 	cf 	consumers 	:0 	compare 	prices
of 	various 	dealers 	on 	the 	same 	ma~e 	and 	model 	of 	automobile. 	In
addition, 	inv2ice 	advertising 	can 	a:so 	help 	consumers 	focus 	on
the 	dealer 	cost 	of 	vario~s eq~ipme~t options, 	since 	any 	variance
be:wee~ the 	price 	of 	twc 	a~t~mcbi:es, both 	of 	which 	are
advertised 	"a: 	dealer 	invoice," 	wi:: 	be 	attributable 	to 	the
differences 	i~ 	equipment.
A ba~ 	on 	in~oice advertising 	would 	increase 	consumers'
"search 	cos:s," 	:na~:ng 	it 	!T'.ore 	difficult 	for 	consumers 	to 	obtain
the 	useful 	information 	found 	on 	the 	invoice. 	These 	costs--the
time, 	ef:~rt, 	expense 	and 	inconvenience 	incurred 	by 	consumers 	in
obtaining 	purchasing 	in:ormation--are 	difficult 	to 	measure, 	but
they 	are 	rea:. 8 	As 	Judge 	(then 	Professor) 	Reber: 	Berk 	noted,
increasing 	the 	inc~nvenience cf 	shopping 	for 	automobiles 	is 	no
d:'::erer.: 	from 	raising 	au::mc~i:e prices. 9
:u::he:, 	ec~~=mlC resear=~ ~a: 	established 	:nat 	when 	sea:c~
02S:S 	for 	sheppers 	decrease, 	the 	prices 	of 	the 	prod~cts they 	are
- 	. 	~ 	',- 	1 	- 	'0	_:CK:ng 	:cr 	wl~~ 	a_so 	cecrease.- 	The 	explanation 	for 	this
effect 	is 	that 	shopping 	is 	n~: 	much 	different 	from 	other
8
9
Stig:er, 	"The 	::::cc~cr.ics :f 	:::;::r:na:ion, II 	Journal 	of 	Poli:ica:
Econcmv, 	:une 	1961, 	PF. 	2:3-2=.
Bork, 	7he 	An:itrust 	Paradox, 	3asic 	Bocks, 	pp. 	85-86 	(1978).
See, 	e.c., 	Carlsc:i 	& Gieseke, 	"Price 	Search 	in 	a 	Product
~arKe~]cur~al of 	Cons~mer ~esearch, March 	1983, 	pp. 	35/-
65; 	St ig:er, 	s;,;pra.

activities 	tha: 	involve 	sacrifices: 	when 	shopping 	costs 	less
(i.e., 	is 	made 	less 	difficult), 	people 	do 	it 	more. ll 	If
-consumers 	shop 	more, 	they 	are 	like:y 	to 	learn 	more 	about
competing 	goods 	a~d 	prices. 	~his 	lncreased 	knowledge 	of 	pricing
information 	e~~ances consumers' 	ability 	to 	obtain 	the 	best
bargains 	available, 	thereby 	increasing 	competition 	among 	sellers
to 	sell 	higher 	q~ality produc:s 	at 	the 	lowest 	possible 	price~.
The 	fact 	that 	a 	decrease 	ir. 	search 	costs 	will 	lead 	to 	a 	decrease
in 	prices 	has 	been 	docume~ted in 	such 	diverse 	economic 	sectors 	as
grocer:es,:2 	eyeg:asses,13 	and 	legal 	services. 14
Last:y, 	we 	note 	that 	in 	a 	market 	like 	autos, 	where 	almost
a , ,
J.J. 	prices 	are 	negotiable, 	it 	may 	be 	difficult 	for 	a 	dealer 	to
undertake 	effective 	price 	advertising. 	Invoice 	ads 	can 	be 	an
effective 	~eans of 	informing 	the 	public 	that 	the 	dealer 	sells
cars 	at 	a 	"low 	markup," 	and 	thus 	can 	provide 	valuable 	information
to 	potential 	purchasers.
:n 	:ig~t of 	:hese 	reasons, 	we 	feel 	that 	a 	prOhibition 	on
i~vcice-related advertisi~g co~ld 	res~lt 	in 	injury 	to 	ccns~mers,
as 	we:: 	as 	red~ced competition 	among 	dealers. 	The 	questio~ is
w~e:her 	t~e 	ban 	wC~:c previde 	cons~mer benefits 	that 	outweigh
these 	costs.
Morrison 	& 	Ne·wmar., 	,.., 	"::::~rs 	::: 	O?era:ion 	Res:rictions 	and
Compe:::io:: 	.ll".:::cng 	?etai: 	:l::r:S," 	'::conomic 	Inc·...1irv, 	Vo:'. 	XX:,
January 	1983, 	o~servec :~at 	s~cppers were 	less 	likely 	to 	take
extended 	s~opping trips 	~r.en stores 	were 	closed 	on 	Sundays.
12
13
Carlson 	and 	Gieseke, 	s~pra.
See 	note 	3, 	suora.
: d .
10

B. 	Injury 	from 	Invoice 	Advertising
The 	apparent 	reason 	for 	a 	ban 	on 	invoice-related 	advertising
is 	the 	concern 	tha: 	some 	co~s~mers 	will 	confuse 	references 	to 	the
dealer's 	"invoice" 	price 	with 	references 	to 	the 	dealer's 	actual
cos:. 	It 	is 	ui.c:ear 	:0 	~ha: 	exte~: such 	con:~sion exists.
Indeed, 	we 	are 	1.0: 	aware 	0: 	any 	e~pirical studies 	that 	indicate
cons~~ers generally 	con:~se :he 	term 	"invoice 	a~cunt" with 	the
dealer's 	ac:~al cos:.
Moreover, 	cons~mers shoppir.g 	for 	an 	automobile 	are 	seeking
the 	best 	cO~Dina:ion of 	a 	low 	p~rchase price 	ana 	:~e 	vehicle
charac:eris:ics 	they 	desire. 	Since 	any 	rebates 	or 	allowances
would 	net 	directly 	al:er 	that 	combination 	of 	cons~mer price 	and
charac:eris:ics, 	i: 	is 	unclear 	whether 	consumers 	~ould modify
their 	purc~asing decisior.s 	if 	they 	were 	aware 	tha: 	the 	dealer
m:gn: 	receive 	a 	rebate 	or 	other 	payment 	from 	the 	~anufacturer. 	A
cons~ser. co~ld 	conceivably 	purchase 	a 	car 	in 	:ne 	belief 	that 	by
p~rchasing It_ ...	
c::.~ in":cice," 	he 	had 	received 	the 	:o~es: possible
But 	advertising 	and 	cc~petition among
dealers 	cfferin~ even 	:c~er prices 	should 	assure 	:ha: 	consumers
will 	learn 	of 	the 	avai:a~i:i:y of 	lower 	prices.
!n 	aciditio~, 	:he 	i:1·~·o:.ce price 	may 	be 	belr;.. 	:ne 	act\;al
dealer 	cos: 	for 	aealers 	A •. ~ ;ay 	pre~iu~s to 	o:her 	dealers 	to
- 	:~e~e 	i~stances, 	c:~s~mers 	who
ccnf~se 	invoice 	price 	with 	~l:i~a:e dealer 	cos: 	~:~ld not 	appear

Acccrdingly, 	we 	believe 	that 	the 	possibility 	of 	consumer
injury 	from 	invoice-related 	adve~tising does 	not 	outweigh 	the
apparent 	information-enhancing 	and 	competitive 	benefits 	that 	such
advert:sing 	can 	provide. 	7h~s, 	we 	believe 	there 	is 	insufficient
justifica~ion for 	a 	total 	ban 	o~ 	such 	advertising.
C. 	A~ 	Alternative" Approac~
Al:hcugh 	we 	do 	nct 	support 	a 	ban 	on 	a 	ban 	on 	invoice-related
advertisi~g, if 	the 	Mo:or 	Ve~icle Commission 	believes 	some
res:ric:icn 	on 	invoice-based 	advertising 	is 	needed, 	it 	could 	take
some 	ac:i:n 	short 	of 	a 	bar. 	to 	minimize 	the 	possibility 	that
re:erences 	to 	an 	automobile's 	invoice 	price 	might 	confuse
It 	could 	amend 	its 	r~le 	to 	require 	that 	dealers 	who
advertise 	on 	an 	invoice 	basis 	disclose 	in 	their 	ads 	that 	the
invoice 	price 	may 	not 	equal 	the 	dealer's 	actual 	cost. 	Such 	a
disclos~re 	would 	certainly 	be 	less 	costly 	to 	consume~s than 	an
c~:riar.: ba~ 	on 	invoice-based 	advertising, 	because 	it 	would
preserve 	~he 	benefits 	that 	ccr.s~mers and 	competition 	derive 	from
i~voice-based advertising. 	~~is disclosure 	would 	also
s~bs:an:ia:ly recuce 	any 	confusion 	associated 	with 	invoice
advertising 	and 	thereby 	prevent 	any 	injury 	that 	might 	flow 	from
Accordingly, 	if 	the 	Metor 	Vehicle 	Commission
concludes 	that 	the 	risk 	cf 	c:ns~mer harm 	from 	invoice-tased
advertisi~g is 	grea: 	eno~gh t: 	~ecessitate any 	regulatory
i~~erve~::=~, we 	bel:eve 	a 	disc::su:e 	:eq~i~eme~: is 	clearly
an 	outright 	prohibition 	on 	truthful 	claims.
l2

III. 	CONCLUSION
We" do 	not 	support 	the 	ban 	on 	invoice 	advertising 	to 	be
imposed 	by 	the 	proposed 	amendment 	to 	Section 	lQ5.l2 	of 	the
Commission's 	rules. 	Given 	the 	procompetitive 	benefits 	which 	may
be 	associated 	with 	invoice 	advertising, 	and 	in 	the 	absence 	of
evidence 	indicating 	that 	such 	advertising 	is 	likely 	to 	injure
consumers, 	we 	believe 	that 	automoDile 	dealers 	in 	Texas 	should 	be
permitted 	to 	continue 	this 	advertising 	practice. 	If 	the
Commission 	determines, 	~onetheless, that 	some 	limitation 	on
invoice-based 	advertising 	is 	warranted 	we 	support 	the 	addition 	of
a 	disclosure 	requirement 	to 	accompany 	advertising 	referring 	to
invoice 	price.
We 	thank 	you 	for 	your 	willingness 	to 	consider 	our 	comments.
We 	have 	referred 	to 	a 	number 	of 	studies 	in 	these 	comments. 	We
will 	De 	happy 	to 	supply 	a 	copy 	of 	any 	of 	these 	if 	you 	so 	desire.
I 	now 	stand 	ready 	to 	answer 	any 	questions 	that 	the 	Texas
Motor 	Vehicle 	Commission 	may 	have.
13