FTC Staff Comment Before the Missouri House of Representatives Regarding House Bill 1124, Which Would Expand the Current Prohibition on Direct-to-Consumer Sales by Manufacturers of Automobiles

UNITED STATES OF AMERICA
Federal Trade Commission
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Competition
Bureau of Economics
May 15, 2014
Rep. Michael J. Colona
Missouri House of Representatives
State Capitol
201 West Capitol Avenue
Jefferson City, MO 65101-6806
Dear Representative Colona:
Thank you for requesting comments from the Federal Trade Commission (“FTC”) staff1
regarding House Bill No. 1124, which is now pending in the Missouri legislature. A portion of
that bill would amend Section 407.826.1 of the Motor Vehicle Franchise Practices Act, which
currently prohibits franchisors of new motor vehicles from “owning or operating a new motor
vehicle dealership” in Missouri.
Under current law in Missouri, an automobile “franchisor” means a person who grants to
another person the right to use trademarks and other rights, and shares a community of interests
with that person, in connection with the sale of new motor vehicles.2 The relevant portion of HB
1124 would add a new and different definition of “franchisor” for purposes of the prohibition on
owning or operating new vehicle dealerships. Under the change set forth in HB 1124,
“franchisor” for these purposes would be broadly defined to “include any manufacturer of new
motor vehicles which establishes any business location or facility within the state of Missouri”
that allows for the sale of new motor vehicles.
The plain effect of HB 1124, therefore, would be to expand the current prohibition on
direct-to-consumer sales. The prohibition would apply not only to franchisors but also to motor
vehicle manufacturers who do not use an independent franchise system and instead prefer to sell
1 This staff letter expresses the views of the Federal Trade Commission’s Office of Policy Planning, Bureau of
Competition, and Bureau of Economics. The letter does not necessarily represent the views of the Federal Trade
Commission or of any individual Commissioner. The Commission, however, has voted to authorize staff to
submit these comments.
2 See M O. REV. STAT. § 407.815 (8) (defining “franchise” or “franchise agreement” as “a written arrangement or
contract […] in which a person grants to another person a license […] to use, a trade name, trademark, service
mark, or related characteristics, in which there is a community of interest in the marketing of goods or services,
[…] and in which the operation of the franchisee's business […] is substantially reliant on the franchisor for the
continued supply of franchised new motor vehicles, parts and accessories […].”); and id., § 407.815 (10) (defining
“franchisor” as “a person who grants a franchise to another person”).

2
directly to consumers. All new motor vehicles in Missouri would have to be sold through
independent dealers.
Laws such as the existing Section 407.826 operate as a special protection for independent
motor vehicle dealers. They restrict automobile manufacturers from selling their products using
any method other than through independent auto dealers. This protection limits the ability of auto
manufacturers to innovate in their methods of sale in ways that might be more cost-effective and
responsive to consumer demand. While it protects the dealers, it is very likely harming both
competition and consumers. By expanding the scope of the existing prohibition to include
manufacturers that do not currently use, or even desire to sell through independent dealers, HB
1124 would amplify the adverse effects of the current prohibition. It will discourage innovation
and new forms of competition, especially from newer auto manufacturers who have no dealer
network. We therefore appreciate this opportunity to provide our views as to the probable impact
of the proposed legislation on competition and consumers.3
FTC staff offer no opinion on whether automobile distribution through independent
dealerships is superior or inferior to direct distribution by manufacturers. Rather, as is more fully
explained below, staff’s principal observation is that consumers are the ones best situated to
choose for themselves both the cars they want to buy and how they want to buy them.
Automobile manufacturers have the incentive to respond to consumer preferences and choose the
most effective distribution method for their vehicle brands. Absent supportable public policy
considerations, the law should permit automobile manufacturers to choose their distribution
method to be responsive to the desires of car buyers.
I. 	Interest and Experience of the Federal Trade Commission
The FTC is an independent administrative agency charged with working to protect
consumers by preventing anticompetitive, deceptive, and unfair business practices, enhancing
informed consumer choice and public understanding of the competitive process, and
accomplishing this without unduly burdening legitimate business activity.4 To secure these
goals, the FTC has played a significant role in promoting competition and consumer protection
law and policy through law enforcement, the study of industries and business practices, and
through competition advocacy, which may include specific comments to legislators or regulators
concerned about the likely competitive impact of pending legislative or regulatory measures.5
3 Our opinion is limited to bills addressing a blanket restriction on manufacturer sales. We do not attempt to
comment or review the myriad additional provisions of Missouri law that regulate the relationship between
automobile manufacturers and their independent dealers.
4 Federal Trade Commission Act, 15 U.S.C. § 45.
5 Sections 6(a) and (f) of the FTC Act authorize the FTC “[t]o gather and compile information concerning, and to
investigate from time to time the organization, business, conduct, practices, and management of any person,
partnership, or corporation engaged in or whose business affects commerce,” and “[t]o make public from time to
time such portions of the information obtained by it hereunder as are in the public interest ….” 15 U.S.C. § 46(a),
(f).

3
Competition is at the core of America’s economy, and vigorous competition among
sellers in an open marketplace gives consumers the benefits of lower prices, higher quality
products and services, and greater innovation.6 The goal of our advocacy program is to enhance
understanding of the competitive process and provide a framework for thinking about public
policy issues from a competition and consumer protection perspective. We urge policy makers to
consider (1) the likely competitive impact of proposed legislation or regulations; (2) how they
might affect consumers; (3) what justifications might exist for any restrictions on competition;
and (4) whether less restrictive alternatives would fulfill public policy goals while adequately
protecting consumers. These considerations can be especially important when heavily regulated
industries face new and disruptive products, services, and methods of sale.7
In carrying out its mission, the Commission has developed considerable expertise in
analyzing markets for the sale of motor vehicles. For example, in 1988 and again earlier this
year, FTC staff submitted advocacy letters opposing limitations imposed by Illinois law on the
hours of operation of auto dealerships.8 The FTC also used its enforcement authority to protect
competition in motor vehicle sales in the late 1980s, when it issued a complaint against several
motor vehicle dealerships in the Detroit area and the Detroit Auto Dealers Association
(“DADA”) for imposing anticompetitive restrictions on hours of operation.9
In 1986, the FTC’s Bureau of Economics issued a report on the effect of state regulations
in retail motor vehicle markets that restrict the establishment of new motor vehicle dealerships
near existing dealers selling cars of the same make.10 The report found that these state laws
6 See Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978) (“The assumption that competition is
the best method of allocating resources in a free market recognizes that all elements of a bargain—quality,
service, safety, and durability—and not just the immediate cost, are favorably affected by the free opportunity to
select among alternative offers.”); Standard Oil Co. v. FTC, 340 U.S. 231, 248 (1951) (“The heart of our national
economic policy long has been faith in the value of competition.”).
7 See, e.g., Comment from FTC Staff to Brendan Reilly, Alderman, City Council, City of Chicago (April 21, 2014),
available at http://www ftc.gov/system/files/documents/advocacy documents/ftc-staff-comment-honorable-
brendan-reilly-concerning-chicago-proposed-ordinance-o2014-1367/140421chicagoridesharing.pdf; FTC Staff
Comments Before the District of Columbia Taxicab Commission Concerning Proposed Rulemakings on
Passenger Motor Vehicle Transportation Services (June 7, 2013), available at
http://www ftc.gov/sites/default/files/documents/advocacy documents/ftc-staff-comments-district-columbia-
taxicab-commission-concerning-proposed-rulemakings-passenger/130612dctaxicab.pdf.
8 Comment from FTC Staff to James Oberweis, State Senator of Illinois (March 26, 2014), available at
http://www ftc.gov/system/files/documents/advocacy documents/ftc-staff-comment-illinois-state-senate-
regarding-senate-bill-2629-which-would-repeal-certain/140327illinoisautostaffcomment.pdf; Comment from FTC
Staff to James R. Thompson, Governor of Illinois (Dec. 22, 1988), available at
http://www ftc.gov/sites/default/files/documents/advocacy documents/ftc-staff-comment-governor-james-
r.thompson-concerning-s.b.1870-limit-auto-base-rental-charges-alter-allocation-costs-and-risks-damage-or-theft-
and-ban-long/v890008.pdf.
9 These dealers had reached an agreement, orchestrated by the DADA, to limit the number of hours that they would
be open for business. The FTC concluded that the agreement was anticompetitive, a conclusion that was later
affirmed by the U.S. Court of Appeals for the Sixth Circuit. See Detroit Auto. Ass’n v. FTC, 955 F.2d 457 (6th
Cir. 1992).
10 ROBERT P. ROGERS, B UREAU OF E CON., FED. T RADE COMM’N, T HE E FFECT OF STATE E NTRY REGULATION ON
RETAIL AUTOMOBILE M ARKETS (1986) (Bureau of Economics Staff Report), available at

4
harmed consumers because they caused motor vehicle prices to rise. In addition, in 2001, then-
Commissioner Thomas Leary expressed concern about the same kind of decades-old state laws
now at issue in Missouri, laws that insulate motor vehicle dealers from competition from
automotive manufacturers. While dealers at one time tended to be small businesses, he observed,
in 2001 they were frequently much larger entities and the once highly concentrated motor vehicle
manufacturing industry had become far more competitive. Commissioner Leary questioned,
therefore, whether this kind of regulatory protection for dealers could still be justified, especially
because it tended to interfere with the development of new and potentially more efficient
methods of motor vehicle distribution, such as e-commerce.11
II. 	Discussion and Analysis of HB 1124
Current Missouri law prohibits automobile manufacturers who use franchise systems
from owning or operating their own dealerships; sales of new motor vehicles by existing
franchisors can be carried out only through independent franchised dealers.12 Because most
current manufacturers utilize a franchise system, the effect of the law on existing manufacturers
is to bar alternative means of reaching or responding to consumers.
Such a blanket prohibition on direct manufacturer sales to consumers is an anomaly
within the larger economy. Most manufacturers and suppliers in other industries compete with
each other on not only the price, quality, and features of their products and services, but also on
the cost, speed, service and efficiency of their sales and distribution systems. These
manufacturers make decisions about how to design their distribution systems based on their own
business considerations and in response to consumer demand. If a manufacturer concludes that
using independent distributors to sell its products will best serve consumers and its own needs, it
is free to contract for those services. On the other hand, if it decides that direct sales work better
for its products, it can pursue sales directly. Many manufacturers choose some combination of
direct sales and sales through independent retailers.13 The competitive process gives the
manufacturer the incentive to pick the distribution option that it believes will be the most
responsive to consumers. Typically, no government intervention is required to augment or alter
these competitive dynamics—the market polices inefficient, unresponsive, or otherwise
inadequate distribution practices on its own.
Economists have long been interested in why firms choose to sell their products through a
network of independent entities, to “vertically integrate” (engage in retail sales themselves), or to
http://www ftc.gov/sites/default/files/documents/reports/effect-state-entry-regulation-retail-automobile-
markets/231955.pdf.
11 Thomas B. Leary, Comm’r, Fed. Trade Comm’n, State Auto Dealer Regulation: One Man’s Preliminary View,
Speech at The International Franchise Association 34th Annual Legal Symposium (May 8, 2001), available at
http://www ftc.gov/public-statements/2001/05/state-auto-dealer-regulation-one-mans-preliminary-view.
12 In Missouri, with limited exceptions, a motor vehicle “franchisor” is prohibited from “owning or operating a new
motor vehicle dealership.” See M O. REV. STAT. § 407.826.1.
13 Computer manufacturers are one example of this hybrid distribution system, and popular clothing brands are
another, but there are many more.

5
do some combination of the two.14 A large body of literature has shown that the decision is very
context specific. In some circumstances, such as when local sales and promotional effort is hard
to measure but important for the firm’s success, a firm may conclude that it is desirable to use
highly incentivized independent representatives.15 In others, however, reliance on independent
dealers may fail to achieve the best outcome for either the upstream producer or the consuming
public. The vast majority of existing work by economists suggests that allowing firms in
competitive marketplaces to make the decision for themselves leads to better outcomes for
consumers.16
When manufacturers respond to competitive pressure by choosing to vertically integrate,
consumers usually benefit through lower prices and/or higher quality.17 In contrast, when the
government intervenes and outlaws vertical integration, consumers often experience worse
service and higher prices.18 It is not that vertical integration is always superior. Preventing firms
14 One of the first papers focusing on this “make or buy” decision was Ronald Coase, The Nature of the Firm, 4
E CONOMICA 386 (1937). The literature has since expanded dramatically. Recent surveys touching on both theory
and empirical evidence include Francine Lafontaine & Margaret Slade, Vertical Integration and Firm
Boundaries: The Evidence, 45 J. ECON. L IT. 629-685 (2007); and Timothy Bresnahan & Jonathan Levin, Vertical
Integration and Market Structure, in H ANDBOOK OF O RGANIZATIONAL E CONOMICS 85 (R. Gibbons & D.J.
Roberts, eds., 2012).
15 A book-length treatment of the theory explaining why can be found in Jean-Jacques Laffont & David Martimort,
T HE T HEORY OF I NCENTIVES: T HE PRINCIPAL-A GENT M ODEL (2009).
16 This conclusion was reached in two separate recent surveys of the literature: Francine Lafontaine & Margaret
Slade, Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy, in H ANDBOOK OF
ANTITRUST E CONOMICS (Paolo Buccirossi, ed., 2008); and James C. Cooper, Luke M. Froeb, Dan O’Brien, &
Michael G. Vita, Vertical Antitrust Policy as a Problem of Inference, 23 I NT’ L J. I NDUS. ORG. 639-64 (2005).
17 This is not to suggest that vertical integration can never harm competition, as may be the case where it is used to
impair competition from rival suppliers or customers.
18 Efficient vertical integration by upstream manufacturers can benefit consumers in a variety of ways. First, it can
remove the incentive for a manufacturer as well as a dealer to each mark up the price of the product on its way to
the consumer. This results in lower prices and increased sales to consumers. Discussion and details are available
in Dennis W. Carlton & Jeffrey M. Perloff, M ODERN I NDUSTRIAL O RGANIZATION 523-527 (2 nd ed. 1994).
Second, integration by a manufacturer into distribution can enable manufacturers to better match their products
with the preferences of consumers. For example, though manufacturers have an incentive to increase overall sales
of their products, particular dealers may be most interested in making sales from their inventory, which may cause
consumers to have to visit multiple dealerships to establish what product best fits their needs, resulting in
relatively high search costs. When consumers’ search costs are a large determinant of their purchasing patterns, a
manufacturer can have a strong incentive to make direct sales so that it is simpler for consumers to find what they
want. See Comment from FTC Staff to James Oberweis, State Senator of Illinois 5 (March 26, 2014), available at
http://www ftc.gov/system/files/documents/advocacy documents/ftc-staff-comment-illinois-state-senate-
regarding-senate-bill-2629-which-would-repeal-certain/140327illinoisautostaffcomment.pdf (discussing and
summarizing literature on the impact of search costs). For some empirical evidence on the importance of search
costs in the automotive industry, see Fiona Scott Morton, et al., What Matters in a Price Negotiation: Evidence
from the U.S. Auto Retailing Industry, 9 Q UANTITATIVE M ARKETING & E CON. 365-402 (2011). For a more general
review of the economic theory and evidence connecting search costs to prices, see Michael Baye, et al.,
Information, Search, and Price Dispersion, in H ANDBOOK ON E CONOMICS AND I NFORMATION SYSTEMS 323 (T.
Hendershott, ed., 2005).
Third, past work by economists has shown that vertical integration can aid firms in responding to uncertainty or
evolving business environments by establishing clear lines of authority between its manufacturing and sales
personnel, especially when new firms are attempting to enter an established market. A survey of the theoretical

6
from using independent retail networks, when that is what they want to do, also can have
negative competitive consequences. The common message in both situations is that the
competitive process effectively aligns the interests of firms and consumers on the issue of
distribution method. In order to make their product as attractive as possible, firms choose the
distribution method that can bring their product to market as effectively and efficiently as
possible.
Specific evidence to support these views can be found in many industries, including retail
automotive markets and industries like gasoline retailing. Past studies by both academic
researchers and FTC staff have concluded that state-imposed restrictions on automobile
manufacturers’ ability to negotiate with their dealers increased the prices paid by consumers
without leading to notable improvements in service quality.19 Similarly, studies have found a
causal link between laws that inhibit gasoline refiners’ ability to operate or own retail stations,
and higher prices.20 In our view, the well-developed body of research on these issues strongly
suggests that government restrictions on distribution are rarely desirable for consumers. When
they are adopted, at a minimum such restrictions should be clearly linked to specific policy
objectives that the legislature believes warrant deviation from the beneficial pressures of
competition, and no broader than necessary to achieve those objectives.21
Those who support a blanket prohibition on direct manufacturer sales have made a
number of arguments that FTC staff find unpersuasive. Perhaps the central concern reflected in
the current laws regulating the manufacturer-dealer relationship is that government intervention
is required to protect independent dealers from abusive behavior by their suppliers. But a blanket
prohibition of direct manufacturer sales is not a narrowly crafted provision to protect franchised
dealers from abuse in their franchise relationships. Such a prohibition is categorical, going well
motivations for vertical integration can be found in Timothy Bresnahan & Jonathan Levin, Vertical Integration
and Market Structure, in H ANDBOOK OF O RGANIZATIONAL E CONOMICS (R. Gibbons & D.J. Roberts, eds., 2012).
Empirical evidence of integration’s impact on firms’ ability to respond to events can be seen in recent studies such
as Sharon Novak & Scott Stern, Complementarity among Vertical Integration Decisions: Evidence from
Automobile Product Development, 55 M ANAGEMENT SCIENCE 311-332 (2009); and Silke Forbes & Mara
Lederman, Does Vertical Integration Affect Firm Performance? Evidence from the Airline Industry, 41 RAND J.
E CON. 765-90 (2012).
19 In particular, see, E. Woodrow Eckard, Jr., The Effects of State Automobile Dealer Entry Regulation on New Car
Prices, 24 E CON. I NQUIRY 223-42 (1985); and ROBERT P. ROGERS, T HE E FFECT OF S TATE E NTRY REGULATION ON
RETAIL AUTOMOBILE M ARKETS (1986) (FTC Bureau of Economics Staff Report, supra note 9).
20 J.M. Barron & J.R. Umbeck, The Effects of Different Contractual Arrangements: The Case of Retail Gasoline, 27
J.L. & E CON., 313-328 (1984); Michael G. Vita, Regulatory Restrictions on Vertical Integration and Control: The
Competitive Impact of Gasoline Divorcement Policies, 18 J. REG. E CON. 217-33 (2000); and A.A. Blass & Dennis
Carlton, The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws that Limit that Choice,
44 J. LAW & E CON. 511-24 (2001).
21 Our comments here echo prior comments discussing similar issues. FTC Staff Comments Before the District of
Columbia Taxicab Commission Concerning Proposed Rulemakings on Passenger Motor Vehicle Transportation
Services (June 7, 2013), available at http://www ftc.gov/sites/default/files/documents/advocacy documents/ftc-
staff-comments-district-columbia-taxicab-commission-concerning-proposed-rulemakings-
passenger/130612dctaxicab.pdf (discussing taxicab rules and suggesting that “any restrictions on competition that
are implemented should be no broader than necessary to address legitimate subjects of regulation, such as safety
and consumer protection, and narrowly crafted to minimize any potential anticompetitive impact.”)

7
beyond the many other statutory provisions of Missouri law that protect dealers from such abuse.
HB 1124 would extend the current restrictions to every entity engaged in manufacturing,
assembling or distributing new motor vehicles, even a manufacturer that has never entered into a
franchise agreement and has no interest in doing so.
Advocates for existing dealers also argue that manufacturers that sell directly to
consumers will not provide them with adequate service. This argument presupposes that auto
manufacturers in a competitive environment will act contrary to their economic self-interest. If
consumers greatly value post-sale service and would be unlikely to purchase or recommend any
automobile without a reasonable assurance of quality future service, then any manufacturer will
have an incentive to supply such service or would see its sales decline to the benefit of its rivals.
This competitive pressure is a strong motivation for manufacturers to either provide good service
themselves or continue to contract with an independent service provider, such as a dealer, to do
so.
Finally, some advocates for a categorical ban on direct sales argue that direct-selling
manufacturers would charge higher prices to consumers. In their view, consumers benefit from
the “intrabrand” competition between dealers of the same brand of vehicle. In other words, rival
dealers in the same area that sell the same make and model of car compete for business and
competition between them can lower prices for car buyers. Manufacturers, they maintain, would
not be subject to the same competitive pressures.
This view is inconsistent with modern economic learning and with the Supreme Court’s
widely accepted observation that strong “interbrand” competition—competition between rival
manufacturers—can suffice as a source of downward pressure on price.22 Manufacturers in a
competitive market face acute pressure to keep prices low to keep buyers from shifting their
purchases to a competing manufacturer’s product. Thus, forcing firms to use inefficient
distribution methods can result in higher prices and other forms of consumer harm. As described
above, this is not merely a theoretical possibility. Statistical evidence shows that states that have
placed strong limitations on gasoline refiners’ ability to operate their own retail outlets tend to
have higher prices than those that allow refiners to use whatever combination of dealer and
company-operated stations they prefer.23
Unlike the purported benefits of a manufacturer sales ban, which are questionable, the
anticompetitive effects of such a ban are immediately visible in the circumstances that have led
to the introduction of HB 1124. Tesla Motors is a relatively new entrant into the business of
motor vehicle manufacturing and sale, with an innovative new product and a distinctive method
22 Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 52 n.19 (1977) (“Interbrand competition is the
competition among the manufacturers of the same generic product […] and is the primary concern of antitrust
law. […] In contrast, intrabrand competition is the competition between the distributors, wholesale or retail, of the
product of a particular manufacturer. […] [W]hen interbrand competition exists, […] it provides a significant
check on the exploitation of intrabrand market power because of the ability of consumers to substitute a different
brand of the same product.”).
23 Michael G. Vita, Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of
Gasoline Divorcement Policies, 18 J. REG. E CON. 217-33 (2000).

8
of selling it. It has no franchise system and does not use franchised dealers, preferring instead to
promote and sell its vehicles on its own. If HB 1124 were to become law, however, Tesla could
be forced to enter into franchise relationships with independent dealers in order to sell in
Missouri, even though it has concluded that to do so would make it less effective as a
competitor.24 Alternatively, Missouri residents who wish to purchase a Tesla product could be
forced to use inefficient procedures to ensure that any sale to a willing buyer from Missouri does
not occur within the state. Missouri residents likely would be required to undertake for
themselves some of the purchase-related services that could be provided by a dealership, such as
some steps to register and title their cars in Missouri. Missouri residents would no longer be
eligible for financing through Tesla, and might be unable to take advantage of some tax
incentives for electric car purchases.
The current system that mandates use of independent dealers limits competition among
existing, well-established manufacturers, all of whom must sell through the established network
of independent auto dealers. A direct sales ban deters experimentation with new and different
methods of sales by current auto manufacturers, and also by other future entrants to the market,
such as Tesla, which might want to use different methods of sale. Missouri’s consumers will
ultimately pay the price of such a dictate. The essential mechanism that drives markets—the
interaction between the supply by manufacturers and the demands of consumers—is being
curbed. The market is less responsive to consumer preferences and less innovative in anticipating
their evolving needs. HB 1124 would exacerbate this continuing harm to competition and
consumers.
As already noted, FTC staff offer no opinion on the question of whether Tesla or other
manufacturers would be best served by selling their products directly or through independent
distributors. Nor do we express a view as to whether any particular motor vehicle manufacturer
should succeed or fail. Our principal point is this: absent some legitimate public purpose,
consumers would be better served if the choice of distribution method is left to motor vehicle
manufacturers and the consumers to whom they sell their products.
III. Conclusion
FTC staff believe that Missouri’s current ban on direct-to-consumer sales by motor
vehicle franchisors is very likely anticompetitive and harmful to consumers. It cannot be justified
24 Tesla has described the reasons for its direct-to-consumer sales model as follows:
We believe that by owning our own sales and service network we can offer a compelling customer experience
while achieving operating efficiencies and capturing sales and service revenues incumbent automobile
manufacturers do not enjoy in the traditional franchised distribution and service model. Our customers deal
directly with our own Tesla-employed sales and service staff, creating what we believe is a differentiated
buying experience from the buying experience consumers have with franchised automobile dealers and service
centers. We believe we will also be able to better control costs of inventory, manage warranty service and
pricing, maintain and strengthen the Tesla brand, and obtain rapid customer feedback. Further, we believe that
by owning our sales network we will avoid the conflict of interest in the traditional dealership structure inherent
to most incumbent automobile manufacturers where the sale of warranty parts and repairs by a dealer are a key
source of revenue and profit for the dealer but often are an expense for the vehicle manufacturer.
T ESLA M OTORS, I NC ., ANNUAL REPORT ON FORM 10-K (Filed Feb. 26, 2014) at 11.

9
as a way to protect franchised dealers from abuse in their franchise relationships, and the other
arguments that have been offered in its defense appear to be contrary to a significant body of
economic study and FTC experience.
HB 1124 would expand the scope of the current prohibition and hence is very likely to
further harm competition and consumers. Instead of expanding the reach of the direct sales ban
in Section 407.826.1, we urge the Missouri legislature to carefully evaluate repealing it and
instead permit manufacturers and consumers to reengage the normal competitive process that
prevails in most other industries. Such a change would facilitate the development of new
methods of distribution and possibly the arrival of new motor vehicle manufacturers, benefitting
the motor vehicle buyers of Missouri.
Respectfully submitted,
Andrew I. Gavil, Director
Office of Policy Planning
Deborah Feinstein, Director
Bureau of Competition
Martin S. Gaynor, Director
Bureau of Economics