FTC Staff Comment to the Hon. David C. Waldrop, Jr. Concerning South Carolina H.B. 3235 to Permit Auto Sales at Temporary Locations

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lSlTD SH 7E.S OF .'-\1E RIC A
FEDERAL TRADE CO\1\llSSJOS
.H:"A:'-IA REGJO~A:. ~r:JCE
March 	21, 	1988
COMM!SSmN 	AUTHORIZED
The 	Honorable 	David 	C. 	Waldrop, 	Jr.
House 	of 	Representatives
State 	of 	South 	Carolina
District 	No. 	40-Newberry 	County
Box 	813
Newberry, 	South 	Carolina 	29108
Dear 	~J. 	Waldrop:
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	pleased 	to
respond 	to 	your 	request 	for 	comments 	on 	House 	Bill 	3235. 1 	This
bill 	would 	amend 	Section 	56-15-330 	of 	the 	Laws 	of 	South 	Carolina,
1976, 	to 	permit 	dealers 	to 	sell 	vehicles 	at 	temporary 	locations
away 	from 	the 	dealer's 	established 	place 	of 	business. 	We 	believe
that 	the 	existing 	prohibition 	of 	off-site 	sales 	probably 	increases
the 	costs 	of 	automobile 	marketing, 	reduces 	the 	competition 	among
suppliers, 	and, 	therefore, 	harms 	consumers 	by 	increasing 	the
prices 	of 	motor 	vehicles 	sold 	in 	South 	Carolina.
The 	Commission 	is 	charged 	by 	the 	United 	States 	Congress 	with
enforcing 	the 	Federal 	Trade 	Commission 	Act. 	Section 	5 	of 	the 	FTCA
prohibits 	unfair 	methods 	of 	competition 	and 	unfair 	or 	deceptive
acts 	or 	practices. 	By 	enforcing 	this 	statute, 	the 	Commission 	and
its 	staff 	have 	gained 	substantial 	experience 	in 	analyzing 	the
impact 	of 	various 	restraints 	on 	competition 	generally. 	The 	staff
has 	also 	studied 	consumer 	and 	competition 	issues 	in 	the 	retail
automobile 	market 	specifically. 	Por 	instance, 	in 	1986, 	the
Bureau 	of 	Economics 	staff 	issued 	a 	report 	on 	the 	effects 	of 	state
1 	These 	comments 	represent 	the 	views 	0: 	the 	Atlanta 	Regional
Office 	and 	the 	Bureaus 	of 	Competition, 	Consumer 	Protection, 	and
Economics 	of 	the 	Federal 	Trade 	Commission 	and 	do 	not
necessarily 	represent 	the 	views 	of 	the 	Federal 	Trade 	Commission
or 	any 	individual 	Commissioner. 	The 	Commission, 	however, 	has
voted 	to 	authorize 	the 	submission 	of 	these 	comments.

regulation 	on 	the 	retail 	automobile 	market. 2 	In 	addition, 	staff
has 	also 	conducted 	law 	enforcement 	investigations 	of 	possible
competitive 	and 	consumer 	abuses 	within 	the 	industry. 	Moreover,
in 	1984, 	the 	Commission 	issued 	the 	"Used 	Car 	Rule" 	to 	reduce 	the
frequency 	and 	effect 	of 	oral 	misrepresentations 	in 	used 	car
transactions. 3 	Finally, 	in 	the 	past 	year, 	the 	staff 	has 	submitted
comments 	to 	other 	states 	on 	issues 	similar 	to 	those 	raised 	by 	this
bill. 4
We 	believe 	that 	laws 	prohibiting 	off-site 	sales 	may 	prevent
dealers 	from 	adopting 	the 	most 	efficient 	sales 	methods 	and
restrict 	consumer 	choice 	in 	the 	purchase 	of 	new 	and 	used 	cars.
Consequently, 	consumers 	may 	be 	forced 	to 	pay 	higher 	prices. 	For
example, 	such 	prohibitions 	prevent 	fleet 	dealers 	from 	holding 	used
car 	sales 	on 	credit 	union 	property. 	Since 	these 	sales 	entail 	low
overhead, 	fleet 	dealers 	would 	be 	able 	to 	pass 	along 	savings 	to
consumers. 	In 	one 	effort 	to 	calculate 	the 	savings, 	Illinois
credit 	unions 	surveyed 	by 	the 	Illinois 	Credit 	Union 	League
estimated 	that 	members 	paid 	an 	average 	of 	$1,118 	less 	for 	a 	used
car 	sold 	at 	a 	credit 	union-sponsored 	fleet 	sale 	than 	they 	would
have 	paid 	for 	a 	vehicle 	sold 	by 	a 	"conventional" 	used 	car
dealer. S
Moreover, 	laws 	prohibiting 	off-site 	sales 	probably 	harm
consumers 	in 	the 	rental 	car 	market 	as 	well. 	Fleet 	sales 	benefit
this 	market 	by 	enabling 	fleet 	dealers 	to 	turn 	over 	their
inventories 	more 	efficiently. 	By 	prohibiting 	fleet 	sales, 	Section
56-15-330 	may 	tend 	to 	increase 	the 	cost 	of 	car 	rentals.
2
3
4
5
R. 	Rogers, 	Effect 	of 	State 	Entry 	Regulation 	on 	Retail
Automobile 	Markets, 	[Bureau 	of 	Economics 	staff 	report 	to 	the
Federal 	Trade 	Commission 	(1986)).
Used 	Motor 	Vehicle 	Trade 	Regulation 	Rule, 	16 	C.F.R. 	S45S. 	The
Used 	Car 	Rule 	requires 	that 	all 	dealers 	display 	a 	window
sticker 	on 	their 	vehicles 	that 	discloses 	the 	meaning 	of 	an 	"as
is" 	sale 	and 	the 	existence 	of 	any 	warranty 	coverage. 	The
sticker 	also 	includes 	a 	suggestion 	that 	consumers 	ask 	the
dealer 	if 	a 	pre-purchase 	inspection 	is 	permitted 	and 	a 	warning
against 	reliance 	on 	spoken 	promises 	that 	are 	not 	committed 	to 	writing.
Letter 	from 	Jim 	Moseley 	of 	the 	PTC 	Dallas 	Regional 	Office 	to
Texas 	Governor 	William 	P. 	Clements, 	Jr., 	June 	I, 	1987; 	Letter
from 	John 	M. 	Peterson 	of 	the 	FTC 	Chicago 	Regional 	Office 	to
Woods 	Bowman, 	Illinois 	House 	of 	Representatives, 	April 	24, 	1987.
Illinois 	Credit 	Union 	League, 	Car 	Rental 	Agency 	Sales 	Survey
Results 	(July 	1986).

Laws 	prohibiting 	off-site 	sales 	may 	also 	impede 	the 	use 	of
innovative 	sales 	techniques 	by 	dealers. 	for 	example, 	credit
unions 	cannot 	organize 	new 	car 	sales 	events 	at 	central 	locations,
such 	as 	fairgrounds 	or 	shopping 	center 	parking 	lots. 	Such 	events,
which 	allow 	a 	number 	of 	dealers 	to 	offer 	vehicles 	to 	consumers 	at
the 	same 	location, 	may 	result 	in 	savings 	to 	consumers.
It 	is 	our 	understanding 	that 	the 	purpose 	of 	Section 	56-15-330
is 	to 	protect 	consumers 	from 	deceptive 	practices. 	South 	Carolina
addresses 	this 	objective 	in 	other 	ways, 	howeve~. 	The 	South
Carolina 	Unfair 	Trade 	Practices 	Act 	prohibits 	unfair 	or 	deceptive
acts 	or 	practices 	and 	provides 	for 	treble 	damages 	for 	willful 	and
knowing 	violations 	of 	the 	Act. 6 	Further, 	though 	we 	take 	no
position 	on 	this 	requirement, 	Section 	56-15-330 	requires 	dealers
to 	maintain 	an 	established 	place 	of 	business 	in 	the 	state 	of 	South
Carolina, 	a 	mandate 	that 	may 	deter 	unscrupulous 	behavior. 	House
Bill 	3235 	would 	retain 	this 	requirement.
In 	conclusion, 	we 	believe 	that 	unjustified 	limitations 	on
off-site 	sales 	by 	automobile 	dealers 	are 	likely 	to 	increase 	dealer
costs 	and 	decrease 	competition, 	and, 	therefore, 	increase 	the
prices 	consumers 	pay 	for 	motor 	vehicles. 	For 	these 	reasons, 	we
believe 	that 	House 	Bill 	3235, 	if 	enacted, 	would 	benefit 	consumers.
We 	appreciate 	having 	had 	this 	opportunity 	to 	provide 	our
views 	on 	this 	legislation.
)S
Sincerel Y,
------ 	'	c: 	Q\c.~~
Paul 	K. 	Davis
Regional 	Director
Atlanta 	Regional 	Office
6 	S.C.Code 	Ann. 	§§ 	39-5-10 	~~. 	(Law. 	Co-op. 	1987).