Fleet Discount Rate Elimination Upheld In Federal Court

The elimination of fleet discount arrangements by General Motors, Ford and Chrysler, has been declared legal by a U.S. District Court in a case watched closely by many fleet admin­istrators. The state of Connecticut had filed suit against the Big Three charg­ing that the automakers had conspired to reduce or eliminate the discount allowances. The state sought treble damages under the Sherman Anti-Trust Act. The following is a court transcript outlining the reasoning in reaching this decision.

Findings of Fact

1. General Motors, Ford and Chrysler assemble automobiles, which are sold by them or their subsidiaries in interstate com­merce to independent franchised new car dealers for resale to fleet purchasers, as well as other retail customers.

2. Fleet purchasers include state and local governments, daily rental companies (including their licensees), leasing com­panies and other businesses which operate fleets for their own business purposes.

3. Before the 1971 model year, as well as since then, one or more of the defendants have offered certain fleet programs to deal­ers or to fleet purchasers. Fleet programs have taken varied forms. Under "bid assist­ance" programs, a manufacturer might ex­tend "allowances" to dealers in varying amounts designed to enable them to offer cars to state and local governmental entities at lower prices than might otherwise be the case. "Commerical fleet" programs over the years have included "front-end" purchase allowances paid at the time the new car was purchased and so-called "rear-end" pro­grams which have included repurchase al­lowances, guarranteed resale value, guaran­teed depreciation and "buy-back" pro­grams.

State and Local Governmental Plaintiffs' Claims

4. After much internal debate, Ford de­cided on April 17, 1970, to eliminate its bid assistance program. Ford dealers were so notified by letter on April 21. At the time of Ford's decision, it had no commitment or assurance from other competitors to follow a similar course of action, and its manage­ment was uncertain as to how its competi­tors would react.

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5. Ford's decision grew out of a major cost reduction program initiated several months earlier by its top management to improve earnings in the face of a serious business recession characterized by high inflation. During late 1969 and 1970, the entire automobile industry faced a cost-price squeeze which prompted the manage­ments of each of the three defendants independently to embark on significant cost reduction programs.

6. The decision by Ford management to eliminate bid assistance was justified by independent business considerations. Bid assistance had proven to be one of Ford's most costly programs, its costs were in­creasing, and the risk of lost volume, al­though of concern to its management, was not believed to be prohibitive. Ford's sales under its bid assistance program, on the average, were made at a net loss, and many such sales to states and larger municipalities produced little, if any, variable profit.

7. General Motors first learned of Ford's action on April 23, 1970, when Gen­eral Motors' field personnel reported that Ford had apparently sent a letter announc­ing elimination of bid assistance to its deal­ers. After being informed of the report, James Roche, General Motors' Chairman, in consultation with Edward Cole, General Motors' President, directed that same day, April 23, that General Motors eliminate its bid assistance program effective May 1.

8. Prior to April 23, Roche had already determined that General Motors should re­duce the cost of its fleet programs. He was aware that the expense of the bid assistance program had been increasing, while General Motors' share of state and local sales had been declining. Moreover, the average sale under its bid assistance program was at a net loss to the corporation. General Motors' de­cision to eliminate its bid assistance program was justified by independent business rea­sons.

9. There is no convincing evidence that Chrysler had knowledge of either Ford's or General Motors' decisions prior to their public announcements. However, Chrysler did not take the same action. Instead, Chrysler continued granting bid assistance, to its dealers in sufficiently great amount to increase its share of this business.

10. Both Ford and General Motors lost penetration in state and local government sales in the 1971 model year, while Chrysler and American Motors (which, like Chrysler, continued bid assistance) substantially in­creased their penetration.

11. Each defendant's action in 1970 re­garding its bid assistance program was a non-conspiratorial, independent action, un­dertaken in what its management reason­ably believed to be in the best interests of the company in light of then prevailing economic and competitive conditions. In view of Chrysler's continuation of bid assist­ance, the defendants' actions may not even be regarded as parallel. There is no evi­dence that defendants had agreed upon or exchanged any commitments to follow a common course of action with regard to their bid assistance programs.

Commercial Plaintiffs' Claims

12. With respect to commercial fleet programs for the 1971 model year, General Motors was the first to make a decision, which was not to offer such programs for that year. General Motors was the only defendant to discontinue commercial fleet programs altogether. Its decision was made on May 20, 1970, following extensive internal analysis and discussion and was based on the convergence of three factors.

a. First, in the view of General Motors' management, adverse economic condition required vigorous cost reduction measure Fleet programs were selected as one of sev­eral areas of potential savings in light of their unexpectedly high costs and low pro­fitability.

b. Second, General Motors' management believed that the company could remain competitive in fleet sales because its cars, by then, had regained significant advantages in resale value over comparable competitive models. Thus, its cars offered potentially lower holding costs to fleet pur­chasers. The importance of high resale values in influencing commercial fleet pur­chases is repeatedly confirmed in the record.

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c. Third, General Motors' management was forecasting, as early as February, 1970, that a major strike would occur in the industry in the fall, at the outset of the 1971 model year. By May 20, General Motors believed it was probable that it would be the target of such a strike and that, accordingly, there was likely to be a shortage of General Motors cars in the new model year which made it unwise to spend money on special programs designed to promote volume. In fact, General Motors suffered a 67-day strike in the fall of 1970.

13. At the time of its decision, there is no convincing evidence that General Motors had an assurance or commitment from any other defendant that it would follow any particular course of conduct regarding fleet programs. No other defendant had in fact decided upon its 1971 commercial fleet programs as of May 20, 1970 or until a con­siderable time thereafter. At the final deci­sion-making meeting within General Motors on May 20, contemporaneous notes reflect that its executives were concerned and un­certain over possible competitive reactions. They recognized that General Motors might find itself noncompetitive, but decided that discontinuing fleet programs made sense for General Motors despite the competitive risk.

14. Ford did not learn of General Motors' decision until May 21, when customers informed it of General Motors' announcement. The Ford Division on May 20 had prepared a 1971 budget providing for increased com­mercial fleet program expenditures in the 1971 model year based on the assumption competitors would continue their programs "unchanged." During the ensuing week, Ford decided not to offer certain programs such as purchase allowances and buy-back programs in the next model year and so an­nounced on May 28. Ford could not decide, however, whether or not to retain its guar­anteed resale value programs for the 1971 model year.

15. In view of the uncertain competitive situation, Ford decided to try to compete for advance fleet orders for 1971 cars with­out an announced resale value program. However, because its management was un­sure as to the competitive situation, Ford established a contingency budget of $15-million for the possible continuation of its guaranteed resale value programs, and a $58-million reserve for the possible reinstate­ment of all 1970 fleet programs in the 1971 model year.

16. There is no convincing evidence of prior knowledge of General Motors' decision until after it had become public knowledge. Because of recent quarterly losses, Chrysler recognized that it needed to cut unnecessary costs, but decided to continue to offer a variety of commercial fleet programs to in­crease its sales penetration. Chrysler manage­ment specifically rejected recommendations by subordinates for substantial reductions in its fleet programs where volume losses were projected.

17. For, the 1971 model year, Chrysler modified some of its 1970 programs and added new ones. Chrysler formally publish­ed its 1971 programs on July 27, 1970. Be­fore then, Chrysler sought to secure advance orders from fleets, informing them and its dealers that it would continue to offer fleet programs for the 1971 model year and also continue the direct fleet leasing activities of Chrysler Leasing Corporation.

18. In June and July, Ford received repports from its divisional sales staffs that numerous fleet customers were threatening to switch from Ford products to competi­tors' cars in the absence of any Ford resale value program. General Motors' cars offered superior resale value advantages while Chrysler was offering a continuation of fleet programs. To meet the competition of Gen­eral Motors and Chrysler, Ford management in early August authorized a Ford Division guaranteed resale value program and a Lin­coln-Mercury Division guaranteed deprecia­tion program. These programs were an­nounced on August 12.

19'. Subsequently, in reaction to Ford's 1971 programs and in an effort to maintain a competitive advantage, Chrysler manage­ment approved certain changes and increases in its 1971 fleet programs, expanding its used car value guarantee to make it com­pletely open-ended and increasing the bene­fits available under its front money and re­purchase allowance programs.

20. Chrysler's 1971 commercial fleet pro­grams, consisting of a guaranteed value plan, front-money and repurchase allowances, sales incentive programs and others, were different from programs offered by its com­petitors and were designed to achieve the same objectives as its programs in earlier years. These programs and the continuation of the direct leasing activities of Chrysler Leasing Corporation enabled Chrysler and its dealers to compete for fleet business as they had in the past.

21. As a result of their different courses of conduct with respect to fleet programs, defendants experienced significant changes in their penetration of fleet sales generally, as well as within the separate daily rental, leasing and commercial segments of fleet sales.

22. There is no convincing evidence that the defendants' actions in 1970 regarding their respective commercial fleet programs were anything other than independent com­petitive actions and reactions which are normal to the competitive process. General Motors had no commitment or assurance as to what any competitor would do regarding 1971 commercial fleet programs on or be­fore May 20. Ford gave no assurance at any time that it would eliminate or reduce its fleet programs. As of the time of General Motors' decision, Ford had not yet decided what action it would take regarding its 1971 fleet programs. Its subsequent actions were independently arrived at in light of competi­tive pressures. Through the spring and summer of 1970, Chrysler's unchanging policy, as told to its dealers and reported publicly; was that it would continue to offer fleet programs and aggressively seek fleet business. Chrysler's conduct was inconsistent with any inference that it was committed to elim­inate or reduce its fleet programs. In fact, Chrysler was sued in July 1970 by two of its own dealers, sponsored by NADA, for refus­ing to discontinue its fleet programs.

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23. In sum, each defendant independent­ly made its own decision as to 1971 com­mercial fleet programs basing its actions on bona fide business reasons considered to be in its own self interest. Defendants' actions were not "parallel" and significant differ­ences existed between them. However, even to the extent that each defendant sought to reduce its costs, its motivation was clearly a rational independent response to common external economic conditions which im­pinged on the entire economy and on the automobile industry, in particular.

Testimony by Defendants' Executives

24. The sworn testimony of the decision-­making executives from each of the three defendants was introduced into evidence at trial. Their testimony explained the business reasons which motivated their decisions and demonstrated that the conduct of their re­spective companies was independent action. Each such executive denied giving or receiv­ing any commitment or assurance from any competitor regarding fleet programs. The court finds that their testimony was credible and is corroborated by the other evidence.

Conclusions of Law

1. The court has subject matter jurisdiction and personal jurisdiction over the defendants.

2. Plaintiffs have failed to establish that defendants' decisions and conduct regarding their fleet programs in 1970 were anything other than lawful, independent competitive conduct. The evidence does not support, by inference or otherwise, that there existed between or among any of the defendants any conspiracy to eliminate or reduce fleet programs or to otherwise restrict competition in the sale or lease of automobiles to fleet operators.

3. Consequently, the court determines that the defendants did not violate Section I of the Sherman Act, 1 5 U.S.C. § 1, and the complaints in these actions are, therefore, dismissed with prejudice and their prayers for relief are denied.

4. Plaintiff class members who did not properly request exclusion by the dates previously determined by the court's orders are bound by the full force and effect of the final judgment granted to defendants.