Agency Claims Unlawful Activity Aimed at Restraining Internet Dealers with Lower Prices
An association of 25 automobile dealerships in five Northwest states today settled Federal Trade Commission charges of threatening to boycott Chrysler. The agency charged that the dealers planned to boycott Chrysler if the manufacturer did not agree to change its vehicle allocation system in a manner designed to restrict the number of vehicles available to competing dealers offering low prices and marketing on the Internet. The auto dealers formed the association, Fair Allocation System, Incorporated ("FAS"), to address their concerns. According to the Commission, the dealer primarily targeted by FAS -- Dave Smith Motors of Kellogg, Idaho -- was attracting customers from around the Northwest and taking substantial sales from FAS members. The proposed agreement would prohibit FAS from participating in or threatening any boycott of any automobile manufacturer or consumer.
"The goal of this boycott was to limit sales by car dealers that market cars on the Internet and for low prices," said William J. Baer, Director of the Bureau of Competition. "Consumers need to have access to this new and innovative form of marketing. There was no justification for this concerted activity. The agreement to boycott was illegal."
FAS is a non-profit, Montana corporation organized "to obtain from Chrysler Corporation a system for allocation of production of Chrysler, Plymouth, Dodge, Jeep and Eagle vehicles that is fundamentally fair, equitable, and impartial to all franchised dealers of Chrysler Corporation." FAS members constitute a substantial percentage of Chrysler dealerships in eastern Washington, Idaho, and western Montana, the FTC said.
Dave Smith Motors is an authorized Chrysler dealership. Smith offers "no-haggle" pricing, a system that offers new automobiles to all customers at firm, but low, predetermined prices. In addition, Smith was among the first dealers to market automobiles on the Internet.
According to the FTC's complaint, FAS collectively planned to boycott Chrysler if it did not change its distribution methods. Chrysler allocates vehicles based on the dealer's total sales. FAS members wanted Chrysler to allocate vehicles based on the expected number of sales from a dealer's local area, which would have substantially reduced the number of cars available to dealerships like Dave Smith Motors that draw customers from a wider geographic area. The complaint charges the dealers threatened to refuse to sell certain Chrysler vehicles and to limit the warranty service they would provide particular customers unless Chrysler changed its allocation system.
The complaint alleges FAS's agreements to coerce Chrysler violate Section 5 of the FTC Act. Their threats, the FTC claimed, would have harmed competition and consumers. In particular, the agency said, FAS's efforts would have reduced competition among automobile dealerships, including rivalry based on price or via the Internet, and would have deprived consumers of local access to certain Chrysler models and to warranty service. Additionally, the boycott, if successful, would have eliminated from the market a method of automobile marketing that many consumers preferred.
The proposed consent order would prohibit FAS from participating in, facilitating, or threatening any boycott of or concerted refusal to deal with any automobile manufacturer or consumer. There is nothing in the proposed order, however, that would prohibit FAS from informing automobile manufacturers about the views and opinions of FAS members.
The Commission vote to accept the proposed consent agreement was 4-0. The FTC's Seattle Regional Office handled this matter.
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent order and an analysis to aid public comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements for public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 971 0065)
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