Appendix — J. Truett Payne Co. v. Chrysler Motors Corp.

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NO. 79-1944

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1980

J. TRUEPT PAYNE COMPANY, INC...

a corporation,

Petitioner

VS.

CHRYSLER MOTORS CORPORATION,

a ¢ orporation,

Respondent

JOINT APPENDIX

C. Lee REEVES J. Ross Forman, ITI

2922 Arlington Avenue 1600 Bank for Savings

South Building

Birmingham, Alabama Birmingham, Alabama

$5259 35203

(205) 933-7111 (205) 251-3000

Counsel for Petitioner Counsel for Respondent

TABLE OF CONTENTS

Page

Relevant Docket Entries 1S AE,

Opinion of Fifth Circuit in Chrysler Credit Corp. v.

J. Truett Payne, Inc., 607 F.2d 1133 (5th Cir. 1979) _ 2

Excerpts of TRANSCRIPT of the Evidence

Witnesses: J. Truett Payne 11-95; 223-225

George Ignatin 96-166; 222-223

Leonard J. Piconke ...... 167-190

Eric W. Lindenberg .... 190-196

Martin Geisel 196-221

Exhibits

Plaintiff's Exhibits No.: 37 Le

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RELEVANT DOCKET ENTRIES

Date

Complaint against Chrysler Motors

Cera oo avec, 20, SOOO

Answer of Chrysler Motors Corporation __._.May 14, 1975,

District Court Judgment in favor of

J. Truett Payne Company and against

Chrysler Motors Corporation April 28, 1977

District Court Order Denying Chrysler

Motors Corporation’s Motion for

Judgment Notwithstanding the Verdict

or For New Trial ____.. Maeamrenrrecen ee Ue,

Opinion of Fifth Circuit Court of Appeals

Reversing District Court’s Judgment _..... Dec. 7, 1979

Order of Fifth Circuit Court of Appeals

Denying J. Truett Payne Company's

Petition for Rehearing, or in the

Alternative, Petition for Rehearing

PRA Bh hee _......March 18, 1980

Filing of Petition for Certiorari by

Petitioner, J. Truett Payne Company ___ June 10, 1980

Supreme Court’s Order Granting

J. Truett Payne Company's Petition

for Certiorari eens atk Oct. 6, 1980

CHRYSLER CREDIT CORPORATION, a

corporation, Plaintiff,

J. TRUETT PAYNE, INC., etc., et al.,

Defendants- Third Party

Plaintiffs-Appellees,

CHRYSLER MOTORS CORPORATION, a

corporation, Third Party Defendant-Ad-

ditional Party Defendant-Appellant.

No. 77-2331.

United States Court of Appeals,

Fifth Circuit.

Dec. 7, 1979.

Rehearing and Rehearing En Banc

Denied Jan. 18, 1980.

Appeal from the United States District Court for the

Northern District of Alabama.

Before GODBOLD, RONEY and FRANK M. JOHN-

SON, Jr., Circuit Judges.

FRANK M. JOHNSON, Jr., Circuit Judge:

This is an appeal from a treble damages judgment

awarded against Chrysler Motors Corporation for price dis-

crimination in violation of section 2 (a) of the Clayton Act,

as amended by the Robinson-Patman Act.’

1Section 2(a) of the Clayton Act, as amended by the Robinson-Patman

Act, 15 U.S.C. § 13(a), provides in part as follows:

“It shall be unlawful for any person engaged in commerce, in the

course of such commerce, either directly or indirectly, to discriminate in

price between different purchasers of commodities of like grade and

quality . . . where the effect of such discrimination may be substantially

to lessen competition or tend to create a monopoly in any line of com-

From January 1970 through August 1974, the period at

issue, Chrysler Motors was a wholly owned subsidiary of

Chrysler Corporation, engaged in wholesaling Chrysler-

Plymouth automobiles to retail dealerships throughout the

country. J. Truett Payne, Inc., was one of four such dealer-

ships in the Birmingham, Alabama, area.

Payne went out of business in May 1974. In September

1974, Chrysler Credit Corporation filed suit for the recov-

ery of certain unrepaid loans. Part of Payne’s response was

the filing of this price discrimination claim against Chrys-

ler Motors.

Payne alleged that as a result of certain discriminatory

sales incentive programs conducted by Chrysler Motors

among its dealerships in the Birmingham area, Payne had

been forced to pay higher prices for Chrysler automobiles

than had its competitors. Payne claimed that because of the

higher prices it lost sales and profits, and was eventually

forced out of business. Payne sought treble damages under

section 4 of the Clayton Act.?

In defense, Chrysler Motors maintained that the sales in-

centive programs were available on a non-discriminatory

basis to all Chrysler dealerships in the Birmingham area,

including Payne, and denied that they had had an adverse

effect on competition or that they had injured Payne.

The district judge severed trial of this Chrysler Motors

issue from trial of the Chrysler Credit issues. Testimony

merce, or to injure, destroy, or prevent competition with any person

who either grants or knowingly receives the benefit of such discrimina-

Hom... 6

*Section 4 of the Clayton Act, 15 U.S.C. § 15, provides as follows:

“Any person who shall be injured in his business or property by rea-

son of anything forbidden in the antitrust laws may sue therefor in any

district court of the United States in the district in which the defendant

resides or is found or has an agent, without respect to the amount in

controversy, and shall recover three-fold the damages by him sustained,

and the cost of suit, including a reasonable attorney's fee.”

was taken for six days. Chrysler's motions for a directed

verdict made at the close of Payne’s case and at the close of

all the evidence were denied. The jury reached a verdict

and award against Chrysler of $111,247.48 (Payne had

asked for $180,000), which the court trebled. Chrysler's

motion for judgment notwithstanding the verdict or for a

new trial was denied, and Chrysler filed this appeal.

[1] It is well established that in order to recover treble

damages under section 4 of the Clayton Act, a plaintiff

must prove (1) a violation of the antitrust laws, (2) cog-

nizable injury attributable to the violation, and (3) at least

the approximate amount of the damage. Larry R. George

Sales Co. v. Cool Attic Corp., 587 F.2d 266, 270 (5th Cir.

1979) ; Kestenbaum v. Falstaff Brewing Corp., 514 F.2d

690, 694 (5th Cir. 1975), cert. denied, 424 U.S. 943, 96

S.Ct. 1412, 47 L.Ed.2d 349 (1976); Terrell v. Household

Goods Carriers’ Bureau, 494 F.2d 16, 20 (5th Cir.) , cert.

dismissed, 419 U.S. 987, 95 S.Ct. 246, 42 L.Ed.2d 260

(1974) .

[2] We find it unnecessary to cunsider whether Payne

proved that the Chrysler incentive programs violated the

Robinson-Patman Act. Because Payne failed to introduce

substantial evidence of injury attributable to the programs,

much less substantial evidence of’ the amount of such in-

jury, the district court erred in refusing Chrysler’s motions

for directed verdict and in denying Chrysler’s motion for

judgment notwithstanding the verdict.

I. Cognizable Injury

To show that Chrysler's incentive programs caused it to

lose sales, Payne introduced the unsupported testimony of

J. Truett Payne, its owner, that customers and salesmen had

told him that the dealership was being undersold, and that

some salesmen had quit as a result. Payne also introduced

evidence showing that its share of retail Chrysler-Plymouth

sales in the Birmingham area was 24% in 1970, 27% in

1971, 23% in 1972, and 25% in 1973. Payne contends that

it was proper to infer that the 4% drop in 1972 was a re-

sult of the incentive program.’

To show lost profits by reason of the programs, Payne

introduced only the unsupported testimony of Mr. Payne

that he was forced to lower prices in order to meet compe-

tition and that for the same reason the dealership had to,

or possibly had to, give greater allowances on used-car

trade-ins.

In an effort to show that the programs forced the dealer-

ship out of business, Payne relied on merely conclusory

statements to that effect by Mr. Payne and an expert

witness.*

[3,4] Under Boeing Co. v. Shipman, 411 F.2d 365, 373-

77 (5th Cir. 1969) (en banc) (standard for directed ver-

dict and judgment notwithstanding the verdict) , this show-

ing was clearly not such as to allow the case to go to the

jury. In an antitrust action, as noted above, the plaintiff

must show that the defendant’s cond ict materially contrib-

uted to his injury. Zenith Radio Corp. v. Hazeltine Re-

search, Inc., 395 U.S. 100, 114 n.9, 89 S.Ct. 1562, 23 L.Ed.

2d 129 (1969). He must do so “as a matter of fact and with

a fair degree of certainty.” Terrell v. Household Goods

Carriers’ Bureau, supra, 494 F.2d at 20. Conclusory state-

ments by the plaintiff, without evidentiary support, as to

the fact of damage caused by the alleged antitrust violation

’Payne also contends that the 2% increase in 1973 was the result of a

1973 revision of the incentive programs that resulted in sales quotas more

favorable toward Payne. While it is true that certain of the incentive pro-

grams were so revised, none of these types of programs operated in 1973.

The 1973 increase cannot be attributed to their revision.

‘The expert prefaced his statement on the issue with the comment, “I

really can’t tell you without having, you know — it’s a hypothetical ques-

tion.”

are not sufficient. Evidence of a slight decrease in market

share roughly coincident with the alleged violation is not

sufficient either.* The plaintiff must put forth substantial

evidence. If he fails to do so, the defendant is entitled to a

directed verdict. See, e. g., Comfort-Trane Air Condition-

ing Co. v. Trane Co., 592 F.2d 1373, 1383 (5th Cir. 1979) ;

Yoder Brothers, Inc. v. California-Florida Plant Corp., 537

F.2d 1347, 1371 (5th Cir. 1976), cert. denied, 429 USS.

1094, 97 S.Ct. 1108, 51 L.Ed.2d 540 (1977); Foremost-

McKesson v. Instrumentation Laboratory, 527 F.2d 417,

418-50 (5th Cir. 1976) ; Shumate & Co. v. National Ass’n

of Securities Dealers, Inc., 509 F.2d 147, 153 (5th Cir.),

cert, denied, 423 U.S. 868, 96 S.Ct. 131, 46 L.Ed.2d 97

(1975).

[5, 6] Payne maintains on this appeal that in a section

2 (a) case mere proof of the alleged price discrimination is

sufficient to establish injury by reason of an antitrust viola-

tion entitling the plaintiff to damages. This Robinson-Pat-

man “automatic damages” concept, as it has come to be

called, has some precedential support. See Fowler Manu-

facturing Co. v. Gorlick, 415 F.2d 1248 (9th Cir. 1969),

cert. denied, 396 U.S. 1012, 90 S.Ct. 571, 24 L.Ed.2d 503

(1970) ; Elizabeth Arden Sales Corp. v. Gus Blass Co., 150

F.2d 988, 996 (8th Cir.), cert. denied, 326 U.S. 773, 66

S.Ct. 231, 90 L.Ed. 467 (1945). But we decline to follow

it. As the Supreme Court ruled in Brunswick Corp. v.

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690,

50 L.Ed.2d 701 (1977), the antitrust laws do not provide

5Cf. Feminist Women’s Health Center, Inc. v. Mohammad, 586 F.2d 530,

547 (5th Cir. 1978), cert. denied, US. —.., 100 S.Ct. 262, 62 L.Ed.2d

180 (1979) (decrease in income, without more, does not establish fact of

damage). In this case, as Mr. Payne himself testified, there was evidence

that the material cause of the 4% decrease in market share Payne experi-

enced in 1972 was the relocation of a competing Chrysler-Plymouth dealer

into Payne’s immediate sales area, and not the Chrysler incentive programs.

a damages remedy for all losses traceable to conduct violat-

ing the antitrust laws, only for losses that are part of the

anticompetitive effect of such conduct. When a seller

charges different prices to different purchasers, as alleged

here, injury to competition does not necessarily result.

Both the statute and the courts recognize this. 15 U.S.C.

§ 13 (a). See, e. g., United States v. United States Gypsum

Co., 438 U.S. 422, 450, 98 S.Ct. 2864, 57 L.Ed.2d 854

(1978). Competition is harmed only to the extent that the

favored purchaser, by use of the discriminatory price differ-

ence, actually draws sales or profits fromm his unfavored com-

petitor. See, e. g., Enterprise Industries, Inc. v. Texas Co.,

240 F.2d 457 (2d Cir.) , cert. denied, 353 U.S. 965, 77 S.Ct.

1049, 1 L.Ed.2d 914 (1957); Uniroyal, Inc. v. Jetco Auto

\ Service, Inc., 461 F.Supp. 350, 357-59 (S.D.N.Y. 1978) ; Mc-

Caskill v. Texaco, Inc., 351 F.Supp. 1332, 1341 (S.D.Ala.

1972) , aff'd sub nom. Harrelson v. Texaco, Inc., 486 F.2d

1400 (5th Cir. 1973) ; Handler, Changing Trends in Anti-

trust Doctrines, 77 Colum.L.Rev. 979, 992-93 (1977). See

also Perkins v. Standard Oil Co., 395 U.S. 642, 648-49, 89

S.Ct. 1871, 23 L.Ed.2d 599 (1969) (implying that disfa-

vored purchaser must show more than mere price differ-

ence to recover damages). As discussed above, there is no

evidence, much less substantial evidence, that such was the

case here.

[7, 8] Payne’s reliance on FTC v. Morton Salt Co., 334

U.S. 37, 68 S.Ct. 822, 92 L.Ed. 1196 (1948) , and its prog-

eny is misplaced. In Mort.n Salt, the Supreme Court held

that a violation of Robinson-Patman Act § 2(a) may be in-

ferred from a substantial price difference. 334 U.S. at 46-

47, 68 S.Ct. 822. But the showing necessary to establish a

section 2 (a) violation is not the same as the showing neces-

sary to support a private action for damages. The Robin-

son-Patman Act is an incipiency statute.’ Price discrimina-

tion which threatens competition but which has not caused

any actual competitive injury may be held to violate the

statute even though it will not support an action for dam-

ages. See Areeda, Antitrust Violations Without Damage

Recoveries, 89 Harv.L.Rev. 1127, 1127-28 (1976). See also

Gottesman v. General Motors Corp., 436 F.2d 1205, 1210

(2d Cir.) , cert. denied, 403 U.S. 911, 91 S.Ct. 2208, 29 L.

Ed.2d 689 (1971) (private injury does not necessarily ac-

company public injury). What Morton Salt found infer-

able from a substantial price difference was a threat to com-

petition sufficient to violate the statute. 334 U.S. at 46-47,

68 S.Ct. 822. Even assuming that Morton Salt is still viable,

it is of no help to Payne. In order to recover damages,

Payne had to show more than just a threat of antitrust in-

jury. As discussed above, it failed to do so.

II. Amount of Damage

Our conclusion that Chrysler was entitled to a directed

verdict is buttressed by Payne’s failure to adequately prove

the amount of its alleged injury.

Payne relied on its calculation of the alleged price dis-

crimination to establish the amount of its alleged lost sales

and profits. There is no necessary correlation, however,

and Payne failed to establish one.

To indicate the going concern value of the dealership at

the time it was allegedly forced out of business, Payne relied

on two alternative methods of calculation. Under the first,

Payne’s expert assumed a good will value for the dealership

of $52,000 in 1955 and appreciated this amount over 20

6Section 2(a) of the Clayton Act, as amended by the Robinson-Patman

Act, 15 U.S.C. § 13 (a), proscribes price discrimination “where the effect

of such discrimination may be substantially to lessen competition. . . .”

(Emphasis added) .

years at an annual rate of 4%. The expert testified that the

$52,000 figure was not based on an examination of Payne’s

financial statements. It represented an unsupported esti-

mate by Mr. Payne. The 4% rate was a rough average of

the prevailing inflation and prime interest rates from 1955

until the time Payne folded. Under the second method,

Payne’s expert discounted projections of what the dealer-

ship’s profits would have been if it had continued in busi-

ness free of the incentive programs. The expert testified

that he did not take into account local market changes or

conditions. ‘The projections were apparently nothing more

than some of Payne’s past earnings roughly adjusted accord-

ing to Chrysler’s performance nationwide or the perform-

ance of the automobile industry in general. If Chrysler or

the industry had a good year it was assumed, without an ex-

planation why, that Payne would have a good year also.

[9-11] As was the case with Payne's fact of damage evi-

dence, this showing was clearly not such as to allow the case

to go to the jury. In an antitrust damages action, as noted

above, the plaintiff must establish the amount as well as the

fact of damage. The burden of proving the amount of dam-

age is less severe than the burden of proving the cognizable

injury. See, e. g., Story Parchment Co. v. Patterson Parch-

ment Co., 282 U.S. 555, 562, 51 S.Ct. 248, 75 L.Ed. 544

(1931); Terrell v. Household Goods Carriers’ Bureau,

supra, 494 F.2d at 23-24. But the plaintiff must put forth

substantial evidence. The burden is not satisfied by mere

speculation or guess work. See, e. g., Bigelow v. RKO Ra-

dio Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 815, 90 L.Ed.

1040 (1946) ; Keener v. Sizzler Family Steak Houses, 597

F.2d 453, 457 (5th Cir. 1979). Payne failed to meet this

burden. A price difference without more does not indicate

the amount of lost sales or profits. Self-serving and unsup-

ported assumptions cannot sustain a calculation of going

concern value. On this ground as well, Chrysler was enti-

tled to a directed verdict. See, e. g., Kestenbaum v. Falstaff

Brewing Corp., supra, 514 F.2d at 695; Copper Liquor, Inc.

v. Adolph Coors Co., 506 F.2d 934, 953-55 (5th Cir. 1975).

The district court is directed to enter judgment for

Chrysler.

REVERSED AND REMANDED WITH DIREC-

TIONS.

JOHN TRUETT PAYNE

(TR. 40]

Q. And when is the first time you

became a Chrysler direct dealer?

A. In 1944 or '45,

Q. Where were you located, Mr.

Payne?

A. 408 South 2lst Street in

Birmingham.

Q. How long had you or did you

remain in that location?

A. About ten years.

Q. And were you selling Chryslers

after you moved from that location?

(TR. 41]

A. Yes, sir.

Q. Excuse me. When did you acquire

the J. Truett Payne Company?

A. Well, we bought out Leseur

Motors in 1955 and merged the two com-

panies.

Q. Now, in 1965 were you selling

Chrysler automobiles, your company?

A. Yes, sir.

Q. Was Leseur?

A. Yes, sir.

Q. And what was the price, or the

purchase price that you paid for this

buying of the Leseur Motors?

A. I believe I paid forty-five

thousand dollars for his fixtures and

what equipment he had in parts.

Q. All right. Was there anything

else included in that price?

A... Wd,. G18»

Q. Out of that price, Mr. Payne,

that you paid for Leseur, did he have

forty-five thousand dollars worth of

parts and fixtures on hand or was there

anything else in that price?

A. No. I would believe that, as

well as I remember, that about half of

that would be for equipment and parts

and the other half for goodwill, I guess.

Q.. Had he been in business a while?

(TR, 42]

A. Several years. I don't remember

how long.

Q. All right. In any event, you

bovght him out and you started selling

Chryslers with his inventory, is that

correct?

A. Yes, sir.

Q. Did you have an ii.ventory of your

Own?

A. I had an inventory of my own and

then we took over some cars that he had,

but we bought them from Chrysler.

Q. All right. What was the net

worth of your business at that time,

J. Truett Payne Company, the Chrysler

dealer?

A. I would think around seventy-five

hundred or a thousand dollars. I don't

know.

Q. Was any of that portion of that

business amount made up of goodwill or

was it all stock merchandise, parts?

A. In mine?

Q. Yes, sir, in yours.

A. I would say it was all in mer-

chandise.

Q. All right. Since 1955 did you

operate J. Truett Payne Company Chrysler-

Plymouth dealership just like you oper-

ated it through 1974? Have you been

operating it --

A. Yes.

(TR. 43]

Q. -- since 1955 with Chrysler?

As BOB, SiS.

Q. When did you terminate your

dealership relationship with Chrysler

Motors?

A. I believe it was in May of '74.

Q. All right. Prior to that time

in the 1960's, in the early '60's,

beginning of that decade, were you the

Only Chrysler Plymouth dealer in the

Birmingham area or was there any other

dealership?

A. Well, there had been dealers in

Bessemer, but I believe we were -- what

time are you --

Q. In 1960.

A. Well, I believe I was the only

Chrysler dealer in downtown Birmingham

until -- I don't know, when they put

Central Motors in. Was it in '61?

Q. Well, in your best judgment, do

you know? When they put in Central

Motors, is that correct?

A. Yes, it was the first dealer they

put in.

Q. After they put in Central Motors

there was you and Central Motors, is

that correct?

A. Yes. When they put Central

Motors in, they put them in originally

as Plymouth only. They did not give

them Chrysler and Imperial. It was

just when they originally opened up,

they opened up with Plymouth,

[TR. 44]

Q. And subsequent to that time did

they acquire Chrysler and Imperial?

A. Sir?

Q. Did they start selling Chrysler

and Imperials after that?

A. At a later date, yes.

Q. All right. During 1970 through

1974 you were selling, your company was

selling Chryslers and Imperials and

Plymouths, correct?

A. Yes, yes.

Q. Can you tell the ladies and

gentlemen of the jury what other dealers

during that time, direct dealers, were

selling Chryslers, Plymouths in the

Birmingham area?

A. From '70 until --

QO... ° 98,

A. Well, I believe it was Roebuck,

Roebuck Chrysler Plymouth, Vestavia

Chrysler Plymouth, and Central Motors.

Q. All right. And yourself?

A. And us, yes.

Q. Can you tell the ladies and

gentlemen of the jury who were your

competitors in your market in the

Birmingham market area for selling

Chrysler and Plymouth automobiles

during that time period?

(TR. 45]

A. It would have been Roebuck

Chrysler, Central Motors, Vestavia.

Q. All right. Can you tell the

jury, the ladies and gentlement of the

jury a little bit or characterize the

type or quality of competition in the

Birmingham market?

A. Well, it was rough. It was --

ask me that question again.

Q. Well, you said it was rough?

A. Yes, sir.

Q. Can you tell us whether or not

you know if customers would check out

the prices of your automobiles?

A. Oh, yes.

MR. INGRAM: Wait a minute. If

it please the Court, I'm going to object

to does he know this and that unless

he's able to give specific facts and

circumstances.

THE COURT: Well, if it was based

on hearsay, it would not be admissible,

Q. No, sir. Mr. Payne, I'm not

asking you based on hearsay. I want to

know in the industry your knowledge of

the industry. Do you know whether or

not your customers checked the prices

of your cars and checked prices of your

competitors' cars?

[TR. 46]

A. Yes, sir.

Q. Did that happen frequently?

A. Yes, sir, because every deal,

every retail deal that you make is an

individual deal and the customers, the

people that shop us, that shop with us,

shop with the other dealers and there's

many things that contributed to it. As

these dealers opened up, they opened up

with new modern facilities, they put

_ Grand Opening sales on, and people that

buy automobiles, even though they pre-

sold through news media, if they make

up their mind they're going to buy a

Chrysler car, they're going to shop the

other dealers.

Q. Well, do you know of -- let me ask

you one question. You mentioned some-

thing about mcedern facilities. How old

was your building?

A. I think --

Q. How long had you been in the

location that you were in during 1970

through '74?

A. We moved in in 1955.

Q. Where was that?

A. At 231 South 2lst Street.

Q. All right. And during that time

period 1970 through 1974 can you tell the

ladies and gentlemen on the jury whether

or not on any occasions of your

| (TR. 47]

Own personal knowledge you knew the cus-

tomers would shop the prices of the

different dealers that you just men-—

tioned?

A. Oh, yes, yes, sir, because -they

would tell you when you were trying to

trade with them.

Q. All right. Have you ever talked

to ==

MR. INGRAM: If it please the

Court, hold it. I object to any testi-

mony about shopping prices. That's

exactly what I was getting at. He said

people would tell them. That's a very

vague --

THE COURT: Well, that would be

inadmissible as hearsay. I sustain that

objection.

Q. All right. Mr. Payne, can you

tell the Court where in your opinion

most of your customers came from that

purchased cars from your dealership,

Chrysler Plymouth, new automobiles?

A. You mean the section of town?

Oo. Yes, eif.

A. I would believe that most of our

customers came from the eastern section

and the southern section because that's

the heavier populated section.

Q. And was there or were there

repeaters, or people that came back to

you yearly and bought new cars from you?

A. Over a period of years, yes, We

had a lot of

(TR. 48]

repeat customers.

Q. And during -- let me rephrase

that. During 1970 to 1974, do you know

of people that came to you, would check

Out your prices on new Chryslers and

Plymouths and then ended up buying

another car at one of the other dealers?

A. Yes, sir.

Q. You know that how, Mr. Payne?

A. From -- in dealing with the people.

- Did they come back for service at

— PE 1 a Rr er)

PO Sa

23°

your automobile facility?

A. Many of them did. Some of them

did not, but some of them did.

Q. So they would buy a car ata

different location and come back to you?

A. Come back to us to service the

automobile, yes.

Q. Did that happen numerous times --

A. Yes, ‘sir.

Q. -- over that four year period?

A. Yes, sir.

THE COURT: Gentlemen, I will

review my ruling. I will permit testi-

mony as to what customers told him, not

for the truth of what they said, but for

what they actually did tell him. you may

go into that.

(TR. 49]

Q. Thank you, Judge.

Now, Mr. Payne, during this four

year time period were there any incen-

24 «

tive and rebate programs that Chrysler

Plymouth or Chrysler Corporation spon-

sored for all the dealerships in the

area?

A. Yes.

Q. Can you tell the ladies and

gentlemen exactly what your understand-

ing is of those rebate programs?

A. Well, they had different kinds of

programs. Some of the programs were --

you were required to buy a certain

amount of automobiles to participate in

the program. Some of the other programs

you were on a quota basis. After you

sold a certain number of automobiles,

you would become eligible for the2 rebate,

There were several of those programs and

it's been several years ago, I can't

recall these programs, but that was the

type programs they were.

Q. Do you know who established the

quotas that you mentioned on these

programs?

A. Well, the Chrysler Corporation

established them, but I don't know who.

Q. Were these programs written out?

Were they written in written form?

A. Yes. Yes, sir. Yes, sir.

Q. Your Honor, we would like to

introduce per

(TR. 50]

our stipulation some sixteen programs

that took place over this period of

time.

(TR. 51]

THE COURT: They will be

received in evidence as authentic with

leave to substitute any omissions,

MR. REEVES: Thank you, Judge.

Q. Mr. Payne, you mentioned earlier

that you had been in that location for

approximately since 1955 --

A.» Yes, sir.

Q. -- right before you went out of

business? How old was your facility

there?

A. I'm not sure, but I believe it

was built in 1925 or thereabouts.

(PR. 53]

Q. Mr. Payne, what did they tell you

about the ownership or renting of those

buildings, the facilities for Vestavia

and Roebuck?

A. Well, just in general discussion

they said that they were building --

they built Roebuck first; it was under

construction a long time and it was dis-

cussed from time to time and they just

told me that they were building it and

were going to put a dealer there.

Q. Do you know when approximately

it was built?

A. Well, I don't know exactly, but

it was around '67 or '68, wasn't it?

Q. All right. Now, what about

Bessemer which later moved to Vestavia,

when did they move to Vestavia, do you

remember?

A. Was it '70?

Q. Well, do you have a judgment?

A. It was about that time. I don't

remember exactly.

Q. And was that a new or old facil-

ity?

A. It was a new facility. It was

pretty much the same discussion about

Vestavia that it was about Roebuck.

Q. For these ladies and gentlemen.

who might not be from Birmingham, could

you tell them in general terms where

you're located and then describe if we

(TR. 54]

can, and I will draw where you tell me

to draw, describe on the board where

these other dealers were put in. If we

assume that this is the Birmingham city

limits --

A. Well, you're going east would be

Roebuck.

Q. This would be north right here.

No, that's west. I'm sorry. East would

be Roebuck, right?

A. Yes, sir.

Q. Ali tight.

A. South would be Vestavia.

QO. ek.

A. And west would be Central Motors.

Q. All right. Now, where are you

located?

A. Well, based on the chart, I would

be more or less kind of in the middle of

the circle.

Q. Right here?

A. Yes. I was bottled in from all

sections except the north.

Q. Can everybody see that? Let me

move this over a little bit.

O.K. Now, did the Chrysler rep-

resentatives that you mentioned, Sandusky

and other people, tell you anything about

who owned the Vestavia facility south of

you?

A. Said Chrysler.

(TR. 55]

Q. Did they specify who, what corpo-

ration?

A. No, just Chrysler.

Q. All right, sir. Now, in these --

let's go back to these rebate programs a

minute we were talking about. Did you

participate -- did your company partici-

pate in the rebate programs that Chrysler

sent out?

A. Well, we certainly didn't parti-

Cipate in all of them. I don't remember

whether we participated maybe in one or

two or not, but we didn't participate in

all of them or most of them.

Q. Were you able to -- and what was

the effect of these rebate programs?

Just tell the ladies and gentlemen what

happened.

A. On me?

Q. On your company. What did they

do?

A. Well, they had a -- we were placed

in a disadvantage in a trading position

and it had a demoralizing effect on my

sales force. We made some deals, natur-

ally. We had to sell some automobiles.

But we would possibly have to over-allow

beyond what we normally would on used

cars to make a deal because in some of

those cases the rebates ran from, I would

believe, thirty to maybe two hundred

dollars, maybe more.

(TR. 56]

MR. INGRAM: Your Honor, I'm

going to object to this line of testi-

mony. He's saying they had to over-

allow. He's not testified as to what

Other prices the other dealers were

selling them for. He hasn't testified

On any basis that there was any over-

allowance based on any sort --

THE COURT: Well, that's a con-

clusion.

Q. All right, sir. I'll go into it.

These rebate programs, can you tell the

ladies and gentlemen of the jury what

happened if you got or if you qualified

for the rebate program? What was the

effect of that? Did you get anything

from Chrysler?

A. Yes. You would get a rebate on

the cars that you sold to the retail

customer.

Q. All right. When you say a rebate,

what happened? What was the effect of

that rebate on your company's cost?

A. Well, it would lower the cost of

the car.

Q. The cost of the car you purchased

from Chrysler?

[TR. 62]

Q. What does a customer look for --

well, let me rephrase that question.

When you were selling these automobiles

did you ever have occasion to determine

the price that you would charge the cus-

tomer based upon what you might get back

from the rebate program? Would that

influence the price that you charged?

A. Would that -- the customer?

Q. No. Would it influence the price

that you could charge the customer?

A. Well, yes, because on those

rebate programs if I was not getting the

“=

rebate and the other dealer was getting

it, it would certainly influence it

because he would be actually Owning a

unit cheaper than I owned it.

(TR. 65]

Q. Did you ever participate in what's

known as a stock rebate on old models?

A. Yes, sir.

Q. Can you tell the ladies and

gentlemen how that took place, what type

of program that was?

A. At the introduction of the new

models the Chrysler Corporation would

give us five percent rebate on all new

and unused Chrysler and Plymouth cars

that we had in stock as of announcement

date of the new models.

Q. All right. the didn't have to

reach any sort of quota for that, did

you?

A.-No, sir.

. |

* >

Q. Mr. Payne, you have described

generally to the ladies and gentlemen

what these programs were like, these

rebate programs that we're talking about

today. Can you tell the ladies and

gentlemen whether or not you have a

judgment or knowledge as to whether or

not it hurt your business that you could

not participate in all of those programs?

A. Definitely it hurt our business

when we couldn't participate.

Q. How would it hurt your business?

Just explain

[TR. 66]

it if you can.

A. Well, we would be unable to make

sales. We were not -- we were not in a

competitive situation.

Q. How did that affect the customer

that might be interested in buying a

Chrysler or Plymouth automobile?

A. Well, if I understand your ques-

tion, the customer would buy where he

could buy at the best price.

MR. INGRAM: If it please the

Court, I'm going to object again to this

line of questioning. He makes these

conclusions without any statement of

fact to back them up. I think it's

irrelevant to the issues in this case

and I think it's unsupported conclusion.

THE COURT: I overrule that

objection.

MR. REEVES: I'm sorry, Judge, I

couldn't hear.

THE COURT: I overrule the

objection.

Q. (BY MR. REEVES) Thank you, Judge.

What do you mean, Mr. Payne, when

you said that you couldn't participate in

the plans? I want to try to explain this

as much as we can.

“S

A. Well, I'll try to explain it as

best I can. When we didn't qualify for

the program, we couldn't meet the quota.

All of those cars were bought from

[TR. 67]

Chrysler Corporation by all dealers at

the same price. Now, the dealers that

could meet their quotas and did parti-

cipate in the programs were at a finan-

cial advantage because they were actu-

ally buying cars cheaper from Chrysler

Corporation than we were because when

they sold those cars they were rebated

and in some cases it was as much as two

hundred dollars. Now, I know for a fact

because I was sales-minded, I talked to

and I had been in business a long time,

when I was a much smaller dealer, I did

a lot of retail selling myself, and I

knew a lot of these customers and a lot

of these customers would tell me I can

buy this car at this other dealer for

less money than I'm buying it from you

and I was in an unfair competitive posi-

tion. There was nothing I could do about

it. Another thing that it did, you know,

we worked salesmen on commission. They

would go out and lose business based on

that -- for that reason, and they would

become disenchanted. It was like throw-

ing a wet blanket over them when they

would lose deal after deal after deal.

It's just that simple, that those rebates

put me out of a competitive, or weakened

my competitive position.

Q. And when did your business close,

Mr. Payne?

[TR. 68]

A. May 24th, '74.

Q. And at that time what caused the

closing of the business?

A. Chrysler Credit Corporation

withdrew our line of credit.

Q. ad dheks. Why did they withdraw

it, do you know?

A. Yes, we were out of trust.

Q.. When you say out of trust, what

does that mean for the jury?

A. Well, we had sold some automo-

biles, that when we were unable to pay

for them, our cash flow had stopped and

had gotten to the point that we couldn't

pay for them.

Q. So you just couldn't -- you didn't

have enough money coming in from sales

is what you're saying --

A. That's correct.

Q. -- to satisfy your credit?

A. That's correct, if I may --

Q. Well, let me, if I may -- I don't

want you to volunteer anything. It might

be objectionable.

A. All right.

Q. So let me ask you, Mr. Payne, if

you can tell the ladies and gentlemen

what caused you to not be

[TR. 69]

able to pay for the cars that you owed

Chrysler Credit? What was the cause of

that?

A. Well, I had -- I had run out of

money. I was not able to sell enough

automobiles at enough gross profit to

make money. It was -- that would be the

primary reason.

Q. Did the rebate program have any

‘ effect on your ability to sell at a high

enough margin?

A. It should because again I was at

a traded disadvantage.

Q. How did they affect you is what I

want you to tell the jury? How did they

affect your inability to make sales?

A. Well, they could offer them to

the public cheaper than I could.

Q. Who is they you're talking about?

A. The other dealers, the dealers who

were participating in the prgrams [sic].

Q. When you're talking about in this

area -- let me rephrase that. Who were

your competitors again?

A. Central Motors, Vestavia and

Roebuck Chrysler.

Q. So when you're referring to they

in those dealers, you're talking about

your competitors in Birmingham?

A. Yes, sir.

[TR. 77]

Q. (BY MR. REEVES:) Mr. Payne,

yesterday you had mentioned a little

bit about these rebate programs, incen-

tive programs. Can you tell the ladies

and gentlemen of the jury if fleet

sales -- what a fleet sale is in the

business?

A. A fleet sale is a sale of an

automobile to people who qualified for

wholesale price, so to speak, because

they used several automobiles in their

business.

Q. Were those sales made by you to

different people?

A. Yes.

Q. For instance, whom would your

company

[TR. 78]

sell a fleet to just as an example?

A. Well, Alabama Power Company,

Southern Natural Gas, people of that

type.

Q. Excuse me. I'm sorry. Go ahead.

A... Sag?

Q. I didn't mean to interrupt you.

Go ahead.

A. Alabama Power Company, Southern

Natural Gas, people in that type of

business,

Q. And did these rebate programs

cover fleet sales?

A. No, sir. I don't remember, but

there might at some time have been a

fleet program with a rebate attached

to it, but I don't remember of any, I

don't remember any.

Q. Well, normally then they would

not?

A. No, sir. No, sir, would not.

(TR, 81]

Q. I said, in your opinion, how

much was the good will of the J. Truett

Payne Company in 1955, when you merged?

A. I would say it would be at least

twenty-five thousand dollars, because

that's about what we figured LaSeuer's

good will was at the time we bought

them out, and we had been in business

approximately the same amount of time.

[TR. 84]

Mr. Payne, the rebate programs

that you have mentioned, I wonder if you

could tell us -- I don't know if I asked

you. I may be repeating. But if you

could, tell the jury the effect those

rebate programs had on your competition

with the other dealers you testified that

you competed with.

A. My quotas were high, and we felt

for that reason or for that reason that

we were unable to compete with the other

dealers because we had to sell more auto-

mobiles, some cases in the purchase pro-

grams we had to purchase more automobiles,

and in many cases we just wasn't in posi-

tion to do it, we just didn't feel it

would be a good

[TR. 85]

business to do it, and in many cases we

actually couldn't do it.

Q. Did that affect the price that the

ultimate purchaser in the Birmingham

sales area would have to pay for a

Chrysler-Plymouth automobile?

MR. INGRAM: I'm going to object

to that, Your Honor. It's pure specula-

tion without any further predicate on

that question.

THE COURT: I overrule that

objection.

Q. You can answer it, Mr. Payne.

A. Will you ask the question again?

Q. Will the reporter read that ques-

tion back?

(The last question was read by

the reporter.)

A. I would say no. I can't see where

it would affect the retail customer,

because the rebates in most of those

programs were given to the dealer. They

were not passed on to the customer.

(TR. 86]

CROSS-EXAMINATION

.Q. -Mr. Payne, you have talked about

the fact that you went out of business,

I believe, in May of 1974; is that cor-

rect?

A. Yes, sir.

Q. And I believe you said you lost

your line of credit?

A. Yes, sir.

Q. And that was with Chrysler Credit

Corporation?

A. Yes, sir.

Q. Mr. Payne, isn't it a fact and

you've also alluded to a two hundred

thousand dollar judgment by Chrysler

Credit Corporation against your company;

isn't that right?

[TR. 87]

A. Yes, sir.

Q. Isn't it a fact, Mr. Payne, that

the reason you went out of business and

what happened was that you sold about

two hundred thousand dollars worth of

automobiles and didn't pay Chrysler

Credit for them and that's the reason

you lost your line of credit?

A. At the time that I lost my line

of credit it was the reason.

Q. In other words, you were selling

cars in what they call out of trust;

isn't that right?

A. Yes, sir.

Q. And when that occurred, Chrysler

Credit came in and in effect foreclosed

on your inventory; isn't that right?

A. We assigned our inventory to

Chrysler Credit.

Q. And you ended up owing them some-

thing like a hundred seventy to two

hundred thousand dollars, didn't you?

A. Something like that.

Q. Now, you remember when I took your

deposition, Mr. Payne, and we talked

about your past history as an automobile

dealer in Birmingham, and I believe you

told me that you were the oldest Chrysler

Plymouth dealer in the state, isn't that

right?

A. Yes, sir.

(TR. 88]

Q. And didn't you tell me that you

sold more cars than anybody else in the

state?

A. I would believe that we sold more

Chrys.er and Plymouth cars than anybody.

Q. Now, that being true, when is the

last time you made a profit in your

company, Mr. Payne?

A. We lost money for the last four

or five years that we were in business.

I would say that the last time that we

made a profit was before Chrysler put

these additional dealers in to share this

market with us.

Q. You made a profit in 1968, didn't

you, Mr. Payne?

A. I think so, yes, sir.

Q. And didn't all of those dealers go

into effect prior to 1968?

A. No, sir.

Q. Who didn't?

A. Vestavia was not in.

Q. Wasn't Vestavia the same as

Bessemer Chrysler, and located in

Bessemer prior to 1968?

A. Yes, sir.

Q. All it did was move from Bessemer

to Vestavia,.is that correct?

A. No, sir. Bessemer Chrysler

Plymouth was a

(TR. 89]

very small dealer and had a very small

facility and did a very small business.

When they moved into Vestavia, they moved

into supposedly a million dollar facil-

ity --

[TR. 90]

Q. All right. Thank you, sir. Now,

you said that one of the problems you

had was that Bessemer moved over to

Vestavia, is that correct, and caused

some of your problems?

A. Yes, sir.

Q. Of course, you had no contractual

right, did you, Mr. Payne, to have an

exclusive franchise in that area that

covered Vestavia, did you?

A. Not at this time, no, sir.

Q. And in your mind there was nothing

legally impermissible about Bessemer

moving to Vestavia, was it?

A. Illegal?

Q. Yes.

A. I wouldn't know, sir.

Q. Now, when they moved over there,

didn't they move over there in May of

1971?

A. It was about that time. I don't

remember the exact date.

Q. Now, I'll ask you, after they

moved over

(TR. 91]

there, Mr. Payne, in May of 1971, whether

or not you in fact sold more automobiles

in 1972 than you did in 1971?

A. I don't remember whether we did

or we didn't, but I don't think the

amount of automobiles that we sold would

have anything particularly to do with the

amount of profit we made. Due to

increased competition and tougher com-

petition, we were having to sell those

cars at a smaller gross. So, certainly

when Vestavia, when Chrysler opened up

in Vestavia, it suddenly hampered our

business,

Q. Well, I don't understand that,

Mr. Payne. I want you to explain that

to me. If you are selling more cars

than you were the year before with them

over there in Vestavia, you're not losing

any volume, how is it that that is not

competitive?

A. Well, in 1969, Chrysler changed

the body style of the automobiles. It

wasn't a good year for Chrysler -- I'll

try to answer this as best I can. The

number of automobiles that you sell

doesn't always determine the amount of

gross, of profit that you make because

the more automobiles you sell, the more

it costs to jhandle them. We were trying

desperately to reach our quotas and in

many cases we had to take deals that

under normal circumstances we wouldn't

take

[TR. 92]

due to increased competition,

Q. Mr. Payne, I mean, are you telling

me and are you telling the jury that the

less cars you sell, the better off you

are?

A. No, sir, I'm not telling the jury

that. I'm trying to say that we were

forcing business and when you force

business you cannot force it at a profit,

a good profit or a reasonable profit.

Q. Why were you forcing business?

A. Because I was trying to reach my

objectives. I was trying to sell the

automobiles. I was trying to stay in

business. I was losing money and I was

trying to stay in business.

Q. Well, what did that have to do

with the sales incentive programs, Mr.

Payne, if you were just trying to meet

competition because they were selling

your customers? What's that got to do

with the sales incentive program?

A. Well, on those rebate programs --

I have testified before that it gave the

dealers that could participate an advan-

tage because they owned those cars at a

per unit less cost than I owned them and

it put me at a disadvantage.

Q. Mr. Payne, now, I want to ask you

this. I want to get to that subject

matter. You've testified

[TR, 93]

that it put you in a competitive disad-

vantage, that you lost sales and that

they were underselling you and all this

sort of thing. Let me ask you this.

How many sales did you lose? Do you

have any record of the number of sales

that you lost to another dealer because

of the bonus paid those dealers under

these incentive sales programs?

A. I wouldn't have any record of

that, no, sir.

Q. You don't have any idea, do you?

A. @ think if you would look at

the -- when we started to losing money,

we had been here for twenty-five years

and I think that the fact that when they

moved in these dealers on top of us, I

think that is proof enough that that was

the reason we were losing money.

Q. I'm, not talking about the dealers,

Mr. Payne, I'm talking about the sales

incentive programs. I want to know how

you know and what you have to prove that

you lost sales to another Chrysler

Plymouth dealer because of the bonuses

paid under sales incentive programs?

A. I don't have anything specifically.

That's been several years ago. I can't

remember. I know this, that I was there

every day in the operation of my business

and I knew daily that we were losing

(TR. 94]

business on account of that. I don't

think any dealer could answer that ques-

tion.

Q. That's right, I agree with you,

Mr. Payne, because the only way you could

answer that, isn't it a fact, is if you

were to compare a sale that another

dealer made and see what that individual

bought it for and see what you would have

sold the same car for; isn't that right?

A. I didn't understand the question.

Q. Well, the only way you'd ever be

able to know about that sort of thing is

to go and talk to your competing dealers

and see if they took a customer and used

the bonus rebate, the bonus incentive

program to reduce the price of the car to

the customer; isn't that right?

A. They had the rebate program, we

7 >

did not. So, I maintain that it put us

at a disadvantage. I'm trying to answer

these things as best I can and I won't

change my mind about that.

Q. Well, let me ask you this, Mr.

Payne, and I'll go back to my original

question. Do you have records, do you

have any concrete proof that you lost a

certain sale or a certain number of sales

that you otherwise would have made except

for the bonus program?

(TR. 95]

A. I think it would reflect in our

financial statement. That would be the

only proof that I'd have.

Q. But you don't know of any speci-

fic sales? You couldn't tell me today?

A. At the moment I don't know, but

I knew when it was happening when we

were operating the business. I knew then

because I talked to the customers, many

of them myself. My salesmen complained

of losing business for that reason.

Q. Now, let me ask you this, Mr.

Payne. Another thing you responded to

is that your competitors, the other

Chrysler Plymouth dealers were using this

bonus money to reduce the cost of the

automobiles, is that what you were saying,

to the consumer?

A. I was saying that the rebate pro-

gram reduced the cost of the automobile

to the dealer. I would not know what

happened after then. But my statement

was that it reduced the cost per unit to

the dealer that qualified for the bonus.

Q. Well, I believe it was your testi-

mony also that it wouldn't affect the

retail value of the automobile, the last

thing you testified to, that it would not

affect the retail value of the automobile,

the resell cost of the automobile to the

-*%

consumer?

(TR. 96]

A. To the consumer? I would have no

way of knowing that because I wouldn't

know whether they passed that on to the

consumer or whether they didn't.

Q. Well, you testified -- the last

question Mr. Reeves asked you is whether

or not it would have any effect on the

retail sale of the automobile and you

said no.

A. I wouldn't think so. I still say

it would not.

Q. So, what you're saying is to the

consumer or to the individual on the

street the bonus program is not going to

have any effect in enticing him to

buy from one dealer or another?

A. I didn't say that. It might have

an effect in enticing him to buy the

automobile, but I don't think that

through a rebate program that anybody

particularly benefitted except the

dealers that were qualified for the

program and the manufacturere [sic]

because it helped the manufacturer move

automobiles by giving rebates to those

dealers who did qualify.

Q. Well, Mr. Payne, I need for you

to explain to me that if the purchaser

of the automobile, the retail purchaser

doesn't get any benefit out of it, how

is it going to affect competition? How

is it

[TR. 97]

going to affect whether he buys a car

from you or from somebody who qualified

under one of the bonus programs if the

retail price is not affected by it?

A. I don't think that the retail

customer would actually know. He would

know if he was getting a buy in a car at

a lower price, and if he was buying a car

at a lower price, he would naturally buy

it from the dealer that gave him the low-

est price. That's where I say that the

rebate program was unfair because it was

on a unit basis.

Q. But you told me that the retail

bonus was not used to reduce the price to

the consumer. Now, how is that going to

influence the consumer whether he buys

from you or somebody else?

A. I can't answer that question, Mr.

Ingram. Various advertising gimmicks

are used daily to attract the customer.

Now, how would the customer know whether

he would profit by that or not? He

thinks so because he goes in, I guess,

to look at automobiles. There's programs

now running where you can buy an automo-

bile for one dollar above invoice. Now,

how does the customer, you know, the

retail buyer know that he can buy that

car for one dollar above invoice?

Q. Now, Mr. Payne, isn't it a fact

that the

(TR. 98]

thing that really ended your business

was the fact that you had a very poor

used car operation?

Ris: WBo BS85

Q. It is not?

A. No, sir.

Q. You didn't testify in that depo-

sition that I took that the fact that

your wholesale or that your line of

credit on used cars was reduced is what

put you out of business?

A, I tesified that my, that they

reduced my line of credit on used cars

and we were forced to wholesale the used

cars that we could wholesale and try to

retail the other automobiles. Now, that

was brought about by Chrysler Credit

reducing our line of credit on used

cars.

Q. Mr. Payne, on page 77 of your

deposition, I want to ask you whether

or not Mr. Hairston, the lawyer for

Chrysler Credit Corporation, asked you

these questions and whether or not you

made these responses. "And in 1974,

the year you closed, you owed them six

hundred forty thousand dollars, in 1973

you owed them seven hundred eighty~nine

thousand dollars. Is that what you mean

by your credit, that your credit was

curtailed? Answer: Mr, Hairston, I

have never complained about my credit

being curtailed

[TR. 99]

on new cars, The thing that put me out

of business was when they curtailed my

used car operation, and they never did --

I always had enough new cars to sell.

That's not what I contend at all."

Didn't you say that, Mr. Payne?

A. Yes, sir.

Q. And again on page 78 of your

deposition following that dialogue

we just had beginning at the bottom

of 77. "Question: Well, there wasn't

any real dramatic change in the amount

of credit that you were actually receiv-

ing from Chrysler Credit during the time

you were dealing with them, was it?

Answer: On new cars? Question: On

new. Answer: I don't know. Right

there at the last they might have cut

it some, but that is not my argument at

all. It is the used cars, When they

cut my used car credit, that's what

murdered me." Did you say that?

A. I don't know whether I said those

exact words or not, but I assume that I

did.

Q. And again on page 79 Mr. Hairston

asked you this. "So, you were still

maintaining the same sales level but the

cost of doing business was increasing and

cutting down on your profit picture; is

that right? Answer: Mr. Hairston, this

has come up twenty times before. The

thing that murdered me was that I

? (TR. 100]

would go and sell a new car and trade in

a used car and because I didn't have the

line of credit to put it on my used car

lot, I had to take it would and whole-

sale it. That is what murdered me."

Didn't you say that, Mr. Payne?

A. I assume that I did, yes, sir.

Q. Mr. Payne, in fact, didn't you

attribute the fact that your used car

operation as affected by your line of

credit is what put you out of business?

A. No, sir.

Q. In other words, you didn't mean

what you said in that deposition?

A. That was one of the things that

caused it. The thing that put me out

of business, and obvious from my finan-

cial statements, was the fact that when

Chrysler Corporation built these new

buildings and put in these dealers in

strategic points in the heavily populated

points. That's what primarily put me out

of business. It's that simple.

Q. And it wasn't the sales incentive

program?

A. The sales incentive program was

one of the things that was involved,

There was many things involved, but the

rebate programs were certainly a part of

at.

Q. Now, on these sales incentive

programs, Mr.

(TR. 101]

Payne, are you familiar with them gener-

ally, those that you introduced into

evidence?

A. Most of those programs are differ-

ent. I'm familiar with them to a degree,

yes, sir.

Q. And basically would it be fair to

say that there are two types of programs?

One had a wholesale purchase objective

whereby you had to purchase a number of

cars to first qualify and then you were

paid on cars sold after you qualified.

That's one type, is it not?

A. Yes, sir.

Q. And the other type, as I under-

stand it, was basically a retail sales

program without any wholesale purchase

objective attached whereby you had some

base line objective to obtain and then

if you met that objective or went above

it, you received a bonus; is that cor-

rect?

A. Yes, sir.

Q. Now, as I understand it, and you

tell me if I'm wrong, in order to qualify

for these wholesale, what I call whole-

sale, retail programs where you had a

wholesale purchase objective, basically

what you were required to do was to pur-

chase a given number of cars; is that

correct?

A. Yes, sir.

(TR. 102]

Q. Now, isn't it a fact that in many

of those programs, Mr. Payne, you did

not qualify?

A. That's correct.

Q. In other words, you didn't buy the

automobiles, purchase automobiles?

A. That's correct. In many of those

programs we could not buy it because our

quota, our percentage that they expected

us to buy was unfair, it was unreasonably

high. I maintain that is the reason we

could not participate in those rebate

programs.

Q. You say it's unfair and unreason-

ably high. Do you know how they were

calculated?

A. No, sir, but we were -- I know

this, that we were charged with forty

percent of the sales expectancy in this

area and some of the dealers were down

as low as twenty in those programs, and

that certainly had something to do with

the program.

Q. Now, the dealers you talked about

that had a smaller fair share, they were

younger dealers and they had been in

business less time, had they not?

A. Yes, they had been in business

less time.

Q. And they were located in different

parts of the city. One was in the east,

one was in Bessemer, until it moved to

Vestavia, and one was further west toward

Bessemer than you; isn't that correct?

A. Yes, sir.

(TR. 103]

Q. So y'all were located in different

areas?

A. We were ~-- the sales areas, I

assume, for all the Chrysler dealers were

the same.

Q. And you were in the central down-

town area, that's correct, isn't it?

A. Yes, sir.

Q. All right. And you were sur-

rounded, there were a lot of dealers in

the downtown area?

A. Wee; 6it.

Q. And good, strong dealers, isn't

that correct?

A. Yes, sir.

Q. Like Drennen Motor Company and

Doug Willey Pontiac?

A. Yes, sir.

Q. And a number of them like that

who are really strong dealers?

A. (Nodding head affirmatively.)

Q. Now I want to ask you something

about your fleet sales, Mr. Payne. I

believe you testified that when you

sell a fleet, you get a lesser gross

per unit sold, is that correct?

A. Yes, sir.

Q. All right. And I believe you

also testified that as a general

proposition, these fleet sales did not

qualify under these sales incentive

(TR. 104]

programs?

A. Yes, sir.

Q. Mr, Payne, do you know what

percentage of your business was fleet?

A. Offhand, no, sir.

Q. What if I told you it was around

twenty-four or twenty-five percent of

your volume, volume of new cars sold?

A. Well, that's conceivable.

Q. And if that were true, and they

didn't count toward retail sales for

the sales incentive programs, wouldn't

that have some affect on your earnings

by the sales incentive programs?

A. I didn't understand the question.

Q. Well, if fleet sales do not

qualify under these various sales incen-

tive programs as retail sales for the

purpose of payment, and your business

constituted twenty-five percent fleet

sales, wouldn't that have some affect

On your earnings under these sales

incentive programs?

A. I wouldn't think so.

Q. You say vies stake?

A I would not.

Q. Why not?

. Because the rebate programs were

(TR. 105]

on a per unit basis, and it didn't apply

to fleet.

Q. That's what I'm saying. If you

sold a fleet car, and you couldn't get

a bonus payment on that fleet car, that's

a car you sold, you couldn't get a bonus

on, isn't that right?

A Tes, sic.

Q. And if you had a high percentage

of your retail sales that were in fleet,

that would have an affect on your earn-

ings under our retail bonus program,

wouldn't it?

A. I can't answer that question. I

don't know.

Q. On these bonus programs, Mr.

Payne, and of the number that have been

introduced here into evidence, do you

know on the total how you compared with

the other four dealers in terms of

earnings?

A. No, sir.

Q. Would it surprise you to know

that you were second?

A. I didn't know that I was second,

but if I had been able to compete in

those bonus programs on those rebates,

maybe I would have still been in busi-

ness, if I was second.

Q. And, Mr. Payne, let me ask you

this, on those bonus programs it's your

understanding, is

(TR. 106]

it not, that anyone who qualifies ata

given level receives the same amount of

money per car as anyone else who

qualifies at the same level?

A. Yes, sir.

Q. No difference there?

A. No, sir.

Q. The difference is where you don't

qualify at all or where you qualified at

a lower level, is that correct?

A. Yes, sir.

Q. Now, on the wholesale purchase

program where you':-e required to buy a

number of cars before you could sell,

you said you couldn't buy that number,

you weren't able to buy them. I assume

that's what you said, is that correct?

A. I don't remember the specific

programs, but they could have been a

number of things. We might have been

up to our limit on our line of credit.

We might have been overstocked with

cars at the time. We didn't feel it

was good business to enter into them and

for that reason we didn't. We felt that

we could not afford to for one reason or

the other. There was several things that

would be involved there, and, you know,

after all it's been several years ago,

and I just can't remember

(TR. 107]

each specific program.

Q. Yes, sir, I can: understand that,

and I'm not asking you to do that. But

basically it was an election on your part

not to purchase, isn't that correct?

A. Yes, sir.

Q. Now, you say your line of credit

-- I believe you testified in your depo-

sition that I read that you always had an

adequate line of credit for buying new

cars, did you not?

A. Not always, but most of the time

we did.

Q. And you said that your decision to

enter or not to enter one of these pro-

grams might be affected by what your

inventory was, is that correct?

A. Yes, sir.

Q. And are you aware that in calcu-

lating the wholesale purchase objectives,

the amount of the dealer's inventory is

drawn out of the objective, what he

already has on hand or in transit? Were

you aware of that?

A. I didn't understand your eusntion,

Mr. Ingram.

Q. Well, you said that one of the

reasons that you gave for not entering

one of these wholesale purchase objective

programs is that you may

(TR. 108]

have had a large inventory at the time?

A. Correct.

Q. My question is, do you know that

in calculating your wholesale purchase

objective that Chrysler pulled out from

that your present inventory to reduce

what ordinarily would be your objective

by the amount you already had in inven-

tory? Did you know that?

A. I can't answer that question. I

don't know whether -- I assume that they

did, but I just don't know.

Q. Yes, sir. Now, Mr. Payne, one of

your programs would come out, and isn't

it factually true that one of the dis-

trict managers would usually come by and

explain the program to you?

A. Yes, sir.

Q. And tell you how it operated?

A. BOs. Bids

Q. I mean you had no problem under-

standing the programs?

A. Wo, sir.

Q. Now, Mr. Payne, let me ask you

about -- I'll turn to another line here

that we've been discussing a little bit,

and when you were talking about your

value of your business and your good will,

[TR. 109]

and that sort of thing, I believe you

said you purchased LaSeuer Motor Company

in 1955, is that correct?

A. Yes, sir.

Q. You paid what, forty-five thousand

dollars for it?

A. Yes, sir.

Q. And you are saying half of that

amount to good will, is that correct?

A. Approximately.

Q. Well, what do you base that on? I

mean, how do you make that division, half

good will, half assets?

A. I didn't make that division, What

we bought from LaSeuer Motor Company was

his office equipment and his shop equip-

ment and parts, and I figured about

half ~- when I agreed to pay forty-five

thousand dollars for the business, I

figured that he did not have that many

parts, but it was worth it for me to

get the business and the rest I con-

sidered good will.

Q. Well, are you saying that what

wasn't the value of the parts was simply

a sum you paid him just simply to buy

the business from him or was it good will

or do you know or can you divide

(TR. 110]

them?

A. I'm trying to answer your question.

I just didn't understand that question,

Mr. Ingram.

Q. Well, what I'm asking you is, did

you simply pay him forty-five thousand

dollars to get and buy the business or

were you really paying him for good will?

I mean, was it set out that way in your

agreement?

A. No, sir. Mr. LaSeuer wanted

forty-five thousand dollars for the

business, and we felt that it was --

that we should buy it, and knowing or

feeling that there wasn't forty-five

thousand dollars worth of actual assets

that we were getting, we got none of his

accounts, none of his used cars or

anything like that.

Q. You say feeling. Did you take an

inventory? Did you do anything to deter-

mine what the actual value of the assets

were?

A. Mr. Rawls, who was our business

manager, handled that. It was his opin-

ion that there wasn't enough there to

compensate for the forty-five thousand

dollars, but we felt that LaSeuer had a

good reputation, he had been in business

about the same length of time that we

had been, and we were willing to go on

and buy it.

(TR. 111]

Q. And you did not continue to use

LaSeuver's name in your business?

A. Wo, eif.

Q. All right. What did you do, just

take over? Did he have a building or

anything?

A. Yes, sir.

Q. He had some real property, and

he had parts and equipment?

A. Yes, sir.

Q. Repair equipment and that sort of.

thing?

A. Yes, sir, office equipment and

some shop equipment, but LaSeuer had

taken it -- there had been a Chrysler

dealer there before, and a lot of that

equipment was old and unusable, but

that's actually what happened.

Q. Now, Mr. Payne, you also testified

that at that time that the value of your

business in 1955 was, I believe you said,

seventy-five thousand dollars, is that

correct?

A. I can't testify to the exact

figure, but I would say that that is

reasonably correct, yes.

Q. Isnt't [sic] that what you said?

A. Yes, sir.

Q. Now, did you say that in addition

to that or as a part of that, there was

twenty-five thousand

(TR. 112]

dollars in good will?

A. I would say as a part of it.

Q. As a part of the seventy-five

thousand dollars?

A. I can't answer that question,

What I said was that I felt that we had

been in business for ten years, and that

suddenly our good will -- we certainly

had, in my opinion, twenty-five thousand

dollars worth of good will, having been

in business ten years in the same loca-

tion.

Q. Did you sit down -- have you cal-

culated the value of your business at

that time? 60 you have any figures or

calculations that you arrived at that

figure from at that time?

A. At the time that we made -- that

we merged and bought out LaSeuer, was

that your question?

Q. Yes, sir. Well, or at present?

Have you made any calculations to derive

that seventy-five thousand dollar figure?

A. I still don't understand your

question, Mr. Ingram.

Q. Mr. Payne, let me simplify it for

you.

A. Please do.

Q. You told me your business is worth

seventy-five thousand dollars, and I want

to know how you

[TR. 113]

derived that figure of seventy-five

thousand dollars. I want to see where

you sat down and added up things and

came up with the severnty-five [sic]

thousand dollars.

A. At what time, Mr. Ingram? Which

business are you talking about, at the

time we merged with LaSeuer or at the

time I went out of business?

Q. I'm talking about at the time you

merged with LaSeuer.

A. Well, certainly. we had records to

substantiate it at the time. Now, that's

been twenty years ago.

Q. Yes, sir, that's what concerns

me. YOu are now saying twenty years

later it was worth seventy-five thousand

dollars, but you don't tell me the basis

of the seventy-five thousand dollars.

That's what I want to know. Where are

your calculations to show that it was the

value of seventy-five thousand dollars

or is that just some figure you picked

up out of the air?

A. Mr. Ingram, it would be absolutely

impossible for me to go back twenty years

and tell you exactly what I remember at

the time, that when we made the transfer

we borrowed the forty-five thousand

dollars from CIT Corporation to buy out

LaSeuer, and we had to furnish them with

a reasonable financial

(TR. 114]

statement to be able to borrow the money.

Q. Mr. Payne, I'm talking about the

seventy-five thousand dollars that you

said your business was worth. Now, I

don't know whether you're talking about

your business combined with LaSeuer or

your business before you bought LaSeuer.

A. I'm talking about our business

before we bought LaSeuer out, because

CIT Corporation loaned -- made us a

capital loan to buy out LaSeuer Motor

Company, and it was a forty-five thousand

dollar loan; and it's reasonable to

believe, and I would believe that the

business certainly was worth that or

CIT wouldn't have loaned us the money.

Q. Well, you testified it was worth

seventy-five thousand dollars?

A. I still testify that I think it

was worth seventy-five thousand at least.

Q. But you can't tell me how you got

the seventy-five thousand dollars, I

guess is what you're saying?

A. Mr. Ingram, again this wae twenty

years ago. I would have no way of --

my memory is not that good. I can't

remember exactly what the assets were at

that time. I would believe that it could

have been worth even more money than that,

but I

(TR. 115]

would believe or would have to believe

that it was worth at least that much or

CIT would not have made us a capital loan

to buy out LaSeuer.

Q. But you don't have any present

books and records to reflect that?

A. No, sir, I do not. No, sir, I do

not.

Q. And it's just your best opinion,

I suppose?

A. Yes, sir.

Q. All right. I just want to ask you

a question. I may not have understood.

But when was your present facility built?

A. I'm not sure, but I believe it was

1925.

QO. .'352

A. Or it could have been 1935. I'm

not sure. I wouldn't know.

Q. Now, when you went out of business

in 1974, Mr. Payne, I believe you valued

the present value of your property at

fifty to seventy thousand dollars or the

value of the business at that time?

A. Yes, sir.

Q. Now, I'm going to go through the

same thing we did on the seventy-five

thousand dollars. I want you to tell

me how you got fifty to seventy thousand

dollars?

A. Well, at the time we went out of

business

[TR. 116]

after we had turned over our inventory

to Chrysler Credit, we had some office

equipment, some other equipment and I

would -- we were there -- we had been

in business for thirty years. It was

actual -- actually it was a going concern.

We had not -- the company -- the corpora-

tion was still in existence, and I feel

that the good will alone would have been

worth seventy-five -- fifty to seventy-

five thousand dollars.

Q. Well, now, you say the good will

alone. Let me ask you if you took this

into consideration in figuring that,

Mr. Payne: Now, here you had a business

that hadn't made a profit since 1969;

here you had a business that didn't even

own the building they were in, and the

building was built in 1925 or 1935, and

leased, and isn't it a fact that your

Chrysler franchise agreement says you

can't sell your franchise without the

written consent of Chrysler?

A. That's correct.

Q. Did you take all of that into

consideration in arriving at that figure,

Mr. Payne?

A; Yes, sir, I took it ail into con-

sideration, because a lot of people would

like to have a downtown or Chrysler

dealership, and I would believe

(TR, 117]

that that would be more than a fair price

as far as good will is concerned for a

company that had been in business thirty

years.

Q. And hasn't made a profit in the

last five or six years?

A. That's correct, sir. We made

profit from time to time. Other busi-

nesses, other automobile dealerships

right in the City of Birmingham have gone

for periods of time without making a

profit. Maybe if we had been able to

participate in those rebate programs,

maybe we would have had a better flow of

cash and could have made a profit instead

of having a long losing streak.

Q. And maybe if you had had a better

used car business, you would have stayed

in business, isn't that right?

A. And I'm not trying to get into a

discussion with you, Mr. Ingram. Basi-

cally I believe and I cannot change my

mind that the fact that Chrysler Corpo-

ration came in and put dealers all over

me in new buildings, that participated

in the same occupation that I was parti-

Ccipating in, that I can't help but

believe that that is what put me out of

business. I will die believing it,

because that is the primary reason. I

did all right for twenty-five years

without

[TR. 118]

that competition.

[TR. 123]

REDIRECT EXAMINATION

(TR. 124]

Q. Okay. You also mentioned on your

examination with Mr. Ingram that there

was tough competition in this area, and

that you were having to sell at a smaller

gross profit in order to compete?

A. Tjat's [sic] correct.

Q. Could you in many cases meet the

low price that the other dealers,

Chrysler-Plymouth dealers were offering?

A: Bes Oaks

(TR. 125)

Q. Was this during the rebate pro-

grams that we're talking about?

A. Yes, sir.

Q. Did those rebate programs -- I

think you have said -- let me rephrase

ah.

I think you have said those

rebate programs affected the cost per

unit?

A. They did.

Q. Now, if you had a higher cost

per unit because you didn't participate

in the rebate program, and another

dealer here did participate in it, and

had a lower price per unit, then would

that affect the price at which you could

offer the car for sale to the public?

A. Yes, sir.

Q. So it would affect the price of

the car to the public, is that correct?

A. It could, yes, sir.

Q. Okay. Can you lean back a little,

Mr. Payne. There you go. You were

breathing in the microphone. That's all

right.

Mr. Payne, do you know how many

cars you sold, your corporation sold in

1970? Would that be or would that be

reflected on some document somewhere?

[TR. 126]

A. It would be reflected on a fin-

ancial statement.

Q. You're talking about the dealer

financial statement?

A. Yes, sir.

Q. Do you know whether or not or

did you ever discuss with Chrysler

Corporation whether or not in 1970 your

sales for the Birmingham area amounted

to forty percent of the business in this

area, in other words, what they said was

your fair share?

A. Well, now, that was my fair

share, according to Chrysler Corporation.

We discussed it from time to time, yes,

sir.

Q. That's because you never did --

you could not ever get to that fair

share?

A. That's correct.

Q. During these rebate programs you

told Mr. Ingram that you didn't have any

specific data on each sale that your

company lost. Can you tell us how you

know that your company lost sales because

of the rebate program?

A. Well, your customers would come

into your showroom, and you would lose

the business there. You knew they bought

Chrysler automobiles, because it would be

shown in your registration sheet, and

[TR. 127]

they would tell you, "I could buy this

car over here for less than I can buy it

from you, and I'm going to buy it over

there," and in many cases some of our

customers that we had had for years

bought and then came back to us to ser-

vice the automobiles for them,even for

the free service.

(TR. 134]

GEORGE IGNATIN

(TR. 137]

Q. Can you tell the ladies and

gentlemen of the jury just briefly what

types of programs and what are the

effects and what happens when a dealer

[TR. 138]

participates in those programs in

Birmingham?

A. It's my understanding that this

is a fairly normal procedure in the

automobile industry, at least it is for

Chrysler. They have a regular means of

rebating monies to the dealership. These

are bonus programs, quota programs set

up in which each of the dealers is given

some kind of a planning potential or a

fair share and if they meet or exceed

that, depending on which program, they

then get certain monies back from

Chrysler. Now, the effect of this is to

reduce the cost of the car to the dealers

per unit. The money is paid by Chrysler

in almost all of these programs on the

number of cars that these dealers sell

to final consumers. The dealers pay

Chrysler an equal amount for the cars and

then the effect of this, or of all these

programs, then, is to reduce the cost to

the dealer of the cars that the dealer

buys from Chrysler.

Q. Can you tell the ladies and gen-

tlemen if there is a purchase objective

in most of these programs, and tell them

what that means.

A. In a couple of programs, not most

of them as I recall, there was what we

call a wholesale purchase objective as

well as a retail objective. Now, the

purchase objective refers to the dealer's

(TR. 139]

purchases from Chrysler. The retail

objective refers to the number of cars

the dealer sells to ultimate consumers,

Now, as I say, in a couple of these pro-

grams, not a majority of them, the

dealers have to purchase a certain num-

ber of cars from Chrysler before they

qualify for the rebates which are based

on the sales made to the ultimate con-

sumers.

Q. So, the monies paid are based on

the sales for the most part; is that

correct?

A. Yes. The monies in all cases

except, I think, two where there was a

floor plan involved, and it's not clear

whether that's a purchase or retail,

but in all the cases other than that,

the actual rebate or discount on cost

was paid on retail sales by the

dealership to consumers.

(TR. 191]

Q. Do you have a total figure, Dr,

Ignatin, for the amounts of rebates that

you have figured on your chart in the

last column, the charts, excuse me, that

we were gOing over a little while ago

that shows the total difference over the

four year span for J. Truett Payne

Company?

A. Yes. The total difference between

what -- you mean between what J. Truett

Payne would have received if they had not

been discriminated against?

Q. Right.

A. My figure is eighty-one thousand

two hundred forty-eight dollars and

ninety-four cents.

(TR. 202]

Q. Now, based on your knowledge and

the fact that you have been teaching and

100

dealing in competition and the effects

that price differences have on competi-

tion in a given market, can you tell

the ladies and gentlemen of the jury

ycur opinion of the effect that these

programs that you've charted for us have

On competition in the Birmingham market?

MR. FORMAN: Your Honor, I would

object to that on the grounds he shows no

knowledge of the automobile market, that

he's made any studies in the automobile

market.

THE COURT: I overrule. His

Opinion, the credibility of it is for the

jury.

A. This is, of course, in the form of

some degree of speculation. But we do go

back to economic theory and see what we

would predict would happen from this kind

of a situation. The cost difference to

Payne means that they're paying Chrysler

101

more per unit than the other dealers.

Now, they have to compete with these

other dealers and they have to compete

although they're paying higher costs to

Chrysler for the cars. Now, this has a

two-pronged

[TR. 203]

effect on competition which we would

look for. First, it makes Payne less

able to compete in the selling of cars.

It's normal business procedure and it's

well known that the salesman discounts

off of list price, and the ability of

the sales[man] to discount off of list

price clearly will be related to the

cost of the dealership to the automo-

bile company. So, if you have two com-

panies competing with each other and one

has a higher cost than the other, the

ability of the one company to compete is

less than the other. Now, not only does

102

this impair Payne's ability to compete

with the other company, it also hurts

competition in the sense that the company

enjoying the price discrimination is

insulated from competitive forces and

does not itself have to compete vigor-

ously, which is to say, they're isolated

from the competition that would have

resulted from Payne if Payne had gotten

the equally low price or the equally

high rebate. So, Roebuck or Central,

which in most of these cases were the

ones who received the benefits of these

price discriminations, were insulated

from having to compete as vigorously

with Payne as they otherwise would have

had to.

Q. What effect does that have on the

price of a given product to the ultimate

consumer?

[TR, 204]

A. Well, the predicted effect is that

103

these other companies not having to

compete as hard and Payne not being able

to compete because of this price dis-

crimination, the predicted effect is

that the price that the ultimate consumer

would pay for the goods would be slightly

higher.

Q. Have I asked you, Dr. Ignatin, to

determine from the dealer financial

statements of the J. Truett Payne Company

as best you ond the different cash

flows and revenues over a given period

of time?

A. Yes, I did look at that.

Q. Have you examined the volume of

sales over a period of time from 1967

through 1974 for J. Truett Payne Company?

A. Yes, I have.

Q. Where did you get all this inform-

ation?

A. From the financial statements.

104

Q. Dealer financial statements?

A. Dealer financial statements, yes.

Q. And have you made an attempt --

let me rephrase that question. In the

studies and courses that you are teaching

at the University of Alabama and else-

where, Goes the study of economics get

involved with or do you determine the

going value or the market value of a

going concern in a market,

[TR. 205]

business of selling products in a given

market?

A. Yes, this is a standard question

in many economics courses and finance

courses, the valuation of a business,

yes.

Q. And have you made an attempt to

make an evaluation or give your opinion

as to the market value of J. Truett

Payne Company as of May 28, 1974, when it

105

went out of business?

A. Yes, I have made two attempts. I

have used two methods.

Q. When you say two attempts, you

mean you took two different approaches?

A. Yes, two different methods.

Q. Could you tell the ladies and gen-

tlemen of the jury your opinion as to the

value of the going concern of J. Truett

Payne Company on May 28, 1974?

na OB.

MR. FORMAN: Your Honor, we'd

object to that until he lays an adequate

predicate of what he did.

THE COURT: I overrule the objec-

tion.

Q. You may answer,

A. First let me say the problem

involved is to figure out what J. Truett

Payne would have been worth in May of

1974 as a going concern if they had not

106

suffered the price discrimination which

I have

(TR. 206]

estimated cost them approximately

eighty-one thousand dollars over the

previous four years. Now, J. Truett

Payne lost money in each of those four

years and they would have lost eighty-

one thousand dollars less than that if

they hadn't been discriminated against.

So, the question, then, for me to figure

out is how much was that business worth

as of May, 1974, if they had not been

discriminated against in these programs,

cr which is to say, had eighty-one thousand

dollars more than they actually did.

Now, I used two methods. The one method ~

is a very simple method which I used just

to get a ballpark estimate to see if I'm

going to come to somewhere in the right

place to it. For that I went back to

107

what the business was worth back in 1955

when it opened in the location it was in

in 1974. From conversations with Mr,

Payne, he told me that he bought out

Leseur in 1955 for forty-five thousand

dollars and he estimated that of that

purchase price, about twenty-two thousand

five hundred dollars was goodwill. Now,

goodwill refers to the value of the busi-

ness beyond its physical assets. This

refers to the value of customers and the

good name of the business. Well, at the

time that J. Truett Payne bought Leseur

in 1955, he merged his own business,

which it was itself

(TR, 207]

a going concern into the business, or he

actually did it the other way, he merged

Leseur into his business at a new loca-

tion, and from conversations with Mr.

Payne he said that his business was worth

108

about a hundred thousand dollars at the

time. He was not clear as to what the

goodwill of his business was worth.

Q. Let me give you an assumption or

a hypothetical to take into account in

your answer, Doctor, that assuming that

J. Truett Payne has stated or testified

that his goodwill at that time was

approximately twenty-five thousand

dollars. Could you make an opinion, give

your opinion as to the goodwill of the

company as of May 28, '74?

A. He declared in court that it was

twenty-five thousand dollars?

Q. Yes. I want you to assume that.

A. Now, the estimates I had made the

other day which I gdve to the other

attorneys was that I assumed about a

thirty thousand dollar goodwill involved

for Mr. Payne's business based on what

he had paid for Leseur's goodwill and if

109

his evaluation of his company was a

hundred thousand dollars, that it would

be worth somewhere around thirty thousand

dollars, I started on the assumption

that his

(TR. 208]

goodwill in 1955 was fifty-two thousand

five hundred dollars. Now, you're saying

that it would be, that his part was only

twenty-five thousand. That would reduce

it to forty-seven thousand five hundred

dollars, the goodwill in 1955.

Q. Right. Do you need a calculator,

Doctor?

A. I think I might be able to do this

by hand.

Q. I apologize.

A. It looks like about a twelve

thousand dollar difference.

Q. What is your opinion as to the

market value of the going concern as of

110

May 28, '74?

A. Now, using this first method, I

used a figure of about a four percent

growth in the value of that firm per

year for each of those twenty years,

Now, the method I used was to use a

combination of interest rates and rates

of inflation. Economists use both

methods. It usually depends on which

one is higher and what they're interest

in seeing. I don't feel particularly

strong about either method. They're

both good methods. They're both

accepted methods in the profession. I'm

not prepared to argue that one method

is superior to the other. I prefer using

both. So, I used four percent, which is

just a rough average of the inflationary

and the prime interest

(TR. 209]

rate over that twenty year period.

111

Interest rates tended to be a little

higher than that and inflation tended to

be a little lower than that four percent,

My figures indicated that with my origin-

al estimate of fifty-two thousand five

hundred as the going concern value in

1955, that the firm in 1974 would be

worth about a hundred fifteen thousand

dollars. Given what you just said that

Mr. Payne testified, if the firm started

out at forty-seven thousand five hundred

dollars, that would mean and this is a

guess, I think I need a calculator, you

can use one if you want, but it's going

to be slightly over a hundred thousand

dollars. I don't know if you need preci-

sion on this anyway.

Q. Is that a common and standard

method in your profession as to make

adjustment of a value of the goodwill of

a company over a period of years?

112

A. Yes. It's not the preferred

method, but it is one other method if you

have no other way and it is good to give

you some idea of what kind of estimate

you're coming up with to check your

figures to see if things are happening.

Obviously the value of Payne's business

could have grown more or less than this

four ‘percent average per year over the

twenty years. A better method is the

second method which

(TR. 210]

I used, and this was an attempt to esti-

mate how much money J. Truett Payne would

have earned or lost in each of the four

years after it went out of business.

Q. The second method is also a stand-

ard method in your profession in deter-

mining goodwill and value of a going

concern?

Ae £68.

113

Q. O.K.

A. Now, in 1974, Payne lost twenty-

two thousand three hundred thirty-five

dollars in the four months it was in

business. However, I also determined

that in 1974 they lost sixteen thousand

and thirty dollars due to price dis-

crimination in these rebate and bonus

programs, which means that in 1974 Payne

would have lost a little over six

thousand dollars if it had not suffered

price discrimination in these programs.

Now, they were in business for four

months. I took that figure of about

sixty-three hundred and five dollars and

I multiplied that by three, and that came

to nineteen thousand dollars and I raised

it to twenty because it's easier to

work with and I said let's assume that

Payne would have lost twenty thousand

dollars during 1974 if they had been in

114

business the entire year and had not been

subject to these discriminatory rebates.

All right. 1974 was

(TR. 211]

a very bad year in the American automo-

bile industry. This was the year follow-

ing the Arab oil boycott, the embargo on

Oil sales, the extremely rapid increase

in the price of all forms of energy and

the overall inflation in the country. In

addition, gross national products, the

total dollar value of goods and services

sold in this country in real terms fell

in 1974. So, it was a very bad year for

the whole economy and it was particularly

bad for the automobile industry. Now, in

1975, what would Payne have done? Well,

I related 1975 to '74. '75 was a bad

year for the American automobile industry,

but not as bad as 1974, although Chrysler

had their worst year in their history in

115

1275. This was a disaster year for

Chrysler, in large part, however, due to

overseas operations. Now, what I

figured was that given the fact that '74

was such a bad year with inflation,

with the rising price of gas, with

Chrysler being caught perhaps with the

wrong models or whatever, but in real

bad shape,, that if Payne would have lost

twenty thousand dollars in 1974, he

probably would have lost around ten

thousand dollars in 1975. Now, that

ten thousand dollars loss in 1975 needs

to be refigured back as to its dis-

counted value in 1974,

(TR. 212]

Q. Is that because -- can you tell

the ladies and gentlemen why?

A. As I understand it, what I'm

trying to do here is figure out how

much the firm was worth in 1974 and so

116

losses suffered in 1975 need to be

discounted either by the rate of infla-

tion or the interest rate to figure out

how much the value in 1974 of these

losses in 1975 were.

Q. Okay.

A. Again we're trying to figure out

what the value in 1974 was for losses

or gains in years after 1974. I used

a six percent discount figure. Now,

here again we have three different

figures. We can use the rate of inflia-

tion [sic], we can use the prime rate of

interest or the legal rate, and the

legal rate is six percent. That has

never appealed very much to economists

except coincidentally. We've always

preferred primary or the rate of increase

in the Consumer Price Index. The reason

I use six percent is because that is a

better figure for later years and it's

117

actually over -- this understates the

value of Payne's business, if I use that

lower figure in 1975.

Q. So this would be a conservative

result?

A. Yes, this is a conservative

figure, and

(TR. 213]

I wanted to do it for consistency.

Instead of using like a nine percent in

'75, and then a six percent figure in

'76, I figured I would just use a six

percent figure for both years, even

though this reduces the value of Payne's

business slightly. It's not enough to

make a big difference, though.

Okay. For 1976, what would have

happened? Well, 1976 was a banner year,

this was the best year in Chrysler's

history, this was the best year in the

American automobile history. General

118

Motors made the largest profit they had

ever made. Chrysler made the largest

profist [sic] they had ever made.

American Motors made the largest profit

they had ever made.

To see how well J. Truett Payne

would have done in 1976, if they could

have stayed in business, and I think

they could have stayed in business

because as I said, they suffered

$81,000.00 worth of discrimination, and

their losses in '74 and '75-would have

Only been $30,000.00, so I then went back

to see what J. Truett Payne's best year

was, and coincidentally J. Truett Payne's

best year also was the best year that

Chrysler had ever had prior to 1976, so

the Chrysler Corporation's best year

prior to 1976 was 1968. J. Truett Payne's

best year was 1968.

119

(TR. 214]

In 1968 J. Truett Payne made $36,000 some

odd dollars, a little more than

$36,000.00. Now, how much would that

$36,000.00 that Payne made in 1968 have

been in 1976, recognizing inflation, the

growth of the economy, growth in the

Birmingham area, et cetera? Well, the

method I used again was a conservative

method. I decided to use the increase

in profits that Chrysler itself came up

with between those two years,

Now, Chrysler made approximately

33 percent more in 1976 than Chrysler

made in 1968. It seemed to me then very

reasonable to say that Payne would have

made about 33 percent more in 1976 than

it would have made -- than they made in

'68. So they made a little more than

$36,000.00. I think the exact figure

was $36,800.00 that they made in 1968.

120

I increased that by one-third, and I came

out to a round $50,000.00 is what Payne

would have made in 1976, if they could

have stayed in business until last year,

and of course that has to be discounted

and when I discount that at a six percent

rate for two years, that is a present

value in 1974 of $44,500.00.

Now, the question is, what would

Payne have done in 1977? Well, '77 is a

good year for automobiles, it's a better

year for Ford and Gixticnd Motors than it

is for Chrysler. Now, remember Chrysler

[TR. 215]

had the best year in its history in 1976.

This year they are not doing quite as

well. I believe their sales were off

about twelve percent as opposed t» last

year. So I figured that Payne's profits

and sales probably would have fallen off

for 1977, and so I estimated that

121

although 1977 will be a good year, and

all of the signs are favorable, that the

economy is starting to pick up even

after the bad winter, that Payne still

would have made at least $20,000.00 this

year, and when this was discounted back

to 1974 values that comes out to

$16,792.00 using six percent discount

figure.

By the way, I said the economists

don't usually like the legal six percent

figure. We've got a very nice coinci-

dental situation today. The rate of

inflation is about six percent, the prime

rate on interest is six percent, and the

legal rate is six percent today, so it's

one of those happy coincidences in his-

tory when they all come together to use

the same discounting figure, and there is

some reason to believe. that this will

Stay that way over the next six to eight

122

months.

Okay. For 1978, again we are

trying to figure out what's going to

happen. I suspect that '78 will be

about as good a year as 1977. There

(TR. 216]

will be changes in the American auto-

mobile market, no doubt, but basically

in terms of predictions of what happens

to Gross National Product, the rates of

inflation, et cetera, '78 looks like it

Ought to be a slightly better year than

1977. Looks like it will be --

MR. FORMAN: Your Honor, I'm

going to object to him going any further.

This is pure speculation. He «ven said

he just suspects this.

THE COURT: I sustain with respect

to °78.

Q. All right. Dr. Ignatin, then

based on up through your judgment in '77

123

as to the performance that J. Truett

Payne Company would have had, had it

stayed in business, can you give us

your opinion as to the value of the

company as far as its value as a going

concern in 1974, when it went out of

business?

A. - Okay. Up through 1977, I can

add that, it comes out to about

$32,000.00 in additional value which is

to say $32,000.00 would be the discounted

value in 1974 of the earnings from 1974

through 1977 that Payne would have earned

if they had not been subject to this dis-

criminatory bonus and rebate program,

and if they had stayed in business

through 1977, so that was $32,000 --

approximately $32,000.00

(TR. 217]

I think it comes out to $31,858.00.

Q. All right. What's the --

124

A. Well, that's not precise. That's

more precise than -- somewhere around

$32,000.00.

Q. All right. Now -- r

A. Now, in addition to that, however,

if the firm had stayed through 1977, it

would have been a going concern, and it

would have had a value in 1977. This

would have a value to someone who would

purchase the business.

MR. FORMAN: I object to this.

He's already trying to recover future

earnings, and now he's going to try to

Capitalize future earnings at some arbi-

trary date.

THE COURT: Overrule the objection,

Q. I'm interested right now in get-

ting your value as to your opinion in

1974, I think you're getting to it. I

just want the value and then we can talk

about how you got it.

_———-

125

A. I wanted to go back on that. What

I'm trying to do again is see how much

Payne would have earned or lost over

those next four years, and then the ques-

tion is, what would the value of that

firm have been in 1977, and then try and

discount that back to 1974 values,

(TR. 218]

Q. Okay.

A. So the question is, how much would

this firm be worth in 1977 to a prospec-

tive buyer in the Birmingham market who

wanted to go into business and take over

a going concern which is now profitable

and faced with non-discriminatory rebates

and bonus programs, and what I was assum-

ing then was about a $20,000.00 a year

net profit, that how much is the firm

worth that's makeing [sic] about

$20,000.00 a year, and the answer is we

use a discount figure of ten percent, a

126

conservative figure, and say that the

Capitalized value of that firm in 1977

would have been $200,000.00. That's

what a prospective buyer would be willing

to pay to get an income stream of

$20,000.00 a year.

Q. And then you discount that figure

of $200,000.00 back to 1974 dollars?

A. Discount that figure back into

1974 dollars. Now, again I did the

figure of 1978, $200,000.00 in 1978, at

a six percent rate of discount would

discount to a value of $158,400.00 in

1974. If we discount it back from 1977,

the value of that firm would have been

about $170,000.00, and I don't have it

exactly because --

Q. Well, your best judgment.

(TR. 219]

A. -- my calculator battery went

dead.

127

Q. Your best judgment is what we are

interested in. Approximately $170,000.00?

A. Yes.

Q. Do you take into account at that

time -- you said the value as a goind

[sic] concern would be $170,000.00?

A. Yes,

Q. Do you take into account the los-

ses during --

A. Yes.

Q. -- this time?

A. We take into account the losses

and the gains which would have netted out

to a plus $32,000.00.

Q. Oh, I see. The $32,000.00 figure

is taking into account the losses over

the past five years, and the gains over

the next three?

A. Correct.

Q. Okay. So that's your figure then,

$170,000.00?

= *%

128

A. He had $32,000.00 worth of net

earnings which offset the losses or the

total would be $32,000.00 in 1974 dollars

plus an additional $170,000.00, and

Since these are just rough figures

because of my calculator problem, what

I'm saying is that this method says that

the value of Payne's business in 1974

when he went out of business was right

around

(TR. 220]

$200,000.00. Now, the first method gave

me $100,000.00 That was $170,000.00 plus

the 32.

Q. Oh, I'm sorry.

A. So it should be about $200,000.00.

So these are the two methods. As I Say,

I prefer the second method. I think it's

a more reasonable figure.

Q. Do you think that this method that

I am writing on the board now is the more

129

reasonable method?

A. Yes, that is a more reasonable

method, because it's not based on this

constant gain of value over the twenty

year period between 1955 and 1974.

Q. Now, I want to ask you, you've

been through the methodology and how

economists value companies. Is that

Standard in normal practice’ ‘to value

companies in that method, by that

method?

A. Yes.

Q. And accepted in the practice of

your field?

A. Yes.

Q. I'm sorry, you'll have to speak

up.

A. Oh, yes. Yes, yes, it is,

Q. All right, sir.

MR. FORMAN: Your Honor, I would

like to

130

[TR. 221]

move to strike all of this testimony con-

cerning the going value of the concern

either on the first method or the second

method. It's all based on speculation.

It's one assumption after another. There

is no relation of that to the Birmingham

market, and he says Chrysler may have had

a good year. He doesn't say whether the

Birmingham market is a good market for

Chrysler or a poor market for Chrysler.

He in no way relates anything back to

what was happening here in Birmingham.

THE COURT: Overruled.

[TR. 222]

Q. Just one moment, Judge, I think

I'm about through. |

Doctor, in your opinion as an

economist, did these rebate programs

that you've studied have a good or an

adverse effect on competition between

131

the four dealers, four Chrysler-Plymouth

dealers in those years?

A. Oh, I think it reduced competi-

tion. I think it was an injury to com-

petition. As I said before, it had a

two-pronged effect. It reduced Payne's

ability to compete, and by reducing

Payne's ability to compete, it reduced

the need for these other companies to

compete as vigorously. So it reduced

the vigor of gompetition in the

Birmingham market for Chryslers and

Plymouths.

Q. Thank you. Judge, at this time I

would like to offer into evidence the

exhibits that we have used as summaries

of those programs which we had previously

offered. We identified them all in

Dr. Ignatin's testimony.

THE COURT: All right.

MR. FORMAN: Your Honor, we would

13:2

to object to those, these been no showing,

not even a basic showing that those

dealers are actually in competition, no

showing by this expert that he's

(TR... 223]

made any study along that line.

THE COURT: Overrule the

objection.

CROSS EXAMINATION

(TR. 228]

o Ge. Ignatian, is it «6 fair state-

ment of your testimony that the programs

in which you have concluded that there is

some discrimination, results in some

discrimination of price, are the programs

where you have basically taken the amount

of money which, say, J. Truett Payne

Company made, divided the number of cars

that he sold during the time of that pro-

gram into that figure, and come up with

a payment per unit, and when that payment

133

per unit differs, you have considered

that to be discrimination?

A. Yes. Again, what I did is, I took

the amount of rebate on each car line

group that J. Truett Payne received, and

I divided that by the number of cars that

Payne sold, and that gave me the rebate

per unit that Payne got on that car line

group.

I then went to the other dealers

and took the amount of rebates they got

for each car line group, and divided

that by the number of cars sold in each

car line group, and where there was a

difference, I would then take the dif-

ference in per unit rebate that the other

dealers got, and subtracted what Payne

got on a rebate per unit, and I multi-

plied that by the number of cars sold

(TR. 229]

by Payne, and that was the difference

¢ %

134

between the two, or what I would call

the difference due to the discrimination,

yes.

Q. Okay. The difference in payment,

and you said that was the discrimination?

A. Yes. There was a difference per

unit in the payment Chrysler made to the

dealers.

(TR. 255]

Q. Dr. Ignatin, I believe you've

testified on your direct examination that

you felt these sales incentive programs

had an adverse effect on competition,

one, in a sense, because J. Truett

Payne's salesmen could not, as you say,

discount, could not discount the price

of the cars?

A. As much as --

Q. As much as the other dealers?

A. Uh huh.

- And because you say the other

135

dealers are insulated from competition?

A. Yes, because J. Tryett Payne

could not discount their cars as much as

they otherwise could have. This meant

that the other firms did not have to

discount their cars as much as they would

have had to.

Q. You say the effect of this would

be, the price that the ultimate consumer

would have to pay might be slightly

higher?

A. Yes.

Q. Let me ask you this: do you have

any evidence that the other car dealers

discounted their cars more than J. Truett

Payne Company did during the period '71

through him going out of

[TR. 256]

business, the date he went out of busi-

ness on May 28th, 1974?

A. No, I did not compute that.

g*%

136

Q. Let me ask you this: if the other

dealers took the incentive money and

simply ran it through the corporation

into their pocket, the pocket of the

principal stockholders, what effect would

that have on J, Truett Payne Company?

A. Well, the fact that Payne did not

get the money to run through to its

stockholders, of course, injured Payne,

but their ability --

Q. It injured the stockholders?

A. Yeah. It would injure the stock-

holders of the Payne corporation, if

they didn't have that money to run

through. But it would also reduce the

ability of the Payne people to compete.

I'm not too sure exactly how you

just run that money through. This rebate

is, in fact, a reduction in the cost of

the car that Chrysler is getting from

these dealers.

137

(TR. 257]

A. The point that I am trying to

make is that exactly what these firms do

with it is not at all clear. The effect

as it hits Payne, however, is that they

get a lessened ability to compete.

Q. I don't understand how they have

a less ability. Let's just say the

dealer pays all the -- let's say Roebuck

A. Uh huh.

Q. -- receives more incentive money,

all of his incentive money is paid to his

salesman as, say, a commission.

A. Uh huh.

Q. The price that they are selling

the car for may not be lowered. How is

that going to have an adverse effect on

J. Truett Payne Company?

A. Well, in that case, if they didn't

lower the price -- of course, the

138

salesman can lower the price. The

ultimate deal is worked out between the

salesman, the sales manager and the

customer,

[TR. 258]

and the salesman in selling the car,

Since he's getting more for the car, will

try harder, and one of the methods sales-

man have in the automobile industry of

trying harder is to reduce the amount of

commission they make on the car.

A typical salesman might figure

if he sells the car for $5,000 he will

make $500, this is just hypothetical.

If he knocks the price down to forty-

eight hundred dollars he might make only

$400. -Well, he might just want to do

that. And with this extra money coming

in, of course, he's got the ability to

do that and compete, whereas, the Payne

salesman and the Payne Company does not.

139

Q. But in effect if the other company

did not lower their price, the J. Truett

Payne Company is not going to be

adversely affected by competition, isn't

that a fact?

A. Well, if both companies charge the

same price, then the gross profit would

be different per car. And, yes, it would

hurt Payne. They would be getting less

per car than the other company would by

the amount of that difference in rebate,

(TR. 260]

Q. Doctor, when you gave us your

calculations of the goodwill of J. Truett

Payne Company as of May 28, 1974, you

used two methods?

A. Right.

(TR. 261]

Q. The first method, in effect, you

discounted -- well, let's go through

that.

140

A. O.K.

Q. In the first method, you attempted

to determine the goodwill of J. Truett

Payne Company after the merger between

J. Truett Payne Company and Leseur which

occurred in 1955?

A. Right.

Q. And you said that Leseur, in

talking to Mr. Payne, you decided that

Leseur had twenty-two thousand five

hundred dollars of goodwill?

A. Correct.

Q. Did you see any books or anything

to verify this determination?

A. No.

Q. You say you also had to take

Mr. Payne, Mr. Payne's statement that

the goodwill value of his business was

twenty-five thousand dollars?

A. i took that in court. I had

determined from my own conversations

141

with Mr. Payne that his goodwill was on

the order of thirty thousand dollars.

Q. How did you determine that?

A. That was based on his estimate

that his firm was worth about a hundred

thousand dollars, that when he had merged

Leseur into his company or his firm

(TR. 262]

into Leseur, whichever way it went, that

his firm was worth about twice as much

as Leseur's and that he had paid about

twenty-two thousand five hundred for the

goodwill of Leseur. So, I had estimated

that Payne had around thirty thousand

dollars worth of goodwill in his own

business at the time of the merger. Now,

I understand that in court Mr. Payne had

said about twenty-five thousand dollars.

So, that was about a five thousand dollar

difference between the estimate I had

made and what Mr. Payne himself said in

142

court.

Q. You never made any independent

study of any records to verify that

Mr. Payne's company may be worth twenty-

five thousand dollars, did you?

A. No, I did not.

Q. So, what you did, you then totaled

the twenty-five thousand and the twenty-

two thousand five hundred and came to a

figure of forty-seven thousand five hun-

dred dollars which was goodwill value of

the merged company in 1955?

A. Yes, as an estimate, as a bench

mark, as a bench mark to check on the

other method which I find preferable.

(TR, 264]

Q. Let me ask you this. When the

companies were merged, the name of

Leseur was dropped, was it not?

A. Yes.

Q. Don't you believe that would

143

eliminate some of the goodwill, if not a

large portion of the goodwill attached to

that company?

A. It might. It would depend on

exactly how the merger was done, the

advertising campaign at the time. As I

understand it, Mr. Payne took over the

Leseur Agency and the location. So,

there would be some -- there's a trade-

off in there also that -- goodwill isn't

based on the name in the sense of the

name. When we use the term name, we're

talking about the reputation of the

dealer, and the question would be did

Payne then acquire the reputation of

Leseur when he acquired the company and

the location. _

Q. You have no way of estimating

that, do you?

A. Well, from what he said he paid

for it. Whether he got it was another

144

story.

Q. Whether it disappeared after he

took over would be a different story?

A. It might and it might not. We

don't assume that it disappears just

because he took over. He paid for it.

He assumed it and then he started

[TR. 265]

dealing. Whether it disappeared, I

don't know.

Q. Well, after you made this initial

assumption that it was forty-seven

thousand five hundred dollars as the

goodwill, and that's what it is, an

assumption, you then took a discount

figure of four percent?

A. Yes. It's not a discount figure

in this case. I increased the value by

four percent per year for the next

twenty years until 1974,

Q. And that was based on an

145

inflation rate and the interest rate?

A. Yes, a combination of the two,

a rough average of the two.

Q. Did you take into any considera-

tion in arriving at the four percent

figure the automobile market during that

period, whether it was good or bad, its

ups and downs?

A. Well, this is one of the reasons

why I don't think this method is all

that good and why I used it as a bench

mark. The market went up and down over

the years. He had some good and bad

years over that twenty year period.

Q. How do you know that?

A. Through talking with him and

seeing some of his financial statements.

[TR. 266]

Q. What financial statements did you

see?

A. I saw them going back to, what,

146

1966, I believe, his profit and loss fig-

ures. I believe it went back to '66.

Q. You have nothing between '55 and

A. No, I did not look at them. I

just relied on my conversations with

Mr. Payne.

Q. And-by using this four percent

figure, you determined that the goodwill

of J. Truett Payne Company on May 28,

1974, was a hundred thousand? Is that

your --

A. I don't have my calculator. The

figure I have is a hundred fifteen thou-

sand based on the fifty-two thousand five

hundred that I had done previously.

Forty-seven thousand five hundred times

four percent per year for twenty years

Ought to come out to around a hundred

thousand.

Q. So, to get --

A. About a hundred and two thousand.

I saw somebody

guess around a

Q. And you

to verify your

A. Yes, to

comes out.

147

doing the figure. I would

hundred and two thousand.

used this as a bench mark

next figure; is that right?

see how my next figure

Q. Your next method, your second

method really

(TR. 267]

consists of trying to speculate as to

what the market is going to be over the

next few years?

A. And what the market was in 1974

and how well Payne would have done given

non-discriminatory programs, say,

rebates and quota programs that treated

all dealers equally.

Q. Let me ask you this. Why do you

pick to begin with the year 1974?

A. Well, because that's when we are

trying to figure out what the value of

’%

148

the firm was.

/ Q. Isn't it a standard practice to

look at what the past record of the firm

has been and then capitalize that figure

over some period to determine the going

concern of a business?

A. Yes, that's one method, yes.

Q. In fact, when you explained your

methodology to me, you started with the

year 1973, did you not, in one of your

initial calculations?

A. I don't recall. I'm trying to

think.

Q. Let me ask you this.

A. I think the question as it was put

to me the other day was what was the

value of the firm in May, 1974, and I

said, well, you could figure out, well,

One method you could use is to take 1974

and figure out what the stream of

earnings from that point would be.

149

[TR. 268]

Q. Let me ask you this, Doctor. If

you totaled up -- you have a copy of

Mr. Payne's dealer records or dealer

statements for the year '71 through the

first quarter in '74?

A. Yes.

Q. If you had used those figures and

had deducted from that figure your

eighty-one some odd thousand that you

figure he had payments coming to him,

would you arrive at a loss or a profit

for Mr. Payne over that four year period?

A. He would have lost about thirty

thousand dollars.

Q. In fact, if you use the entire

year of '74, you estimated he lost

another twenty thousand?

A. I showed you that he had lost

twenty-two thousand during the first four

months of '74, but that he had suffered

150

discriminations of about sixteen thousand,

so that for his total year he would have

lost a total of twenty thousand,

Q. The first year -- you started in

'71. Even adding in this figure of

eighty-one thousand that you contend is

his amount he's entitled to in incentive

payments, the first year that you would

show him making a profit would be in

1975?

A. 1976.

(TR. 269]

Q. ‘'75 he lost again?

A. Yes.

Q. That's right, he did, didn't he.

In fact, he lost another twenty thousand

dollars?

A. No. He would have lost ten thou-

sand in ‘75.

Q. And how did you determine he would

have lost ten thousand?

131

A. Well, based on the fact that he

was losing twenty thousand dollars in

1974 on a yearly basis and '75 would

have been a bad year, but not as bad as

'74 given the recovery of the economy

during '75, the reduction in the rate of

inflation and some of the solving of the

problems in the car industry.

Q. You decided that it would be only

half as bad?

A. Yes. '74 was a very bad year.

Everything came together in 1974 to

mess up the American automobile industry.

Q. Did you make a study to see what

was actually happening in the automobile

market in the Birmingham, Alabama area in

1975?

A. No, I did not.

Q. Do you know whether the Birminghan,

Alabama sales area is a good sales area

for Chrysler Corporation or a poor sales

°%

152

area?

(TR. 270]

A. You mean relative to the country

as a whole?

Q. Yes, that's right.

A. From some of the data I've seen,

Chrysler did relatively poor in the

Birmingham area than they did to the

country as a whole, at least in the early

years. I don't have it for 1975.

Q. Doesn't the failure to take that

into account go considerably to your

credibility of this ten thousand dollar

figure you have arrived at as a loss

figure for the year 1975?

A. The ten thousand dollar figure

for 1975 is based on the year 1975 and is

related to the previous years. Now, we

do have previous results for Payne going

back quite a long ways and Payne was a

profitable dealer for many years in the

153

past regardless of how well Birmingham

did relative to the country as a whole.

He did suffering a lot of troubles in

about 1970 and this was when these

programs came in and started affecting

him. My estimate of the ten thousand

loss in '75 was based on the assumption

that these discriminatory programs

ceased to be discriminatory, that they

continued to offer them on a non-dis-

criminatory basis and Payne would then

be able to compete on an equal basis

with the other dealers in 1975 and I

Still thought that he would

(TR. 271]

lose money in '75, but not as much as he

lost in '74.

Q. You say the sales incentive pro-

grams did not have an effect until 1970?

A. No, I did not say that, or if I

did, I did not mean to say it. I did not

154

Study them before that. I was actually

told that I should study them and it was

irrelevant to the case,

Q. The year 1976, you say it's going

to be a banner year for Chrysler and for

the automobile industry?

A. Yes.

Q. And so, then, to determine what

J. Truett Payne Company would have done,

assuming that it would have stayed in

business that long, you looked at what he

did in 1968 which on the information you

have was his best year; is that right?

A. Correct. It was also Chrysler's

best year prior to 1976. So, Chrysler

had the best year in their history in

1968, Payne had its best year in history

in 1968. I don't find that particularly

coincidental.

Q. Let me --

A. Chrysler did have the best year

155

in its history in 1976. It is not

unreasonable to assume that Payne would

have had the best year in their history

(TR. 272]

1976. Just as everything came together

in 1974 to make 1974 a disaster, a lot

of things came together in 1976 to make

it a wonderful year for the American

automobile industry.

Q. Did you make any determination

how the industry did in the Birmingham,

Alabama area on that date? m

A. No.

Q. Did not. Did you make an analysis

to see what the market structure was or

where the locations were for the Chrysler

Plymouth dealers in 1968 as compared to

1976?

A. The change I think is that in

1968 Vestavia or Hall was in Bessemer.

156

Q. That's right.

A. And I believe are still in busi-

ness. They go in and out of business,

Q. Do you feel that the bemnadex of

the dealer from Bessemer to Vestavia may

well have affected what Mr. Payne would

have done, may have prevented him from

making as much profit than in '68?

A. Well, there are two things.

Bessemer did move from Bessemer to

Vestavia. So, if Vestavia were in exis-

tence in 1976 and were in business in

Vestavia, this would take some of the

business away

(TR. 273]

from Payne from that area; however, that

area also is the most rapidly growing

area in Birmingham in terms of both

population and incomes and a very good

area for car sales. The data we have

and the most recent study that was done

157

for the City of Birmingham, which they

didn't like by the way, by Brookins

Institute, I'm sorry, Patelle Institute

in Columbus, Ohio, indicates that almost,

about half of all the population growth

in the Birmingham area since 1970 has

occurred in that part of the county, the

southern part of the county and over into

Shelby County.

Q. Well, if there was a dealer loca-

ted out there at that time, that might

substantially or might very well keep

those people going to that dealership,

wouldn't it?

A. Well, except that the data shows

that Payne did a good part of his busi-

ness in that area and that these people

to a large extent, from a study I have

done involving work habits, these people

do work downtown, and other studies the

macketing men have done indicate that

158 .

people do have this trade-off between

purchasing from dealers near their

house as opposed to where they work,

Generally marketing people feel that a

person would rather on a balance buy

near his place of business rather than

his place

(TR. 274]

of work. What you are saying, though,

is basically correct, there would have

been increasing competition between

Payne and Vestavia in that area, What

I'm saying is that in addition to that,

however, this was such a rapidly growing

area and that this was strong competi-

tion between Vestavia and Payne that

both companies would have benefitted

from this tremendous expansion in popu-

lation and incomes in that area.

Q. And Mr, Payne would have received

fifty thousand dollars in that year?

159

A. The fifty thousand dollars he

would have received would have been

the total from all his sales, not just

those in the southern area. Yes.

Q. The year 1977, a good year, but

not so bad for Chrysler, not as good as

"76?

A. Right.

Q. Where did you get those figures?

A. Out of the Wall Street Journal.

Q. Did you check anything else?

A. Well, the Wall Street Journal

shows car sales, total number of car

sales for each company. It shows profit

levels by quarter.

Q. Isn't the answer to my question

no, you didn't check anything else?

(TR. 275]

A. Other sources?

Q. Yes.

A. No. The Wall Street Journal, they

160

summarize other sources.

Q. But, nevertheless, you decided

you would knock down the profits there

about half, then?

A. I went to twenty thousand dollars,

yes.

Q. And what's the basis of that?

A. Well, it's more than half. I went

from fifty to twenty thousand dollars.

Chrysler sales in the country as a whole

have been falling off. They're about

thirteen percent below, twelve and thir-

teen percent below what they were in

1976. So, I'm assuming that the sales of

Payne would have fallen in '77 relative

to '76 and that the profits would have

fallen more than their sales.

Q. And 1977, you then decided, -- the

Judge cut you off, so you decided to

determine the going concern value of the,

or determine the value of the business in

161

the year 1977?

A. Yes. Judge Lynne said that it was

too speculative to try to predict or

estimate the amount of money that Payne

would have made in 1978, so at that point

I -- I had figured out what I thought

they would make in 1978 and I discounted

that. So, instead

(TR. 276]

I went back and changed and said, well,

what was the value of the firm in 1977

as a going concern if it had stayed in

business until 1977 had it been able to

enjoy these two really good years after

sO many bad years which had hit the

entire industry.

(TR. 277]

Q. Amd [sic] then you decided -- you

assumed that you would be receiving

$20,000.00 from then on?

A. That that would be a reasonable

162

estimation of the future stream of pro-

fits that J. Truett Payne would have

earned, and that this would be a reason-

able figure for a prospective buyer.

Q. Now, isn't the automobile busi-

ness an up and down business, depending

on what the company puts out, what new

cars it puts out?

A. Yes, it's very competitive in

that sense, and it's also based to a

large extent on the general economy,

the health of the economy. You can use

unemployment rates, you can use Gross

National Products or disposable income.

Sometimes we use meeting incomes. We

use a lot of aggregate figures for an

industry like the automobile industry.

Q. And you picked the rate of ten

percent to capitalize those figures?

A. Yes, that's a conservative

estimate. The prime interest rate right

163

now is around six percent. You can

borrow a short term from those banks at

eight percent. Inflation rate is about

six percent. A prospective buyer

figuring that he is going to get about

$20,000.00 a year in profits from the

firm, if he buys into it, would

(TR. 278]

tend to be conservative in his discount-

ing figure in terms of capitalizing the

"value. He would be a little worried

about it, and he would not want to

capitalize it at a six percent figure

which would give him the much higher

rate.

Q. In fact, what risk factor did you

add in for this being an atuomobile

dealership in determining your capital-

ization rate?

A. I didn't add in any specific risk

factor other than what had been taken

164

into account from the previous year's

earnings. Actually I wrote a paper once

indicating that any entering of risk

factors was double counting, because you

already have your risks into your expec-

ted values. In the general literature

On economics and financing there is a

little difference between myself and the

accepted theory in the field. We have

expected value on one axis, and risk on

the other, and yet the expected value has

within it a risk term which is to say in

trying to figure out these risk terms

what we are doing is making a probability

estimate of what the value of the firm

would be or the value of the earnings or

losses would be in a given year, and

part of that risk factor then comes down

to the discount rate that you use which

is to say we then

165

[TR. 279]

discount these back to 1974, and to put

in an additional risk factor on this is

double counting. You're using it twice

rather than just once.

Q. You total all of this up, and you

came to a figure of $200,000.00?

A. Yeah, that's my estimate without

my calculator, which is to say

$200,000.00 in 1977 discounted back to

1974 at a six percent rate of discount

looked to me like it would come out to

about $170,000.00, and I did not figure

that out.

Q. Which is $70,000.00 over what you

had determined the value would be based

on the good will method?

A. That's $70,000.00 more than the

bench mark estimate which I was just

using in order to come up with it.

Q. And what you did on the method

166

you prefer is really that you had to

speculate what the earnings were going

to be in the future, and then Capitalize

that, assuming they are going to earn

twenty thousand dollars forever after

the year 1977?

A. No, based on earnings of

$50,000.00 in 1976, $20,000.00 in 1977,

and a reasonable probability that

$20,000.00 per year with ups and downs

thereafter would be a reasonable esti-

mate of what

(TR. 280]

that dealership would have been worth,

given the non-discriminatory programs,

if Payne could have lasted until then,

that a prospective buyer coming along

at that time would have been willing to

Pay somewhere around $200,000.00 for that

dealership.

167

Leonard J. Piconke

(Tr. 443]

Q. All right. And does that --

we've been talking here for the last

week about a number of sales incentive

programs that are sponsored by the

Chrysler-Plymouth Division of Chrysler

for about 1971 through the first quarter

of 1974, and were you responsible for

the design and creation of those pro-

grams?

A. Yes, we developed them, I

developed them and recommended them to

management.

Q. All right. Now, how long has

Chrysler utilized

(Tr. 444]

sales incentive programs?

A. To my knowledge since the

early 60's we've used various forms of

sales incentive programs.

Q. All right. And what is the --

. &

168

this may be an obvious question but

what is the purpose of the sales in-

centive program?

A. To stimulate our sales organi-

zation, our dealers to sell more cars.

Q. And you say to sell more cars.

In relation to your competitors?

A. That's correct, to gain a

larger share of the market place.

Q. Who are your major competitors?

A. General Motors and Ford.

Q. And where do you stand in

relation to those two automobile manu-

facturing concerns?

A. Well, we are third, obviously

the smallest of the big three. We're

approximately half the size of Ford

and maybe less than a third of the size

of General Motors in terms of our

sales.

Q. Now, can you tell us in terms

169

of percentage of the market, can you

state it that way?

A. We do approximately 16 percent

of the domestic market. General Motors

does anywhere from 52 to 56 percent.

Ford Motor Company does about 27 or 28

percent

[Tr. 445]

of the market,

Q. All right. Now, I want to

direct your attention in general terms,

if I can, to the sales incentive pro-

grams that were utilized during the

period of 1971 through the first quarter

of 1974, and specifically ask you --

I think it's already in evidence, but

whether or not basically two types of

sales incentive programs --

A. Well, we've used really various

types of basic incentive programs. How-

ever, it may be more generally charac-

terizing them. We've had wholesale

170

phases in some and wholesale-retail

programs with the wholesale phase in

some and other programs we've had them

in retail only programs.

Q. And I think the evidence is

that the wholesale-retail programs that

you've described have some sort of whole-

sale purchase objective combined with a

retail delivery objective or retail

deliveries as a criteria for the payment

of bonus, is that correct?

A. Right. We've paid always on

the basis of retail sales and it may or

may not have been tied in with a retail

objective but in many of the programs we

had a wholesale qualification phase.

Q. All right. Without going into

any specific program or without be-

laboring the issue, can you tell us

basically how the wholesale-retail pro-

gram, I call

171

[Tr. 446]

it, works, in general terms.

A. We would first of all fore-

cast a retail for the entire country,

retail sales volume for the entire

country. We would then break that down

to a zone forecast of retail business.

Q. Now by zone you mean sales

zone or sales regions?

A. That's correct. We have 22

zones today to comprise the sales areas

of the United States. We then developed

from that our production forecast and

we then break that down into the zone

forecast of production. In the whole-

Sale qualification phase of our program

we would determine each dealers share of

that retail and of the wholesale that

this individual -- that the dealers

would buy to qualify for the program

and if they purchase what we had re-

quested them to do, they would then be

172

paid on retail sales.

QO. All right. Now, observing a

number of those programs, it appears

that there are levels of rewards or

bonuses under these wholesale-retail

programs, is that correct?

A. Quite often we would have

differing levels of payments to dealers

depending upon their performance against

our objective. In other words, if we

‘asked the dealer to participate by

buying a hundred cars and in a program

period, let's say, maybe three months,

and if

(Tr. 447]

he only bought 80, he could perhaps

participate at a lower level. If he

bought at 100, he would get at somewhat

a higher level and perhaps we might even

have a third level where if he bought

more than what we asked him to buy he

would be rewarded even with a higher

173

level of payment.

Q. All right. We'll get to this

in a minute, but let me ask you, the

wholesale purchase objectives that are

set, of course, in terms of numbers of

cars, won't be equal in terms of absolute

numbers of cars for each dealer, is that

correct?

A. That's correct.

Q. All right. Would it be fair

to say, however, that whatever objective

is set that the same payment is made to

each dealer provided they meet the same

percentage of attainment of that objec-

tive?

A. That is correct. Our attempt

Or purpose in developing any program

was to establish a base line by which

all dealers could participate with

equal ease in the program and then we

would pay based on performance against

174

those objectives.

Q. Now, why do you at times have

a wholesale qualification purchase phase

connected with the retail sale bonus

aspect?

A. Well, the program is designed

to satisfy a

[Tr. 448]

current set of conditions or problems.

Let us say that we foresee a build-up

in inventories developing and we want to

solve that problem, we then project a

program that we feel will help alleviate

the wholesale problem and encourage the

dealer to sell more cars. Basically

Our purpose is always to increase our

level of sales which is really the only

solution or let's say the real solution

to an inventory problem.

Q. All right. When you say you

either have or anticipate an inventory

problem, can't you just shut the factory

175

down or something like that to keep

from having an inventory build-up?

A. Our programs are developed

five months in advance. In other words,

we've got to forecast five months’ in

advance the exact number of cars we're

going to sell. Now, that's humanly im-

possible to do. We'll either guess low

or we'll guess high, so, you know,

you've got to admit that there will be

error to begin with. Those commitments

then in terms of production that we

have forecasted are transmitted to our

suppliers and they set their production

wheels into motion to satisfy our parts

needs for the production that we have

forecasted. If we are to foresee, or

let's say that something happens in the

market place that the retail business

falls off from what we had forecasted

and an

176

(Tr. 449]

inventory develops, to shut our plants

down on a short term is difficult if not

impossible to do. We require anywhere

from two or four months lead time to

shut our plants down. The alternative

obviously is to increase our sales. Also

shutting the plants down creates problems

as well, creates problems for suppliers,

creates problems for our workers, it

creates problems in the communities that

Our people are employed in, so really if

our forecast proves out the most favor-

able kind of solution we could provide

would be to increase our business, in-

crease our share of the market.

[Tr. 451]

Q. Now, aS we discussed, you've

got a wholesale phase of it or wholesale

purchase and then you pay for retail

sales. I mean what is the purpose? Is

it the wholesale to obtain the purchase

177

of automobiles or is it the retail

Sale of automobiles?

(Te. 452)

A. The basis -- the very basic

purpose of every program is to increase

our retail sales activity, for us to get

a bigger share of the market place.

However, and we're willing to lay out

funds to do that. We're willing to

lay out rewards and incentives, carrots

in front of the dealer to get him to

sell more cars. Now, we may also be

looking at a problem with our own inven-

tories or dealer inventories. Our own

inventories where we have cars that are

built at the factory that are unsold or

dealer inventories where we can foresee

the dealer -- his inventories are high

and he will not order cars during this

immediate period of time, to keep our

plants going we would then have a whole-

Sale qualification phase to move those

178

units which we can't stop building and

then if the dealer does that we will

pay him at retail which the purpose is

to get him to sell more cars.

Q. Would it be fair to say that

the payment is made on retail sales,

it's not made on wholesale purchases?

A. That is correct.

Q. And the level of payment basic-

ally is based on the percentage of

accomplishment of wholesale purchases?

A. That is correct.

[Tr. 453]

Q. All right. Could you tell us

before we go into it in any detail,

could you tell us generally what that

formula is?

A. We -- in the development of a

dealer objectives, we take what we call

his rate of travel which is really a

measure of his current sales performance

and we also take a planning potential in

179

this period of time which is a measure

of his expected performance, what we

expect him to sell, and we weight those

50-50, 50 percent each, and develop the

responsibility for each dealer.

Q. All right. Now, so it's a

50-50 formula, as I understand it, 50

percent is based upon what he's actually

doing, his retail deliveries as you call

it, and 50 percent on what he has been

expected to do or

(Tr. 454]

his planning potential, is that correct?

A. That's correct.

(Tr. 460]

Q. And that way it gives an

equal balance to your poor performers

and your better performers, is that

correct?

A. What we're trying to do is give

every dealer an opportunity to partici-

pate in the program because, very frankly,

180

our most successful programs are the ones

where we have the highest participation

of dealers. If we can get 100 percent

of our dealers in the program and they

can all earn money, obviously they are

all selling additional cars and the pro-

gram is extremely successful, so we are

trying at all times to put all dealers

on the same base line so that they all

can participate in the program.

Q. What would happen if instead

of computing it on that basis you just

set a flat number without any relation

to anything, just say buy a hundred

cars, everybody?

A. Well, it would be an unjust

objective because, obviously, for one

dealer a hundred cars is absolutely no

problem and another dealer there's no

way that he could ever participate in

the program. He might sell a hundred

181

cars in six months or a year and we would

be asking him to do it in, say, a three-

month program. It would be unrealistic

to assign such an objective.

(Tr. 462]

Q. Now, I also noticed, Mr.

Piconke, that in some of the programs

that were used during this period of

time that there was no wholesale pur-

chase objective involved,

(Tr. 463]

it was strictly just a retail delivery

objective?

A. That's right.

Q. And many of those appeared to

have some base line, thet is, some mini-

mum performance criteria which equaled

a hundred percent of their objective,

many of them were based on prior perfor-

mance at an earlier time, is that correct?

A. That's correct.

Q. All right. Why do you at

182

times elect to use one and not the

other?

A. The programs again, as I

indicated, are designed to either reach

for more business and to solve current

problems. If we did not see an inven-

tory problem and saw perhaps a market op-

portunity or let's say the dealer sales

in a particular line were backing up al-

though we did not have an inventory pro-

blem, we would run a retail only program

with a retail only objective and reward

dealers again for performance based

against that objective, to help them move

those cars and to help them put interest

in their sales organization to sell that

particular line of cars.

Q. Now, these retail objectives

and those where you did not have a whole-

sale objective, I notice a number of

them are based on some prior performance

183

at some earlier or current period of

time. How did you

[Tr. 464]

select that particular period of time

to use as the measuring rod, so to speak?

A. Well, we were looking for

similar circumstances in the market

place in trying to relate to it. In

Other words, if we ran a program, let's

say, April, May and June, if it looked

like the market conditions of this April,

May and June were very similar to last

April, May and June, we might Simply say

to the dealer, beat last year. It's a

number that he knows, it's a number that

is available to us and easily obtained,

no calculations really are necessary

and we would then ask the dealer to

work against his own performance.

Q. But the period of time selected

as the base measure would have some re-

lation to the period of time in which

184

the program would be in existence?

A. That is correct.

Q. In terms of ability to perform?

A. That's right. We're looking

for the same market situation. I'll

not say we're looking for the market to

be a little softer than last year. We

might say ‘90 percent of last year is,

for example, what you should do and we

would pay at some level of performance

against that 90 percent objective.

[Tr. 468]

Q. Now, once you develop one of

these programs and put them into effect,

how are the dealers notified? I mean,

what information is given to them? How

are they explained the situation?

A. Well, when we launch a program

we send each dealer a letter, very gener-

ally explain the program, and to that

is attached the rules which provide all

of the detailed information about the

185

mechanics of the

(Tr. 469]

program and how the payments will be

made to the dealer, on what criteria.

We also develop instructions for our

zone offices to make them as thoroughly

familiar with the program as we possibly

can and teach them how to calculate the

earnings potential for each individual

dealer. They in turn instruct their

district managers and the district

manager then contacts the dealer and en-

courages him to participate, outlines

the potential earnings in the program

and clears up any possible questions or

impressions that a dealer might have

about the programs.

QO. I notice that during the years,

well, '71 to '74 the numbers of programs

would fluctuate to a degree. Why is

That?

A. Well, we would develop programs

186

based on our needs and the opportunities

in the market place and very basically

we developed programs when there are

changes occurring, either up or down

in the market place. When things are

rather status quo is when it's most

difficult to undertake programs which

will result in increased sales.

Q. I also notice you have a fair

number of programs or a good number

during that period of time? Why is

that?

A. Chrysler Corporation is pro-

bably more aggressive in the market

place than General Motors and Ford. We

(Tr. 470]

are the smallest of the big three, we

have to literally try harder to gain

penetration. We've got to take away

business from General Motors and Ford

to increase our share of the market

Place and we would be expending these

187

funds to encourage our dealers to do

so based on the opportunities that we

saw in the market place.

Q I'll ask you whether or not

one of the purposes of these sales in-

centive programs are to say stir compe-

tition among your Chrysler-Plymouth

dealers in a sales locality?

MR. REEVES: Object to the form of

the question, Your Honor.

THE COURT: I overrule that objec-

tion.

Q. You may answer.

A. It would really be pretty

stupid for Chrysler Corporation to put

monies, and I mean these are substantial

monies. We may spend fifty, sixty mil-

lion dollars, even more, in a given year

on incentive programs. It would really

be pretty stupid for us to spend that

kind of money to simply redistribute the

188

sales that we were already going to get.

Our whole purpose is to increase our

share of the market and that's what the

really entire automobile business is

about, getting a larger and larger share

of the automobile market that exists

and we think these programs have contri-

buted to successes at Chrysler.

‘Te. €733

QO. Now, Mr. Piconke, are these pro-

grams, in your opinion, equally available

to all dealers of Chrysler products?

A. Yes. We go through great pains

and we are very determined to make sure

that all dealers have the best possible

opportunity, equal opportunity to parti-

cipate in the programs because our pur-

pose is to have as many dealers -- we

would like to have all dealers partici-

pate in them.

Q. And I'll ask you again, I

think I've asked you once before, are

189

these programs desiqned either through

mathematical computations or through

some prior performance of the dealer

to be geared to the dealers own ability

to perform?

A. That's correct.

(Te. 475)

Q. Mr. Piconke, with respect to

General Motors and Ford, do you know

whether or not they utilized incentive

programs?

A. Yes, both General Motors and

Ford Utilize incentive programs to

stimulate sales.

Q. Do you know whether or not they

are in the form or in the nature of the

incentive programs that have been used

during this period 1971 through the first

part of 1974?

MR. REEVES: I'm going to object

to that, Your Honor. It's irrelevant.

THE COURT: I overrule that objection.

190

A. Yes, General Motors and Ford

have run programs similar to us in that

they have differing levels of payments

for giving performance and, however, 3

they do differ in one respect. They

usually do not include a wholesale quali-

fication whereas we have often used both

wholesale-retail programs and retail

Only programs and General Motors and

Ford usually use retail only programs.

Q. But they do sponsor programs

that are based upon some set objective

beyond which you must perform

[Tr. 476]

to obtain incentive funds, is that

correct?

A. That is correct, and they pro-

vide differing levels of payments for

those differing performance levels.

Eric W. Lindenberg

(Tr. 526]

Q. Now, I'll ask you where you

191

obtained -- let's take first J. Truett

Payne Company -- where you obtained the

gross profit figure of $252,389.00 there?

A. Okay. I guess first we ought

to identify what gross profit is. Gross

profit is what a dealer develops by selling

his car at retail or at fleet to the

customer. That figure, be it -- let's

use, for example, on one vehicle, it's

$5,000.00 and his cost to that car is

(Tr. 527]

purchased it from Chrysler Motors Cor-

poration at $4,000.00. The difference

between that four and five is a thou-

sand dollars which would be gross pro-

fit. Now, in establishing the cost of

a vehicle, there's a number of things

that go into that. You have salesmen's

commissions, you have get-ready charges,

a number of things that will buila up the

cost of that car besides just what they

192

paid to Chrysler Corporation at the fac-

tory. Okay. The incentive programs

which you've been hearing so much about

are also taken into consideration into

that cost. The normal procedure used and

it is recommended by the Dealer Uniform

Accounting Systems, anf incentive monies

that are paid under these programs on

these particular same cars we're talking

about now are to be a reduction in the

cost of the sale. So if we're talking

about a cost of four, now we've paid a

commission and we've paid a get-ready

charge and we've gotten a fleet incen-

tive as a credit back to that, then we

come up, say, with a cost factor of

$4500.00; so that means that the gross

profit now is $500.00. That is the

figure that shows here. It's the sum of

all of those things as relate to the sale

of new cars.

193

Now, in that figure as well is fi-

nance and insurance income. If they took

this car that they sold for $5,000.00

and financed it through whatever the

credit

(Tr. 528]

source, the bank, Chrysler Credit or

what have you, and they receive an in-

come from selling that contract to

that finance source, thet"s also in-

cluded in gross profit. So gross profit

consists of not only the sale of the

vehicle but any incomes that are derived

from that sale which would be incentive

monies, rebate monies, finance and in-

Surance money, discount charges, all of

these things go into it. Now, I would

like to add the figure as it applies

to two of these dealers --

[Tr. 530]

Q. Would you tell me where the --

how you derived the net income figures?

194

A. Okay. That's another step.

An automotive accounting isn't as simple

as it is in many other retail businesses.

It's quite complicated. You have so

many expenses that fall into the operation

of an automobile dealership where you

wouldn't have it in, say, selling a

hamburger, but the net figure as it

appears here on this exhibit is the net

result of the gross profit that you get

for that sale of that vehicle. Let's

go back to that $5,000.00 car that we're

talking about. We're down to a $500.00

gross profit after everything

(Tr. 531]

was considered. Now, in order for

them to sell that car they have to

develop many other expenses, expenses

for advertising, expenses for having

the facility to sell out of. There's

a number of things that go into this

expense account. So it's a difference

195

between that $500.00 gross figure and

these other expenses that develop the

net. The net is the bottom line figure

in the sale of a new vehicle,

(Tr. 538]

Q. In examining Mr. Payne's

dealership records and his financial

statements, did you observe any areas in

there which appeared to you from your

examination to -- that may have or did

contribute to his decline in profit

picture during this period of time?

A. Yes, I did.

Q. What area was that?

A. Well, there were a couple of

areas, but the primary area was the

used car operation and the used car

operation as it is shown here showed a

considerable less income per unit than

any of the other three dealerships.

You can see that in your average gross

column. The average gross that the J.

196

Truett Payne Company made on a used sale

in the year of '71 up there is $104.00

as opposed to 291, 188 and 232 for the

three other dealers.

(Tr. 539]

So in reviewing the financial statements

and comparing J. Truett Payne Company

operation to that of Roebuck's and Cen-

tral and Vestavia, the primary area falls

into used cars as far as the area that

the dealership lost money in. Now,

there was some variances in the service

and parts division of this financial

statement, but the amounts were rather

insignificant and I'm sure they attri-

buted to his loss, but the primary areas

in this used car operation.

Dr. Martin Geisel

[Tr. 554]

Direct Examination

(Tr. 570]

Q. Now, with respect to the por-

tion of Dr. Ignatin's testimony, Dr.

197

Geisel, dealing with his opinion on the

effect of these sales incentive programs

on competition, and I believe you heard

him testify that he thought it would have

a bad effect in the sense that it would

insulate one dealer because he could use

this money to offset the cost of the

cars and it would disfavor the other

dealer because it would give him an un-

fair advantage. Do you have an opinion

on whether or not these sales incentive

programs as you understand them would

have such an effect upon competition

among the Chrysler-

fete Seti

Plymouth dealers in the Birmingham Metro

area?

A. I do have an opinion.

Q. ‘All right. What is that?

A. My opinion is that these

programs would not have such an effect

and indeed I think the facts show that

198

they did not have such an effect.

Q. All right. I'll ask you

whether or not you made any calculations

with regard to that?

A. Yes, I did.

Q. Let me get a blank piece of

A. Should I describe what I did?

Q. Yes, tell us what you did.

A. All right. What I did was

look over -- for each year from 1971,

1972, and 1973 and then for the total of

the three years I looked at sort of the

total impact of these incentive programs

on the various dealers and by that I

mean I took each year's total incentive

payments to each dealer and divided by

the number of retail units he sold, so

we then have a number which is in terms

of dollars per unit. Okay. How much

incentive money on the basis of his

199

total sales did he get per car?

0. All right. Let me stop you

there. Did you take fleet automobiles

out of it?

A. No. This is just retail

Sales.

Q. Just retail. Okay.

A. The fleet sales, those are

Sales to large volume purchasers and

there are special programs for fleet

Sales that Chrysler has, Ford has, and

I don't know whether G.M. does or not,

but those are separate Programs and a

dealer who sells fleets can qualify

for bonuses in that respect too, and it

would be inappropriate to mix those in

with the --

Q. So you did pull the fleet

sales out?

A. Yes, I did.

(Tr. 577)

200

Q. All right. Now, that's for

the three years, I take it?

A. That's for the three years

separately, that's correct.

Q. Now, let me ask you this

question: Why did you divide the in-

centive earnings over the total units

sold rather than try to divide it into

-- by programs, say, into the units sold

under each program and that method?

A. Well, I don't think there's

anything wrong with looking at individual

programs, but, first of all, you would

expect that there would be some variance

because

[Tr. 578]

the objectives depend on -- in part at

least and sometimes in whole on prior

rate of travel, so some months a dealer

had, sav, an exceptionally good March

last year; well, then, he's got a tough

objective to live up against on the

201

March contest this year, and somebody

who had a bad March last year has got an

easy objective, you know. So you expect

to see from program to vrogram some

variation in who comes out on top and

that's first of all.

Second of all, there are programs,

if you remember those charts, there are

programs of one sort or another going on

most of the time. They don't -- do

not necessarily cover all car lines at

all times, but they cover -- there's

generally speaking some program covering

some portion of the cars, so that a

major amount, a major fraction of total

sales are covered by some incentive pro-

gram.

oF All right. Now, did you make

the calculation for the entire period of

time for those three years?

A. Yes, right. These are just the

202

totals of it by dealer.

(Tr. 580]

Q. No, that's not necessary.

Now, I guess basically what that reflects

is that divided over all of the units,

Mr. Payne or J. Truett Payne was high

on a per unit basis in '71 and '73 and

low in '72, is that correct?

A. That's correct. He was num-

ber one out of four in terms of incentive

payments per unit sold in 1971 and 1973,

In contrast, he was on the bottom in 1972.

Q. When you take that three-year

average he finishes basically ahead of

Roebuck and behind Vestavia about a

dollar to two dollars a car?

A. I would regard all three of

those as being equal, I mean a dollar

is -- it's true, Roebuck is $51.00,

Payne is $52.00 and Vestavia is $53.00.

Q. All right. Now, with respect

to those

203

(Te. $81}

calculations, Dr. Geisel, do you have an

opinion as to the effect that these sales

incentive programs and the bonus monies

paid thereunder would have had on com-

petition arising out of the payment of

incentive money?

A. Yes. In my opinion the --

any cost differentials to the dealers

arising out of this are so insignificant

as ~~ so that the effect on competition

would be nonexistent.

Q. Could you explain that in a

little more detail?

A. Well, what we're talking about

really is a maximum difference between

any of these dealers of $11.00. That's

between Central and Roebuck over the

three years. Okay. So, you know, for

some period -- a short period of time there

may have been bigger differences in one

direction and then the things change and

= %

204

somebody else has an advantage for a

short period of time, but the maximum

difference here is $11.00 between Central

and Roebuck. Okay, and, in fact, three

of the dealers within $20.00 of each

other. It's my opinion that an $11.00

differential on a three, four, five,

$7,000 piece of equipment is a rather

minor negligible factor and that assumes

really that, indeed, that $11.00 would

go directly into the retail price which

it might or might not do. All right. I

don't think many people who lived out

near Roebuck, say, for

(Tr. 582)

whom Roebuck was the natural place to

buy would go to Central for $11.00.

Q. So is it your opinion then

that even if you assume that money was

used to reduce the cost of the car to

the consumer that the amount of differ-

ential between the two would be so negli-

205

gible it wouldn't entice one customer

from one Chrysler-Plymouth dealer to

another?

A. I guess I would be willing to

say that it wouldn't entice one customer

to another in a sense that somebody

might be willing to do that. I just

don't think that's going to be quantita-

tively important. Not very many people

are going to drive ten miles and, remem-

ber, they don't have to but they usually

find it in their interest to have the

car serviced where they bought it.

Dealers tend to favor people who bought

their car there, at least people think

so, so it's not just one trip that

they're going but it's several future

trips as well. I just don't think

there's room for much of that there.

[Tr. 584]

Q. I'll ask you whether or not

you reviewed the dealer financial state-

206

ments for the years 1971, '72 and '73 of

J. Truett Payne Company?

A. I did.

Q. Based on your observations of

those financial statements did you come

to any conclusion or reach an opinion as

to what difficulties that dealership may

have been encountering in its various

departments during that period of time?

(Tr. 585)

A. Yes.

Q. Did you make any calculations

with reference to that subject matter?

A. I did make some calculations.

(Tr. 587]

Q. Okay.

A. So what we see is, after the

first two years in which we had informa-

tion were profitable, from then on, from

1969 on, a period of five years and a

partial sixth year of continuous losses

in the business

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