United States v. National Automobile Dealers Association; Public Comments and Response on Proposed Final Judgment

DEPARTMENT OF JUSTICE

[Civil Action No. 95-1804 (HHG), D.D.C.]

United States v. National Automobile Dealers Association; Public

Comments and Response on Proposed Final Judgment

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

16 (b)-(h), the United States publishes below the comments received on

the proposed Final Judgment in United States v. National Automobile

Dealers Association, Civil Action 95-1804 (HHG), United States District

Court for the District of Columbia, together with the response of the

United States to the comments.

Copies of the response and the public comments are available on

request for inspection and copying in Room 200 of the U.S. Department

of Justice, Antitrust Division, 325 7th Street, NW., Washington, DC

20530, and for inspection at the Office of the Clerk of the United

States District Court for the District of Columbia, United States

Courthouse, Third Street and Constitution Avenue, NW., Washington, DC

20001.

Rebecca P. Dick,

Deputy Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

United States of America, Plaintiff, v. National Automobile

Dealers Association, Defendant.

[Civil Action No. 95-1804 (HHG)]

United States' Response to Public Comments

Pursuant to Section 2(d) of the Antitrust Procedures and Penalties

Act, 15 U.S.C. 16(d) (the ``APPA'' or ``Tunney Act''), the United

States responds to public comments on the proposed Final Judgment

submitted for entry in this civil antitrust proceeding.

This action began on September 20, 1995, when the United States

filed a Complaint charging that the National Automobile Dealers

Association

[[Page 25892]]

(``NADA'') had entered into agreements intended to lessen competition

in the retail automobile industry in violation of Section 1 of the

Sherman Act, 15 U.S.C. 1. The first count of the Complaint alleges that

the NADA agreed to orchestrate a group boycott of automobile

manufacturers to coerce the manufacturers to decrease the discounts

offered to large volume buyers and to eliminate consumer rebates.

The second count of the Complaint alleges that the NADA agreed to

urge its dealer members to maintain new vehicle inventories at levels

equal to 15-30 days' supply. The third count of the Complaint alleges

that the NADA solicited and obtained agreements from member dealers not

to engage in advertising that revealed the dealers' invoice cost, or

cost of buying the vehicle from the manufacturer. Finally, the fourth

count of the Complaint alleges that the NADA agreed to urge its members

not to do business with automobile brokers.

The Complaint seeks injunctive relief that would prevent the NADA

from continuing or renewing the alleged practices and agreements, or

engaging in other practices or agreements that would have a similar

purpose or effect.

Simultaneous with the filing of the Complaint, the United States

filed a proposed Final Judgment, a Competitive Impact Statement

(``CIS''), and a stipulation signed by the NADA for entry of the

decree. The proposed Final Judgment contains a general prohibition

against any agreements by the NADA with dealers to fix, stabilize or

maintain prices at which motor vehicles may be sold or offered in the

United States to any consumer. The proposed Final Judgment also

prohibits the NADA from urging, encouraging, advocating or suggesting

that dealers adopt specific prices, specific margins, specific

discounts or specific policies relating to the advertising of prices or

dealer costs of motor vehicles. Similarly, the decree prohibits the

NADA from discouraging dealers from adopting specific pricing systems

or specific policies relating to the advertising of prices or dealer

cost of motor vehicles. The proposed decree further prohibits the NADA

from urging dealers to reduce their business with particular types of

persons or to do business with particular persons only on specific

terms. It will also prohibit the NADA from terminating the membership

of any dealer for reasons relating to that dealer's pricing or

advertising of prices or dealer costs.

As required by the Antitrust Procedures and Penalties Act, the NADA

filed with this Court on October 11, 1995 a description of written and

oral communications on their behalf pursuant to the reporting

requirements of Section 16(g) of the APPA. A summary of the terms of

the proposed Final Judgment and CIS, and directions for the submission

of written comments relating to the proposed decree, were published in

the Washington Post for eight days over a period beginning September

30, 1995. The proposed Final Judgment and CIS were published in the

Federal Register on October 2, 1995. 60 Fed. Reg. 51,491.

The 60-day period for public comments commenced October 2, 1995 and

expired on December 5, 1995. The United States received one comment on

the proposed Final Judgment, a letter from Mr. Harold E. Kohn, Esquire,

representing Potamkin Auto Center, Ltd. As required by 15 U.S.C. 16(b),

this comment is being filed with this response. (Exhibit A). The United

States sent Mr. Kohn a letter individually responding to his inquiry.

That correspondence is also being filed with this response. (Exhibit

B).

In his comment, Mr. Kohn proposed that the notification that the

NADA is required to provide its members include an additional statement

that group activities by competitors designed to restrict price

competition are illegal, even when those activities are not sanctioned

by the trade association. He also raised concerns about a policy

recently adopted by an automobile manufacturer prohibiting its dealers

from selling automobiles to third-party resellers. Finally, Mr. Kohn

requested an opportunity to be heard before this Court before the final

decree is entered.

The Department has carefully considered Mr. Kohn's comment. Nothing

in this comment has altered the United States' conclusion that the

proposed Final Judgment is in the public interest. The decree is fully

adequate to prevent continuation or recurrence of the violations on the

part of the NADA that were alleged in the complaint. Because the

complaint does not address the activities of dealers acting

independently of the NADA and they are not defendants, it would be

inappropriate to impose on them the additional notification provisions

suggested by Mr. Kohn. Mr. Kohn's concerns regarding conduct by an

automobile manufacturer and its dealers also involve entities that are

not parties to this case and activities beyond the scope of the conduct

alleged in the complaint. The main issue before the Court in this

Tunney Act proceeding is whether the remedies provided in the proposed

Final Judgment are ``so inconsonant with the allegations charged as to

fall outside of the `reaches of the public interest.' '' United States

v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995). Nothing

submitted by Mr. Kohn suggests that the proposed Final Judgment does

not satisfy this standard. Accordingly, the Department urges the Court

to enter the proposed Final Judgment without further proceedings.

Dated: May 8, 1996.

Respectfully submitted,

Robert J. Zastrow,

Assistant Chief, Civil Task Force, Antitrust Division, U.S. Department

of Justice, 325 7th Street, N.W., Room 300, Washington, D.C. 20530.

Certificate of Service

I hereby certify that I cause a copy of the foregoing to be mailed,

first class, postage prepaid, this 8th day of May, 1996, to:

Glenn A. Mitchell, Esq., Stein, Mitchell & Mezines, 1100 Connecticut

Avenue, N.W., Washington, D.C. 20036

Arthur Herold, Webster, Chamberlin & Bean, 1747 Pennsylvania Avenue,

N.W., Washington, D.C. 20006

Robert J. Zastrow.

December 1, 1995.

Mary Jean Moltenbrey, Chief, Civil Task Force II, U.S. Department of

Justice, Antitrust Division, 325 7th Street, N.W., Room 300,

Washington, D.C. 20004

Re: United States of America v. National Automobile Dealers

Association, Civil Action No. 1:95CV01804

Dear Ms. Moltenbrey: Potamkin Auto Center, Ltd. submits this

Comment to address the Proposed Final Judgment (``PFJ'') between the

United States of America (the ``Government'') and the National

Automobile Dealers Association (``NADA'') in the above-reference

civil action. This Comment focuses upon provisions of the PFJ

directed toward eliminating the practice of boycotting of automobile

brokers by dealers, or by manufacturers at dealers' urging.

Potamkin Auto Center, Ltd. (``Potamkin'') owns and operates auto

centers in Westbury, Brooklyn, Manhattan and Nanuet, New York. The

auto centers compete with franchised dealerships for sales and

leases of new automobiles by purchasing multiple brands of new

automobiles from franchised dealers at discounted prices and then

selling directly to the public at highly competitive prices. As

such, Potamkin may be considered an ``automobile broker'' as that

term is used in the Complaint and Competitive Impact Statement filed

with the PFJ in this case.

EXHIBIT A--Civil Action No. 95-1804

The NADA's published encouragement to its dealer-members to

``[r]efuse to do business with brokers or buying services'' was

intended to eliminate price competition by automobile brokers.

Potamkin therefore supports the provisions of the PFJ that enjoin

the NADA from advocating that dealers ``refuse to do business with

particular persons or types of persons.'' PFJ at para. IV.D.

[[Page 25893]]

Potamkin believes that the NADA's advocacy of group boycott

activity has had and continues to have substantial anti-competitive

effects on the market for sales and leasing of new automobiles,

resulting in higher prices for consumers.

For example, on November 1, 1995, American Honda Motors Co.,

Inc., having ``been made aware that some Authorized Honda Dealers

are transferring Honda vehicles to intermediaries which retail or

lease the vehicles,'' implemented a policy that prohibits all Honda

dealers in the United States from transferring new automobiles to

certain third party resellers or leasing companies who operate

showrooms for and/or advertise the sale or leases of new Honda

automobiles. A copy of Honda's July 24, 1995 announcement and policy

statement is attached hereto as ``Exhibit A.'' Potamkin believes

that this policy represents Honda's joinder in the dealers'

agreement to eliminate price competition from automobile brokers.

As the Government states in the Competitive Impact Statement: An

agreement by a trade association or its members not to do business

with other competitors or customers for purposes of restricting

price competition is a per se violation of the Sherman Act.

Competitive Impact Statement at 7

Potamkin urges that this statement (or a similarly worded

statement) should be included in the written notification that NADA

must publish and send to its dealer-members. These dealer-members

should be informed clearly that group activities by competitors

designed to restrict price competition are illegal, whether or not

such group activities are officially sanctioned by the trade

association.

Potamkin respectfully requests an opportunity to appear before

the Court and be heard on this issue, and to present additional

evidence of concerted anti-competitive activities by automobile

dealers and manufacturers.

Potamkin also requests that the Antitrust Division expand its

investigation to include practices such as those in which Honda has

engaged.

Respectfully submitted,

Harold E. Kohn,

KOHN, SWIFT & GRAF, P.C., 1101 Market Street, Suite 2400, Philadelphia,

PA 19107-2924, (215) 238-1700.

Attorneys for Potamkin Auto Center, Ltd.

Via Certified Mail Return Receipt Requested

To: All Honda Automobile Dealers

Date: July 24, 1986

Subject: AHM'S Wholesaling Policy

Enclosed is a copy of the Wholesaling Policy (the ``Policy'').

Beginning November 1, 1995, the Honda Division of American Honda

Motor Co., Inc., (``AHM'') will enforce the Policy in order to

ensure that each Honda dealer complies with AHM's Honda Automobile

Dealer Sales and Service Agreement (the ``Dealer Agreement'').

Although advance notification is hereby provided AHM's position is

that applicable law does not require any advance notice prior to the

adoption, implementation and enforcement of the Policy.

While AHM's position is that the Policy is not a modification of

your Dealer Agreement and that AHM is not required to file the

Policy with State agencies, we have, in an abundance of caution and

to the extent such filing may be deemed to be required, also filed a

copy of the Policy with any appropriate State agencies. If the

Policy is deemed to be a modification to your Dealer Agreement, you

may believe you have certain rights, under applicable state law to

contest the Policy. To the extent required, you are hereby notified

of the existence of such potential rights.

All questions pertaining to this letter and the Policy should be

addressed to AHM's Wholesale Policy Administrator which position is

currently held by Richard Szamborski, Assistant Vice President

Market Operations, Honda Division.

Please acknowledge receipt of this letter and the Policy of

signing and dating the attached Dealer Acknowledgment and returning

the Dealer Acknowledgment to your Zone Sales Office within ten days

of the date of this letter.

Very truly yours,

Richard Coiliver,

Senior Vice President, Auto Sales.

Attachments

.To: All Honda Automobile Dealers in the United States.

Date: July 24, 1996.

Subject: AHM's Wholesaling Policy.

The Honda Division of American Honda Motor Co., Inc. (``AHM'')

has been made aware that some Authorized Honda Dealers are

transferring Honda vehicles to intermediaries which retail or lease

the vehicles. AHM believes that such wholesaling is inconsistent

with AHM's Automobile Dealer Sales and Service Agreement (the

``Dealer Agreement''), which limits Authorized Honda Dealers to

retail sales and retail leases from the Authorized Honda Dealers'

premises and prohibits the creation of additional dealership

locations. AHM also believes that transfers to intermediaries are

detrimental to the best interests of AHM's success in the market,

impair the ability of AHM to provide the highest level of customer

satisfaction, create situations that tarnish the reputation of Honda

and Honda's Authorized Dealers for quality automobiles and service

and lead to lost sales.

Accordingly, Honda adopts the following policy with respect to

transfers of Honda Automobiles by Authorized Honda Dealers to

intermediaries.

1. Definitions

1.1 As used herein, ``Wholesaling'' and ``Wholesale Sales''

shall mean the sale or lease and delivery of new Honda Automobiles

to persons other than (1) the ultimate end user of such vehicles, or

(2) leasing companies that do not operate unauthorized dealerships

(as described more fully below), or (3) another Authorized Honda

Dealer (Transfers of Honda Automobiles between and among Authorized

Honda Dealers are permitted as long as AHM is timely notified of

each transfer and such transfer is consistent with both Authorized

Honda Dealers' obligations to provide appropriate market

representation and accurate reporting to AHM. For allocation

purposes any such transfer will be attributed to the Authorized

Honda Dealer who makes the sale or leases to the ultimate end user).

By way of example, Wholesaling shall include:

(a) Transfer to third-party resellers who sell or lease that new

Honda Automobiles to end user as new vehicles.

(b) Trnasfers to third-party leasing companies that operate (1)

showrooms and/or (2) otherwise engage in sales lease or service

activities typically done by Authorized Honda Dealers.

Included in this classification would be, by way of example,

third-party leasing companies that display new Honda Automobiles on

their premises or hold new Honda Automobiles in stock, advertise for

sale or lease new Honda Automobiles from their premises, or

accessorize new Honda Automobiles for sale or lease to end users.

(c) By way of example, Wholesaling does NOT include (1)

Transfers to third-parties who are and users and are NOT resellers

or lessons of new vehicles, (2) Transfer of used vehicles to any

party for any purpose, (3) Transfers to leasing companies that do

NOT operate showrooms or otherwise engage in sales, advertising and/

or service activities typically done by Authorized Honda Dealers.

The sole function of such leasing companies is to lease cars to end

users who do not wish to lease directly from an Authorized Honda

Dealer. Such companies do NOT display new Honda Automobiles on their

premises, do NOT hold new Honda Automobiles in stock, do NOT

advertise for sale or lease new Honda Automobiles from their premise

and do NOT accessorize new Honda Automobiles. Instead, such leasing

companies are approached by an end user seeking to lease a specific,

full-equipped new Honda Automobile, acquire such a new Honda

Automobile from an Authorized Honda Dealer and lease said new Honda

Automobile to such end user, and/or (4) Transfers of title to

financial institutions in cases in which delivery of the Honda

Automobile is made by the Authorized Honda Dealer directly to the

ultimate end user and the transfer of title to the financial

institution is scary for the purpose of financing sale or lease of

the Honda Automobile.

1.2 As used Herein, ``Honda Automobiles'' is used as defined in

Sections 12 B of the Dealer Agreement.

1.3 As used Herein, ``Policy'' refers to the Wholesaling

Policy.

2. Restriction on Wholesaling

Effective November 1, 1995, AHM will strictly enforce the Dealer

Agreement and require that Authorized Honda Dealers not engage in

Wholesaling of Honda Automobiles.

3. Enforcement of Wholesaling Policy

3.1 Submission of Reports.

Pursuant to Section 7.3 of the Dealer Agreement, the Authorized

Honda Dealer shall submit to AHM reports on a daily basis, which

include the following information:

[[Page 25894]]

(a) The Vehicle Identification Number of each Honda Automobile

transferred, sold or leased by the Authorized Honda Dealer.

(b) The name and address of the person (whether an individual or

business) who has purchased or leased each such Honda Automobile (by

Vehicle Identification Number) in accordance with AHM's reporting

requirements in place at the time of the sale or lease.

(c) The calendar date of delivery to the transfers, purchaser or

leaser of each such Honda Automobile, and

(d) Upon reasonable notice to the Authorized Honda Dealer such

additional information may be required by AHM.

Refusal by the Authorized Honda Dealer to submit such reports

constitutes breach of the Dealer Agreement. In case of such refusal,

addition to the remedy set forth herein, AHM reserves the right to

exercise all remedies permitted by Honda Dealer Agreement for a

material breach thereof.

3.2 Audit of Authorized Honda Dealers.

Pursuant to Section 7.4 of the Dealer Agreement, AHM will

conduct periodic audits of its Authorized Honda Dealers to verify

the accuracy of reports submitted AHM pursuant to Section 3.1

hereof. Audits will be initiated on either of the following basis:

(a) AHM, in its sole discretion may conduct random audits of

Authorized Honda Dealer, no more frequently than once every month,

(b) If AHM receives information from which it reasonably

believes that an Authorized Honda Dealer is engaged in Wholesaling.

AHM will audit the Authorized Honda Dealer's records to determine

whether such information is correct.

Refusal by an Authorized Honda Dealer to permit AHM to conduct

the audits described herein constitutes a breach of the Dealer

Agreement. In case of such refusal, in addition to the remedies set

forth herein, AHM reserves the right to exercise all remedies

permitted by the Dealer Agreement for a material breach thereof.

3.3 Preliminary Finding of a Wholesaling Violation.

AHM shall issue to the Authorized Honda Dealer a preliminary

finding of a violation of this Policy when one or more of the

following events occurs:

(a) The Authorized Honda Dealer makes either an oral or written

refusal to submit the reports described in Section 3.1 hereof,

(b) After written request from AHM, the Authorized Honda Dealer

neglects to submit the reports described in Section 3.1 hereof.

(c) The Authorized Honda Dealer refuses to submit to the audit

describe in Section 3.2 thereof.

(d) Upon audit by AHM pursuant to Section 3.2 hereof, it is

determined that reports submitted by the Authorized Honda Dealer to

AHM are substantially inaccurate in that the Authorized Honda Dealer

has inaccurately identified (by Vehicle Identification Number) the

person (whether an individual or business) who has purchased or

leased one or more Honda Automobiles from said Authorized Honda

Dealer.

(e) Upon audit by AHM pursuant to Section 3.2 hereof, AHM has

reason to believe that the Authorized Dealer has engaged in

Wholesaling, or

(f) Upon other reliable evidence (which evidence will be

described to the Authorized Honda Dealer, AHM has reason to believe

that the Authorized Honda Dealer has engaged in Wholesaling.

AHM will notify the Authorized Honda Dealer in writing of any

preliminary finding of a Wholesaling violation. Such notice will

include a brief description of the basis for the preliminary

finding.

3.4 The Authorized Honda Dealer Response to Preliminary Finding

Final Finding.

The Authorized Honda Dealer will have fourteen (14) days from

notification of any such preliminary finding to contest AHM's

finding in writing by submission of sales data and/or other

information that disproves said finding. Should the Authorized Honda

Dealer fail to contest such finding within (14) days or should, AHM

find that the Authorized Honda Dealers submission does not disprove

such finding, then AHM will issue a final finding detailing the

Authorized Honda Dealer's violation of this Policy.

4. AHM's Remedies in the Event of a Violation

In the event of a final finding by AHM that the Authorized Honda

Dealer has violated the Policy.

4.1 For purposes of allocating vehicles, AHM will adjust the

Authorized Honda Dealer's sales history to exclude retail sales

credit earned on transfers found to violate the Policy.

4.2 AHM will charge-back all incentives paid by AHM related to

translate of Honda Automobiles to violate the Policy; and

4.3 AHM will reduce marketing allowances available to the

Automobile Honda Dealer pursuant to the current AHM marketing

programs and proportionate to the number of Honda Automobiles which

have been found to violate the Policy and/or charge-back all Dealer

Marketing Allowance amounts (or similar payments) paid by AHM

related to transfer of such Honda Automobiles.

4.4 Should AHM issue a second final finding of a violation of

the Policy, then, in addition to the steps state above, AHM will,

(a) Not consider that Authorized Honda Dealer eligible for

additional Honda Automobiles in excess of the standard allocation

for one (1) year thereafter; and

(b) Not consider that Authorized Honda Dealer for any additional

AHM dealership location(s) for five (5) years thereafter.

In the event that AHM issues more than two final findings of

violations of the Policy against an Authorized Honda Dealer, then

the remedies so forth in (a) and (b) of this subparagraph shall be

made permanent.

4.5 Notwithstanding the above, AHM consider any Wholesaling to

be inconsistent with the Dealer Agreement and AHM reserves its

rights to take appropriate action to prevent such Wholesaling.

Moreover, AHM will hold the Authorized Honda Dealer liable for any

expenses or losses that AHM may incur as a result of any Wholesaling

by that Authorized Honda Dealer, including, without limitation,

expenses or losses resulting from (a) AHM's inability to notify

customers of product recalls or other service information and

product liability claims resulting therefrom and (b) consumer claims

including claims in connection with intermediaries installing non-

Honda equipment, providing inadequate service, or making

misrepresentations.

May 8, 1996.

Harold E. Kohn, Esquire, Kohn, Swift & Graf, P.C., 1101 Market

Street, Suite 2400, Philadelphia, PA 19107-2924

Dear Mr. Kohn: This responds to your letter of December 1, 1995,

on behalf of your client, Potamkin Auto Center, Ltd. (``Potamkin''),

concerning the proposed consent decree between the Department of

Justice and the National Automobile Dealers Association (``NADA'').

The proposed decree settles a civil antitrust suit in which the

Department alleged that the NADA, through its officers and

directors, conspired to lessen competition in the retail automobile

industry.

Your letter addresses the notification that NADA must publish

and send to its members to inform them of the decree's requirements.

You ask that it include an additional statement that group

activities by competitors designed to restrict price competition are

illegal, whether or not such group activities are officially

sanctioned by the trade association.

We have carefully considered your comment and have determined

that the decree, along with its notification provisions, is fully

adequate to prevent continuation or recurrence of the violations

alleged in the complaint. The complaint alleged that the NADA

engaged in conduct intended to limit price competition in the retail

automobile sales industry. Accordingly, the prohibitions of the

decree apply to the NADA, its officers, directors, employees and

other persons acting on its behalf. Because the decree does not

apply to the activities of dealers acting independently of the NADA,

we have concluded that additional provisions directed at such

actions would not be appropriate.

Your letter also raises concerns about a recent policy

implemented by American Honda Motors Co., Inc. (``Honda'') that

prohibits all Honda dealers in the United States from transferring

new automobiles to certain third party resellers, a group that would

include Potamkin. You ask that the Antitrust Division expand its

investigation to include these and other related practices.

Your letter states that Honda's policy represents Honda's

joinder in a dealers' agreement to eliminate price competition from

automobile brokers. Based on the evidence available at the time the

complaint was filed, the Department did not initiate a suit against

any automobile manufacturer, and did not allege that any automobile

manufacturer had entered into agreements with the NADA or automobile

dealers. You do not provide evidence that the dealers had such an

agreement or that Honda's action was part of such a conspiracy.

Moreover, unilateral action on Honda's part, unless it constitutes

monopolization or attempted monopolization, is not prohibited by the

antitrust laws. If you have additional

[[Page 25895]]

information about Honda or other manufacturers, the Department would

of course consider it.

Finally, you request the opportunity to appear before the Court

to be heard regarding the decree's notification provisions and to

present additional evidence of concerted activities by automobile

dealers and manufacturers. Under Section 2 of the Antitrust

Procedures and Penalties Act (the ``Tunney Act''), 15 U.S.C.

Sec. 16(b), which governs proposed final judgments such as this one,

the Court may hold a hearing in order to make its determination as

to whether the proposed decree is in the public interest, but is not

required to do so. As discussed above, we believe that the decree

fully redresses the violations alleged in the complaint and that the

addition you propose to the decree's notification provisions would

apply to activities not covered by that decree. Moreover, a Tunney

Act hearing is an inappropriate forum to consider evidence of

alleged concerted conduct that is not addressed in the complaint.

See U.S. v. Microsoft, 56 F.3d 1448 (D.C. Cir 1995). If you are

aware of any such evidence, we encourage you to bring it to our

attention. While we do not believe the hearing you request is

appropriate, we will provide a copy of your letter, along with this

response, to the Court when we file our response to public comments.

I hope this letter responds to your concerns. Thank you for your

interest in this matter and in the enforcement of the antitrust

laws.

Sincerely yours,

Mary Jean Moltenbrey,

Chief, Civil Task Force.

[FR Doc. 96-12775 Filed 5-22-96; 8:45 am]

BILLING CODE 4410-01-M